Managing your Money for Beginners

Most folks earn income from their job, but investing provides a way to potentially build wealth.

When you invest, you are using your money to buy something (real estate, stocks, mutual funds, etc) you hope will increase in value over a longer time period. In other words, use your money to make more money for you.

This additional value is investment income known as a return on investment.

Investing also helps you build a nest egg for retirement.  Learn more about retirement later in this guide.

When most folks think of investing they think of the stock market. There are a many types of securities you can invest in, but the basics are stocks, bonds, and funds:

• Stock are pieces of a company that you own. The pieces are called shares.  
• Bonds are essentially loans. Companies and governments can issue bonds. When you purchase a bond that money provides the funds for a company to expand or a state to fix a bridge, for example. You get repaid over time with interest (usually twice a year) and when the bond matures.
  The bond's maturity date is the date that company or government has agreed to pay back all of your money that you paid for the bond.
• Funds or mutual funds are packages of securities of which you can buy a piece.  The fund manager puts all the money from all the investors to buy shares in different companies or even other funds or bonds offered by a company or a government. 

Investing is not without risk.

Risk is the level of uncertainty regarding the return on an investment and the damage that could arise when those returns are lower than expected.

Unlike a checking or savings account, investments are not insured.  It is possible that you may lose all the money you put into an investment.

There is something called risk tolerance. That is your ability and willingness to accept risk. Your age, income, and the types of investments you choose affect the amount of risk you are willing to accept.  Most people's tolerance for risk changes over their life.

Stocks, in general, are the most risky, followed by funds, and then bonds.  Even Corporate Bonds, for example, can be much more risky than say a treasury bond from the US Federal Government. Research carefully.

Learn you risk by taking one of the the assessments below. 

Once you have determined your risk and if you have the means, you can start investing right now.  When you are ready, here are some next steps:

• Opening a trading account -- You can open an account with an online brokerage and start trading by yourself. This approach takes a lot of of time and effort with researching and planning. If you are new to investing, and do not have a lot of free time this is not the best option. Also there are still fees associated with trading online.
• Hiring a broker/financial adviser -- You can hire a licensed professional either a broker or adviser.  Sometimes a professional can be both. Depending on how they are licensed an investment professional can not only give you strategies, but also make investments on your behalf.  
• Opening a retirement account -- You can open an IRA or individual retirement account by talking to an Investment adviser. See more in the Planning for Retirement tab.  

There are a number of free resources on the web you can use to teach yourself the basics of investing:

We have a number of resources that you can use from home with your Boston Public Library card: