Financial Literacy for Creators: Work for Your Money, Then Let Your Money Work for You

By
Isabelle Kenagy
April 12, 2022
Interviewer:
Interviewee:
By
Isabelle Kenagy
April 12, 2022
Interviewee:
Interviewer:
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Financial Literacy for Creators: Work for Your Money, Then Let Your Money Work for You

The most fundamental part of financial literacy is learning how to save. We craft complex budgets and multiple streams of income in order to reach long term goals and achieve financial security. But, saving, when it refers to simply amassing money, is not necessarily the most savvy financial practice. In fact, saving can be counterproductive due to inflation. Instead, you can invest your savings, making your money work for you. Investing in the stock market can seem intimidating and risky. However, with these four simple starting strategies, you can invest your money with low risk and low commitment.

Disclaimer: This post does not contain financial advice and is purely for entertainment purposes.

Individual Stocks

When most people think of investing, they imagine purchasing individual stocks. You might be interested in this option because of affinity for a particular company or because you’re interested in exploring the market yourself. However, purchasing individual stocks requires significant research and continuous monitoring. This option also comes with the most amount of risk. Unless you’re a seasoned expert, it’s recommended that less than 10% of your portfolio be invested in individual stocks.

Mutual Funds

Mutual funds are a simple and easy way to purchase a package of diversified investments. Professional money managers collect and control a pool of money from different investors. When you purchase a mutual fund, you are purchasing a portion of its performance and overall value. The investments included in a mutual fund are also related, be it through industry (energy or technology), asset class (stocks or commodities), or ethical principles (female founded or sustainable). Usually mutual funds are made up primarily of stocks. However, the ability to purchase mutual funds that include commodities or bonds provides exposure to a different kind of investment. Mutual funds still do have a few drawbacks for the emerging investor. Mutual funds usually require a minimum investment and come with higher management fees. But, if you’re looking at a long term, larger investment, mutual funds provide a great opportunity to create a simple, diverse portfolio. 

Index Funds

Index funds are a technically subcategory of mutual funds. But, index funds get their own listing because they represent an attractive investment for beginners and the risk-sensitive. Index funds have all the properties of mutual fund and are generally very low risk because their primary purpose is to mimic the performance of market indexes like the S&P 500 and Nasdaq. While a typical mutual fund will aim to outperform the market, index funds simply mimic the market, thereby carrying less risk. Index funds also typically come with lower management fees since they require less effort to manage. 

Exchange Traded Funds (ETFs)

ETFs are similar to the above funds in that they contain a package of diversified investments and come with associated, albeit lower, management fees. However, ETFs are traded like individual stocks which means they fluctuate throughout the day based on the purchase and sales of the ETFs themselves. Mutual funds, on the other hand, are only traded and valued once a day after the market closes. You can also buy and sell shares of ETFs without any minimum money or time commitment threshold making ETFs accessible to any investor. 

How Do I Start Buying?

Buying stocks and funds is easier than ever before. Within seconds you can set up an online standard brokerage account with companies like Etrade, Robinhood, and Fidelity. These options usually come with little to no fees, but also require you to choose your investments on your own. If you want more guidance, you can look to either a full-service brokerage like UBS or Morgan Stanley, or a robo-advisor like SoFi or Acorns. Full-service brokerages provide an extended list of benefits and personalized investment advice and plans, but they also come with high fees. Robo-advisors provide low-cost, and sometimes lower returning, portfolio management services. 

There are plenty of intricacies involved in the types of investments, types of accounts, and types of brokerages one can pursue. But, regardless of the path you choose, avoid stuffing your money in the bottom of a mattress (or a bank account), and let your money work for you.

This is part two of the four part series: Financial Literacy for Creators. Follow along for the next edition: Borrow.