7 Smart Ways to Get Started Investing
Investing can be one of the best ways to build your wealth. From stocks, mutual funds and certificates of deposit to cryptocurrency investments or bitcoin funds - investing can help your money to grow through interest rates and compounding.
Investments should only be used for long-term goals like retirement or down payments on homes, while for shorter goals, a high-yield savings account or emergency fund may be more suitable.
1. Start Small
Investment can be daunting for beginners, with all of its unfamiliar terms and differing advice to navigate. Plus, most people don't have large sums to invest all at once - which is why it is wiser to begin small and build your portfolio gradually instead of trying to put down one lump sum at once.
No matter if you are investing for retirement, college savings or something more risky - having an investment plan in place is key to meeting both short and long-term goals while understanding risk tolerance levels and knowing when it is necessary to meet those goals(s).
Once that has been decided, the next step should be deciding how much you wish to invest every month. The amount will depend on various aspects of your finances - your budget, expenses and debt payments, among them. As a guideline, set aside at least 1% of your paycheck every month as an investment goal; alternatively, there are apps or Robo-advisors with low fees and diversified portfolios available that help automate savings. Just remember it's better to start saving and investing right away rather than waiting for the ideal moment (which might never come).
2. Don't Overthink It
Investing is an integral component of saving for future goals and building wealth, but it can be easy to overthink it and put off taking any action, which could end up costing you in the long run. To get started investing, first, establish your investment goals, their dates of achievement, and risk thresholds that you are comfortable with, as well as plan out how your investing journey should unfold.
As part of your money management plan, it's also essential to organize the day-to-day aspects of your finances, such as paying off debt and creating an emergency fund. Furthermore, you should ensure you can appropriately balance investments with any other priorities that arise financially.
Finally, it's essential to keep in mind that although investing can involve risks, the stock market tends to move in an upward trend over time. This means if you invest consistently over time, chances are greater for making money than losing it. Furthermore, avoid making decisions based on sensationalized news from social media or 24-hour news shows; rather, conduct your research and seek professional advice instead to avoid overthinking or fear of derailing your investing goals.
3. Don't Overpay for Advice
New investors may feel intimidated by all of the options, confusing terms, and conflicting advice regarding investing. This is certainly understandable since investing involves risking one's own money - something which should never be taken lightly.
Gina Knox recommends that new investors first address their financial house. That means getting out of debt, learning how to budget effectively and determining their investment budget accordingly. Next step? They can choose either Acorns for an automatic round-up of everyday purchases and automatic investing of any extra change into an investment account or opening a brokerage/robo-advisor account with low or no minimum deposits and commissions. These options provide easy ways for newcomers to start investing today!
Once they've established an account, new investors should diversify their portfolio with mutual funds or ETFs (Exchange-Traded Funds). Doing this will lower risk by owning multiple assets rather than just one stock - diversification being key as one asset could tank but won't take down the whole account at once - something many experienced investors do but newcomers to investing may find daunting. This type of preventive strategy should always be employed - something newcomers especially benefit from.
4. Don't Wait for the Perfect Time
Timing is not as crucial when it comes to investing, contrary to what many may assume. Starting your investments now and consistently adding small amounts can increase wealth through compound interest - while waiting could make matters worse by decreasing potential returns.
There are various strategies you can employ when investing your money, such as purchasing individual stocks and creating a diverse portfolio. But these approaches require extensive research and monitoring - for novice investors, the easiest approach may be investing through low-cost stock mutual funds or index funds.
One key decision you need to make when investing is whether to manage it yourself or hire an outside service to do it for you. NerdWallet's reviews of online brokers and robo-advisors factor in fees and minimums, investment choices, customer support capabilities and mobile app capabilities when ranking them.
Once you have established a budget and met more immediate financial needs, such as paying off debt and creating an emergency fund, the next step should be figuring out how best to use your money. Step one is establishing your goals for investing. In general, long-term goals that take at least 20 years should be prioritized over short-term goals such as next year's vacation or saving for down payments on homes.
5. Make It a Habit
Your hard-earned money should work harder for you by investing it. No matter where in life or when the time will come for you to need the funds, investing is a necessary part of financial strategy - the key is starting now!
Though it's essential to repay debt and create an emergency fund before beginning investing, don't put off doing so for too long. Once these essentials are in place, investing can become part of your routine and begin growing your nest egg.
Rebalancing is one of the best strategies for mitigating risk and increasing returns over time. When investing regularly, taking advantage of market swings by buying low and selling high can be one of the most efficient ways to manage risk and reap greater returns over time.
NerdWallet offers numerous investment services to meet your investment goals, from online brokers and robo-advisors to investment portfolios that match them. Once you understand what your goals and tolerance for risk are, select an advisor with portfolios tailored towards them.
6. Make It a Priority
Investing is one of the best ways to build wealth over time, but it must be done responsibly. Investment involves an element of risk, the degree of which will depend on your goals and circumstances. For maximum diversification benefits, spread your investments among different asset classes (like stocks, bonds, commodities exchange-traded funds or mutual funds) so as not to expose one single investment to losing value too quickly.
Starting financially can be challenging. Saving and investing should be at the top of your priority list (right after paying off debt and setting aside an emergency savings fund). Don't put off starting because you think it requires saving up a large sum first - with automated contributions set up, even small sums can become investments over time.
Prioritizing which accounts to invest in first is also beneficial for maximizing returns with reduced taxes. NerdWallet provides an invaluable resource that provides detailed explanations on various account types - taxable, retirement and tax-deferred accounts - available to you.
7. Don't Forget About Taxes
Once your debt payments, rent, utilities and other essential expenses are taken care of, it may be time to think about investing your savings. While this may feel intimidating at first, starting small can help build savings over time through compound interest.
Before investing, it's important to determine your investing goals and understand your risk tolerance. Once this has been determined, selecting investment vehicles - also known as investment accounts - which meet these criteria can be daunting but essential steps towards financial freedom. Accounts such as IRAs or health savings accounts could provide tax-advantaged options. At the same time, investments that tend to lose less of their return to taxes may benefit more from holding them in tax-advantaged accounts like an IRA, health savings account or 529 college savings plan.
For instance, when saving for long-term goals like retirement, investing in stocks is often considered beneficial as they have the potential to outstrip inflation and provide higher growth over time. But you must be prepared for market swings, so you must select low-cost mutual funds or ETFs as part of your portfolio strategy.
