What Should My First Investment Be?

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Investing doesn’t have a clear-cut order of operations like solving an algebraic equation. But there are some useful guidelines you can use to find your way — starting with your first investment.

The word “investment” is used in lots of different ways, but in this context, we’re defining an investment as a widely available financial asset that’s meant to increase in value or generate income for its owner. Other things — such as paying for college courses to help advance your career —  might sometimes be called an investment. But the investments discussed here are all financial instruments that are generally easy to find and to own.

Before you invest

For the most part, you should consider investing only after you’ve met certain financial conditions. Here are some questions to ask before you make your first investment:

Do I have an emergency fund? An emergency fund isn’t an investment. It is a financial cushion between you and unexpected expenses. In the beginning, you can aim to have at least $500 stashed in an emergency fund. But over time, you should aspire to grow that fund to three to six months’ worth of expenses.

Do I have high-interest debt? In addition to jeopardizing your ability to save, holding high-interest debt can negate the earnings from your investments (and then some). It is OK to save for retirement and pay off debt at the same time — especially if you have access to a 401(k) match — but be mindful of any debt you’re carrying as you consider possible first investments.

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