Question 1

How much money do I need to start investing?

Accepted Answer

You can start with as little as $1! The myth that you need thousands is no longer true. Modern brokerage accounts have no minimums, and 'fractional shares' let you buy a small piece of an expensive stock (like $10 of Apple stock). The most important thing is to start, not the amount. (Please note: All content on this site is for educational purposes only and is not financial advice.)

Question 2

What is the difference between stocks and bonds?

Accepted Answer

Think of it this way: buying a **stock** makes you a part-owner (you own a 'share' of the company). You make money if the company grows and its stock price increases. Buying a **bond** makes you a lender (you are 'loaning' money to a company or government). You make money by receiving fixed interest payments.

Question 3

What is an index fund or ETF?

Accepted Answer

An index fund (or ETF) is a basket that holds many different stocks at once. Instead of trying to pick one winning stock, you buy the whole basket. For example, an S&P 500 index fund gives you a small piece of the 500 largest US companies. It's the easiest and most recommended way for beginners to get instant diversification.

Question 4

What is the difference between a Roth IRA and a 401(k)?

Accepted Answer

Both are retirement accounts with huge tax benefits. A **401(k)** is an account offered by your employer, which may include a 'company match.' A **Roth IRA** is an Individual Retirement Account you open yourself. The main difference is tax: 401(k) contributions are typically 'pre-tax' (you pay tax later), while Roth IRA contributions are 'post-tax' (your money grows and is withdrawn completely tax-free).

Question 5

What is diversification and why is it important?

Accepted Answer

Diversification is the principle of 'not putting all your eggs in one basket.' It means spreading your money across different investments (stocks, bonds, international, etc.) so that if one performs badly, your entire portfolio isn't ruined. Buying index funds is the easiest way to diversify.

Question 6

How much risk should I take with my investments?

Accepted Answer

This depends on your 'time horizon' and 'risk tolerance.' The longer you have until you need the money (like for retirement), the more risk you can generally take (by holding more stocks). Your risk tolerance is your personal comfort level with seeing your account value go down. The key is to create a balance you can stick with.

Question 7

What is compound interest?

Accepted Answer

Albert Einstein called it the 'eighth wonder of the world.' It's the process of your earnings generating their own earnings. When your investments pay a dividend or grow in value, that new, larger amount then starts earning, creating a snowball effect that is the true secret to long-term wealth building.

Question 8

Should I pay off debt before I start investing?

Accepted Answer

It depends on the interest rate. Most experts agree you should pay off high-interest debt (like credit cards with 20%+ APR) before investing. For low-interest debt (like a mortgage at 5% or student loans at 6%), it's often a personal choice. You can also do both—pay a little extra on debt while also investing small amounts.

Question 9

What's the difference between active and passive investing?

Accepted Answer

**Active investing** is trying to 'beat the market' by hand-picking individual stocks you think will win. **Passive investing** is accepting the market's average return by buying index funds (like an S&P 500 fund). Decades of research show that passive investing almost always wins in the long run, which is why we focus on it here.

Question 10

What is a 'brokerage account'?

Accepted Answer

A brokerage account is simply a special type of account (like a checking account) that is designed to hold investments. You open one with a brokerage firm (like Fidelity, Vanguard, or Schwab), fund it with money, and then use that account to buy and sell stocks, bonds, and funds.

Cap Puckhaber | Simple Finance Blog

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