Stepping into the world of investing for the first time can be a bit like setting sail on unfamiliar waters. With numerous choices and conflicting advice, it’s natural to feel a tad overwhelmed and unsure of where to begin. But worry no more! If adding investing to your financial plans is on the horizon we’re here to offer some helpful tips for a smoother journey ahead.
1. Start Early
While it’s never too late to start investing, you can’t make up for lost time down the road either. Time is the most important aspect of investing. The longer you give your investments to grow and compound, the greater your financial returns. So, if you’re ready to begin, make the leap so your money can start working for you.
2. Determine Your Investment Goals
Before you open any accounts, you’ll first want to consider your goals when it comes to investing. Do you want to invest long-term, or do you want your portfolio to generate income now? Is the money for retirement or a down payment on a home within the next five years? Answering these questions will help you decide your ultimate investing goals. Understanding your goals and their timelines will help you determine what level of risk you can afford to take and which investment accounts you should prioritize.
3. Choose Your Investment Vehicle
Once you have decided upon your investment goals, you can determine which investment vehicle or account will be best for you. For example, if your goal is to invest for retirement, you’ll want to choose a tax-advantaged option like an IRA or an employer-offered 401(k). However, you don’t want to put all your investment money into either of these products, as you are typically unable to withdraw that money until you reach age 59 ½. Multiple accounts can work together in harmony to accomplish a single goal, so do your research to help you choose the investment mix that’s right for you.
4. Decide How Much to Invest
When deciding which investment accounts to open, you also need to consider how much you wish to invest into each account type. Some accounts, such as tax-advantaged accounts, limit how much you can contribute annually. So, you’ll want to consider your financial goals and allocate your funds accordingly.
You will also need to decide on a percentage of your income to dedicate to investing. The general rule of thumb for retirement goals is to invest 15% of your income. Bear in mind that the recommended 15% also accounts for any employer matches you may receive. For example, if you contribute 10% of your income and have a 5% match from your employer, you meet the 15% total benchmark.
If you started investing later in your career, or if your goal is to retire early, consider contributing more to ensure you achieve your goal. If you’re just starting out or if money is tight, 15% may seem like a high amount, but no need to panic. It’s okay to start small and grow from there - even as little as 1% can make a difference. Remember, time is your best friend when it comes to investing. So, even small contributions can generate significant returns in the long term.
5. Know What You Own
You wouldn’t buy a car without knowing the make, model, features, and performance. The same need for research and preparation applies to other important financial decisions, including health care, buying a home, and - you guessed it - investing. Make sure you understand your different investment options. If investing in a company, do plenty of research to understand precisely where you are investing your money.
6. Build Your Portfolio
Once you’ve determined your investment goals, chosen your investment vehicles, and decided how much you want to invest, it’s time to begin building your portfolio. Building a portfolio is the process of selecting a combination of assets and investments that are best suited to help you reach your unique financial goals and build wealth.
Here is a list of common investment types to consider for your portfolio:
Stocks: This type of asset represents partial ownership in an individual company. When the company does well, the stock value tends to rise, and you may earn more from your investment. Conversely, if the company performs poorly, the stock value may drop, as will the worth of your investment.
Bonds: These are loans made to a company or government with the promise of repayment plus interest. Bonds may provide a steady stream of income but historically offer returns lower than the stock market.
Mutual Funds: These assets are investments made to pool the collective funds of shareholders to invest in a collection of stocks and/or bonds. With mutual funds, investors can own large segments of the market with one singular fund rather than attempting to purchase each share individually.
Exchange Traded Funds: Also known as ETFs, these are very similar to mutual funds. They offer the same benefits but typically with lower fees and more opportunities for trading.
7. Make Regular Contributions
Once you’ve started investing, keep it up! The best way to achieve your goals, financial or otherwise, is through consistency and discipline. By developing and reinforcing the habit of making regular deposits, your investments will grow over time, allowing you to achieve your financial goals.
8. Take (Some) Risk
Risk is an unavoidable part of investing. An integral decision you must make is what level of risk you are comfortable accepting. For example, consider retirement as an investment goal. If you are in your early twenties, you still have decades before retirement. You may be more willing to pursue higher-risk investments that can weather fluctuations in the market and ultimately lead to a greater reward. However, if retirement is just around the corner, you may be more comfortable with a lower-risk and conservative portfolio.
9. Rebalance Your Portfolio Over Time
The market fluctuates constantly, so your portfolio will shift along with it. Rebalancing is the process of reallocating your investment funds to match the initial percentages you decided to distribute to each investment vehicle.
For example, if you initially chose to split up your investment funds with 60% going to stocks and 40% to bonds, changes in the market could cause the numbers to shift to a 70%-30% split if your stocks are growing at a faster pace. This is known as portfolio drift. If gone unchecked, it may result in you taking on greater risk than you initially intended and could negatively impact your returns. A rule of thumb is to rebalance any time your portfolio has drifted more than 5% from your initial allocation.
10. Manage Your Emotions
Making heat-of-the-moment, emotionally fueled decisions rarely play out well in any scenario. When it comes to investing, making emotional decisions can be risky, leading to missed opportunities at best, or significant losses at worst. The market’s fluctuations have sent many investors into panic. It’s best to carefully consider your options before rushing into a decision.
The journey to start investing can seem intimidating. That is why we are here to help guide you through every step. Remember, investing is a journey, not a destination. You won’t achieve your goals overnight. But by staying consistent and making intentional decisions, you can achieve your goals over time.
If you’re ready to begin your investment journey and want to learn more about our programs, like EasyVest, we’re ready to help. Please stop by any of our convenient branch locations or start with a no cost consultation with a Genisys Investment Services Representative.
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