Financial Literacy and Investing – 6 Simple Tips

Personally this post is a tricky subject for me as every person holds a

Financial Literacy and Investing
Photo: Wikimedia Commons

different investment attitude when it comes to risk tolerance, but I will do my best to explain why investing is important.  Investing is the next phase in the definition of financial literacy.  You might be asking, “How does investing relate to financial literacy?”

I asked the same question and then I realized it, investing, is part of money management.  And in today's world of paltry interest rates from savings accounts, you almost have to place a certain percentage of your money in an investment to get more passive income.  For a refresher on the difference between active and passive income, please click this post.

An investment adviser I am not.  If I was, I would be more than happy to tell you what the next hot stock would be so we could have our own island mansion somewhere.  In the meantime, I will impart my wisdom.

I personally lean towards mutual and index funds due to their diversification and lower level of volatility & given my limited budget I can get a little exposure in several sectors (i.e. Large Growth, Small Blend, Large Cap International Value).  I do own some individual stocks as well that I plan to hold long-term as they yield dividends.  If you read any investment literature, stocks will historically yield higher returns than mutual funds.  But

In today's corporate environment, you pretty much need to invest some portion of income into a retirement account like a 401k, IRA, or TSP as virtually every employer has moved away from pensions.  None of us should rely on social security to pay the bare necessities once we reach retirement age.  As a result you will have money in various mutual funds and possibly individual stocks.

**I recommend talking to an investment adviser of your choice and/or reading several types literature from a library or bookstore so you can become more literate in this sector. **

So here are 6 simple tips I have for investing wisely:
  1. Invest at least 10% of income into a retirement account (invest at least enough to get the full employer match as that is free money).
  2. Invest in a non-retirement account.  Keep debt repayment in consideration, but allocate another 5-10% of income for non-retirement investments to increase passive income that you can access before the age of 59 1/2 years young (the earliest you can withdraw from retirement accounts).
  3. Utilize the retirement calculators on a brokerage website to easily estimate how much you need to invest each month to reach your retirement goal.
  4. Choose mutual funds or index finds with low fees. (Some funds might be worth the transaction or load fee, but check the expense ratio as that is deducted from any gains you receive.)
  5. Consider individual stocks that yield dividends (Mutual funds offer broader diversification & less volatility albeit with historically lower yields, but a stock like Proctor & Gamble* offers a quarterly dividend that might work for your investment strategy).
  6. Setup automatic investments to eliminate urge to “Time The Market.” Remember that you will not get rich overnight with investments, they require lots of patience and research.  You cannot time the market & will not really know what it will do from one day to the next, so do your best to make a plan with goals and stick with it.

 

There you have it.  Thank You For Reading My Post and please feel free to browse the rest of Moneybuffalo.com where we are always happy to show you the way to Financial Freedom!!!!

Josh

*For disclosure, Proctor & Gamble (PG) is one of the individual stocks I currently hold because of the dividend but also as exposure to the consumer staple sector.


Josh founded Money Buffalo in 2015 to help people get out of debt and make smart financial decisions. He is currently a full-time personal finance writer with work featured in Forbes Advisor, Fox Business, and Credible.