The thought of investing may seem daunting, but it can be the key to securing your future.
First things first: What is the stock market?
“The stock market allows companies to go public,” Perez explains. “Essentially selling small pieces of their organization to fund growth and expansion. As the company becomes more profitable and successful the stock you purchase becomes worth more money.”
The goal here is to keep the stock until the company’s valuation or worth peaks, so you can cash out with the highest possible profits.
But of course, the stock market isn’t a perfect or always predictable system.
“The good news is you can take a calculated risk by understanding the different types of investments available to you,” she says.
What are stocks?
“You invest in a stock of a publicly traded company and let your purchase grow long term,” Perez states.
Individual stocks have the highest risk but may yield the highest reward.
“Investing in individual stock is probably one of the most proven asset classes in order to make a good return on your money,” she says. “It should be a small percentage of your overall.”
Investing is a way of building wealth in the long term. That means you have to be patient.
“You need to be comfortable parking your money in the market for several years and waiting for it to mature,” Perez explains. “If the company’s profits go up, you share in those profits. If the company’s profits fall, the price of your stock falls.”
Stocks are expected to go up and down, the key is being patient and making thoughtful choices.
What are bonds?
“You loan money to a company and they pay you back at a lower interest rate,” she says.
For those who like to play it safe, bonds are low-risk and low-reward investments.
What are mutual funds and index funds?
According to Perez, this is the best for investment newbies. She also recommends mutual funds and index funds for building generational wealth.
“Choosing a mutual fund is an investment in a mixed portfolio of stocks and bonds,” she says. “Many retirement funds are structured this way because they offer low risk with a good chance of long-term profit.”
These tend to be low risk because instead of investing in one thing and putting all your eggs in one basket, you invest in multiple companies.
“Looking into purchases from different companies, across different sectors, will help keep you more diversified and give you more protection,” Perez says.
What is a 529 Plan?
A 529 Plan is a tax-advanced savings plan designed to pay for education.
“You can open a 529 account, that’s for a niece or nephew or your children when you have them, to start saving for their college or current education,” Perez states.
If you liked this story, check out more episodes of Getting Rich here.
More from In The Know: