Investing for Beginners
Updated January 1, 1 . AmFam Team
Putting money aside is not just a financial investment, it’s an investment in you and your future. For this, you deserve a pat on the back!
But when you first start investing, it can seem a bit daunting and confusing. We’ve come up with some definitions and tips that might clear the waters a bit and help you start saving for your ever-growing dreams.
Investing is for everyone. The first thing to remember is that investing is not only for the young or the wealthy. Investments are a tool with a goal of building financial assets. No matter how much money you have or what age you are, everyone can benefit from investing wisely.
Variety of investments. When you think of investing do you instantly think of the stock market? How about investment properties? Maybe you’re thinking of investing in a business venture? There is no reason to box your investment outlook into one area. Consider diversifying — that is, using several different investment vehicles.
Common investment definitions. As mentioned above, there are a wide variety of ways to invest but the most common ones are stocks, bonds, cash, and mutual funds and/or ETFs. Let’s take a brief look at each of these and define them.
- Stocks. When you buy stock in a company you have a little bit of ownership. If the company does well, then the value of your stock will go up and if they do poorly, your value goes down. Stocks are very popular because there is the potential for the company to do extremely well, which would lead you to earning money off of your investment! Of course there is a loss potential as well, but it’s all about evaluating the risk and making smart, informed stock buying decisions.
- Bonds. Bonds and stocks are often lumped together but they are different investments. With a bond you are still investing in a company but you don’t own any part of it, instead they are taking out a loan from you (and all other bond holders) and then paying you back with interest. It’s less risky than buying stocks but may have a lower return.
- Cash. Cash investments are savings accounts, money markets and certificates of deposit (CDs). This is a very safe way to invest but the return on your investment will be low, building slowly over time.
- Mutual funds and ETFs. Mutual funds and exchange traded funds (ETFs) work in much the same way. Instead of putting your money into one company, a pool is created of different companies and different investment vehicles. The thought is that by diversifying the elements in the fund you can find a level of risk and return that is comfortable for you.
Seek advice and keep learning. Investing can be very complex so it’s wise to reach out to a professional for advice on what types of investments to make and how much to put into them. Then take what you’ve learned and keep educating yourself so you can make smart decisions about your investment portfolio.
Now that you’ve got a bit more information, it’s time to get started! You’ll be glad you took smart steps to build your finances and fuel your dreams.
This article is for informational purposes only and based on information that is widely available. This information does not, and is not intended to, constitute legal or financial advice. You should contact a professional for advice specific to your situation.
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Can Student Loans Affect Buying a House?
Typically, student loan debt doesn’t prevent you from getting a mortgage. The biggest thing to note is that student loan debt does influence your debt-to-income ratio, which is a factor lenders consider before giving you a loan. It can also affect the interest rate you pay on your mortgage.
Buying a house with defaulted student loans
If you’ve defaulted on your student loans, it’ll be more difficult — but not impossible — for you to get a mortgage. Because defaulting negatively affects your credit score, lenders will be less likely to want to give you a loan or will charge a much higher interest rate on a loan.
Getting a home loan with student loan deferment
If you’ve deferred your student loans, this usually won’t affect your chances of getting a mortgage. Just be sure to consider how the future estimated payments will factor your debt-to-income ratio. Some types of mortgages may reject applicants with deferred loans, so do your research on the different types of mortgages before shopping.
Should You Pay Off Student Loans Before Buying a House?
Buying a house is expensive, there’s no doubt about that. It can seem smart to hold off on house shopping while you still have student loan debt, and it can be even more difficult to save for a house if you’ve got a high debt-to-income ratio. But if you have enough income to handle the payments for both, you may want to consider investing in your first home.
Signs You Should Pay Off Student Loans
When considering whether to pay student loans or save for a house, there are a few factors that can help you decide if paying off your student loans should be a priority.
Your debt-to-income ratio is too high
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You’ve defaulted on your loans
Defaulting on your loans has a severe negative impact on your credit score, which tells lenders that you’re a bigger risk to take on. Work on improving your credit score before shopping for a mortgage.
You’re struggling to make payments
If you feel like you’re living paycheck to paycheck or struggling to make payments on your loan every month, it’s best to hold off on saving for a house. Need help keeping track of your student loan payments? Try our student loan payment tracker to get organized.
You haven’t saved for a down payment or emergency fund
Before you start picking out which houses you want to tour, you should take a look at your savings. If you don’t have enough for a 5 to 10 percent down payment or enough as an emergency fund for home expenses — like a broken dishwasher or damaged roof — take more time to put money away for your first home.
