When should I start investing?

You are never too young to start investing. No, I don't know how old you are, but if you can read and type well enough to be here reading this article, it's a pretty good bet you've got some understanding of personal finance and a curiosity to know more. You've come to the right place!

Investing is, in many ways, like learning a second language: It's easier, and more rewarding, to get started when you're young. My grandpa gave all of his grandchildren heavy silver coins when we were very young; since then, I have been fascinated with the concept of storing something away with the hope that its value will grow over time.

When do you invest?

The typical age of majority is 18--the age when you are legally old enough to enter into a contract, and legally old enough to buy and sell stocks in your own name. For those who haven't reached this age, there are still many possibilities for investing:

  1. Certificates of deposit, or CDs, are a common investment made in a child's name because they are very safe and are meant to be held until maturity (the end of the investment period, usually one month to five years from the date of purchase).
  2. Stocks may be bought by parents or other adults in the name of minor children, providing not just an investment for the child's future, but also a way to interest them early in the concept of financial planning.

I believe that a good time to begin investing is when you graduate college and/or start your first "real" job. I'm not talking about that summer job you got for pocket money, but the one that supported you (and your family, if applicable).

Starting a monthly fixed investment plan with an organization such as Sharebuilder, or making regular contributions to a 401(k) or an IRA, are good ways to begin.

How do you invest?

First of all, make sure you've taken care of your immediate cash needs. Most financial experts suggest saving an emergency fund of three to six months' worth of expenses (which would include your housing costs, utilities, food and minimum debt payments) before investing in anything long-term that you wouldn't want to have to cash in unexpectedly.

Nearly every personal finance expert agrees that if your company provides a 401(k) with matching, max out your investment here before you start your own investment account.

If your emergency fund and your retirement fund are taken care of, and you still have extra money to invest, start with small amounts; say, $100 per month, or 2 to 5 percent of your monthly income. Most investors begin with an index fund, not individual stocks, as they are less volatile and do not require an understanding about how to assess the value and safety of an investment in an individual company.

Start slow and spend a lot of time learning, and you could find investing an interesting and lucrative hobby--or perhaps a career path.

This Guide to Money answer includes the topics: Invest.

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