Paying off your debt is important. Having a solid budget is important too. However, if you don’t invest a part of your money, you will always be chasing your tail to manage your budget and pay off those debts. Why? Because investments have the capacity to grow much faster than your debt repayment schedule or your savings ability. Why is that? Call it the power of compounding interest!
I’ll actually discuss the power of compounding interest in another article as this is a little bit more complex to explain. However, just keep in mind that your investments have the ability to grow much faster than anything else you can own when it comes to personal finance. This is why it is so important to start investing at a early age.
Knowing that you have to invest at a young age is good, but knowing which investment type to start with is much better! So how do you start investing? Which investment products are best? I made a quick reference table to help you determine which kind of investment products you should buy:
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In this table, I have outlined 3 types of investments; mutual funds, ETF’s and pure stocks. As you can see, they each have their strengths and weaknesses.
In my opinion, beginner investors should start with mutual funds. They are more costly in term of fees but they surely are more diversified and easier to trade than ETFs and stocks which are traded directly on the stock market.
Mutual funds are usually sold by financial advisor who should help beginner investors make the right decisions and will also make sure they are diversified enough.
Even though I am not a beginner investor, I still have mutual funds in my portfolio. I choose to trade index mutual funds because they are low in fees and can be traded with a smaller amount of money. Since I am investing periodically, this is the only way I can invest directly in the market without being eaten alive by trading fees.
On the other hand, I also trade a few stocks for pleasure. I have always liked trading and I am doing all right so far ;-).