Investments are dollars placed in something that you anticipate will earn additional money over time. Purchasing a home or other real estate where the value is expected to increase over the long-term are investments. While putting money in a savings account is an investment, most savings accounts yield small growth that is usually less than inflation. Many investors are looking for high-yield investments that will outpace typical savings accounts and inflation over the long term. Although investments are intended to grow in value, there is no guarantee and investments carry the risk of losing money if they don’t perform as anticipated.
For many people, they think of the stock market when they hear the word “investing.” The stock market is a place where shares – or pieces of ownership are traded by investors who buy and sell stocks. These stocks may be part of a portfolio – what you own – that represents a retirement account, an education account or investment accounts to build wealth. Investors at PERA manage a portfolio on behalf of our members. Information on how the investments are managed for the Defined Benefit plan as well as the Defined Contribution and PERAPlus plans can be found online. Unlike a savings account which tends to be a short-term, easily accessible investment, your investment portfolio is part of a long-term investment strategy.
To balance your risk with growth, investors typically diversify their portfolio with a mix of lower-risk and lower-yield investments such as bonds, and higher-risk investments such as stocks that are likely to increase in value – but could also decrease in value. How portfolios are diversified depends on how much risk an investor is comfortable with and when those funds may be needed. Often the portfolio is adjusted to reduce risk as the time nears when the investor will need the cash, such as when they retire.
Wealthsimple recommends that you ask a few questions to determine if you’re ready to start investing:
- Do you have a lot of credit card debt?
- Do you have an emergency fund?
If you carry a lot of credit card debt, you may not be in a position to start investing because your debt is likely to outpace the money you make investing. If you don’t have an emergency fund, you could face hardships or financial ruin if you lose a job or have significant unexpected expenses.
When you’re ready to invest, you can start small. There are investment apps that allow you to invest a few quarters at a time; banks often allow you to set up small automatic transfers from your checking account to investment accounts; or you may want to invest your tax refund. Also consider diversifying what you invest in from the beginning. Rather than picking one stock and hoping it does well, diversify your investment. This helps to reduce the risk of losing everything if one stock doesn’t perform well.
According to Forbes Advisor, you should take more risk when you’re investing in a far-off goal and won’t need the money for a long time. This helps you better weather the ups and downs of the stock market. If you prefer to invest for the long-term, such as for retirement, but aren’t sure how to diversify or prefer to be more hands off, consider opening a PERAPlus retirement account. As a PERA member, you can open a PERAPlus account that is funded with pre-tax automatic contributions through your payroll, and you can select a target date fund based on when you plan to retire. A target date fund will automatically diversify your portfolio to reduce risk as you near retirement age. You can also choose to manage your own investments or pay a fee to have a professional manager.