Here Are The Answers To 11 Questions You Might Have About Investing (2024)

CUMMINGS: "Investing is really a way to make your money make even more money for you. Think about it like multiplication: When you take $2 and you multiply it by two more dollars, you get $4."

[Editor's note: The world of investing can sometimes feel like a deep, dark hole of industry terms and extra confusing definitions, but we've got you covered! We defined some other investing vocabulary words you should know so you can go forth and understand this wild, wild world of money.]

CUMMINGS: "Basically, you buy an asset that you think is going to grow in value or that you think will make money for you."

[Editor's note: These assets can be stocks, bonds, index or mutual funds, options, real estate, or exchange traded funds (ETFs). These assets may also be known as "securities." When you buy securities, the value may go up or down over time. When the value goes up and you sell your securities, you've made a profit. However, if you sell your securities after the value has gone down, you've sold them for a loss.]

CUMMINGS: "The typical relationship is the lower the risk, the lower the return, and the higher the risk, the higher the return. But most people don't really know what their risk appetite is. This appetite is all about how much loss you're willing to stomach, and that can change over time. When you're younger, your risk appetite can be larger. And when you're older, your risk appetite may not be so big.

People with a little bit of money may not have a big risk appetite. Those with a lot of money can afford to have a bigger risk appetite. Similarly, if you're single, you may have a big appetite; but if you have a family and you own a home, you may have a lower risk appetite because you have more to lose. But you might also have a big risk appetite if you don't like your current situation. You might be willing to invest more and put more at risk in order to move yourself into a different economic class."

[Editor's note: Of course, every investment carries some amount of risk. You should never invest money you'll need in the short term or money you can't afford to lose.]

CUMMINGS: "Identify companies that are going to make you money in the future. You also have this special thing called compound interest, which is considered the eighth wonder of the world. Like [billionaire] Grant Cardone says, it's basically when your babies are making babies. So it's when your dollars are making their own dollars, and then they're making their own dollars, and then they're making their own dollars."

[Editor's note: Compound interest occurs when you keep your investment earnings invested so you're basically earning interest from interest payments, and it can be a powerful tool when it comes to growing your money. It can help you earn money on top of money — and then earn even more on top of it all! And BTW, some stocks can pay you a portion of their earnings just for owning a share of the company! This is called a dividend, and it varies from company to company. Some companies don't pay a dividend at all. The more shares you have in a company, the higher your dividend payments will be.]

CUMMINGS:"If you're starting from scratch, you want to keep these three things in mind: You want to plan, save, then invest. People just want to jump in and start investing. But first of all, you've got to understand how much money you need to cover what I like to call your mailbox bills: how much you actually need to run your household. It takes a little planning to figure out what's coming in and what's going out.

Second, you need to save an emergency fund. I also call that an 'eff-you fund,' like if you want to tell your company 'eff-you.' So you have to save at least three to six months' worth of expenses in your emergency fund. You want to give yourself that cushion because that way, if you have a situation where you need access to money, you don't want to have to sell your investments. Then, you're ready to start investing. You can start with small amounts of money that can eventually add up."

CUMMINGS: "The best way to start investing in stocks is to take a look around your house. Take a look at the brands you spent money on, then see if those brands have stocks. I always say invest in what you know. Use [those brands] as your jumping-off point.

You can also start with what I call micro-investing apps like Acorns or Stash. With these apps, you basically link them to your checking or savings account and they invest money automatically for you based on your purchasing habits. Stockpile is also a great platform that you can use to buy expensive stocks. So let's say you can't afford a full share of Amazon but you want to own a piece of Amazon. You can put $30 toward the share of Amazon in what's called a fractional share. New investors have also signed up for Robinhood, which has a great interface to help people get started."

CUMMINGS: "You want to use money that you can afford. So if you're just getting started, again, you should go through that plan, save, and invest sequence."

[Editor's note: The amount you'll want to have set aside to start investing can also depend on how you're planning to invest. Some brokerage apps like Robinhood and Webull have no minimum or have a relatively small minimum (to use Webull, you must deposit at least $100 into the platform). Other brokerages, like Vanguard, have a $1,000 minimum for investing in Target Date funds for retirement and a $3,000 minimum for investing in actively managed mutual funds.]

CUMMINGS: "ESG stands for Environmental, Social, and Governance, and it's a form of socially responsible investing. It's an investment strategy in which you invest in companies that reflect your own personal values. So you may want to invest in companies that are trying to protect the environment and positively impact climate change. Or, you might look for companies that have diverse corporate boards. It's a strategy you can apply to any investment platform."

[Editor's note: Some apps like Betterment actually have an array of socially conscious portfolios that you can pick from. It definitely makes all the research feel a little less daunting and it makes it easy to identify the causes you care about!]

CUMMINGS: "You can buy physical property either individually or with a group of investors known as a syndicate. Or, you can invest in what's known as Real Estate Investment Trusts (REITs). You can also invest in real estate through crowdfunding; there are platforms such as Fundrise that allow you to invest in real estate with as little as $500.

The biggest caveat with investing in physical real estate is that it's an illiquid asset. You won't necessarily be able to get your money out as quickly as you'd like."

[Editor's note: BTW, some REITs are not traded through the stock market; in other words, it can be harder to pull your money out of the investment. If this is the case, you might have to sell your REIT through a brokerage. And when it comes to crowdfunded real estate investments, like with Fundrise, you can liquidate your shares of a portfolio, but your request may not be guaranteed. Liquidation might depend on economic uncertainty.

CUMMINGS: "There are a lot of free videos and courses on YouTube that can give you an introduction and help you learn how to invest in the stock market. Another way to learn is to join an investing community, like the Stocks & Stilettos Society."

[Editor's note: BTW, we also rounded up a list of investing resources you can use to learn more! Think podcasts, books, online tools, courses, and more.]