Throughout most of my life, I thought investing was just the stock market. I’d see Wall Street on TV, with all of its hustle and bustle, and I’d think, “I am not going anywhere near that.” However, this summer I learned that there is a lot more to investing than just stocks, and participating is easier than I could have ever imagined.
As part of my internship with Retirement Daily, an online-based finance publication, I was given the opportunity to invest $250 into anything I chose. The sheer amount of options was overwhelming.
I initially wanted to explore mutual funds, which are a pool of several different stocks bundled together in a way that can keep investments safe. I could have also tried finding a stock that pays dividends, a small return on your investment paid back to you by a company you own stock in, usually annually.
I didn’t choose either of those options.
With the help of some financial advisors, I learned about my risk tolerance, my capacity for risk and how to use those traits to decide where I should put my money.
Risk tolerance is your ability to withstand different risk levels, ranging from putting money in a savings account to gambling your house on the Boston Celtics. Risk capacity is how much capital you are able to risk before you are unable to live life the way you usually do.
“How do I feel about investing? Am I going to sleep at night if I invest a certain way?” said Eric Roberge CFP, founder of Beyond Your Hammock. “Do I have to have extra money outside of the investment that I can use for daily functioning? Or is this the only money that I have? And if it’s the latter, you really shouldn’t be investing it or shouldn’t be doing something at a very risky level.”
After some self-reflection, I learned I have a high risk capacity, but a low risk tolerance, so I wanted to put my money into something that would keep my principal, or the amount that was initially invested, secure with a little extra on top.
I eventually chose to invest in a certificate of deposit. A CD is where you deposit money into an account for a set period of time with the guarantee that you will get that money back at the end, including any interest it accrued over that time. They tend to yield at higher interest rates than traditional savings accounts.
The process was quite easy and efficient, and besides any mistakes on my end, like forgetting to connect my depositing account and needing to reopen the CD from scratch, it went perfectly. I expected to have to fill out hours worth of paperwork to do such a small thing like open up an account for the CD, but it only took maybe 15 minutes.
By this time next year, the money I deposited will come back to me with a profit of $15. While a modest yield, I am proud to say that I invested in something for the first time. I have the confidence now to go back and find more ways to invest my money as I get older, which is exciting.
Investing doesn’t have to be scary, and you don’t need to do exactly as I did. But explore a little bit. Learning now can pay off big later.
DISCLAIMER: This piece is strictly based on the opinions and experiences of the writer and should not be viewed as a substitute for professional financial advice.
