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By now we all know that investing can help you build wealth. Investing is important for many reasons. It helps your money grow faster than just saving and gives you a better chance of achieving your long-term financial goals. Investing is also a way to make your money work for you through compounding. The sooner you start, the better. Several studies show that the first two rounds of stimulus payments were widely used for investing. Half of young investors said they planned to do the same with this round of stimulus payments. Before you set up an online brokerage account and look at different tactics, here are a few things to consider.
- Cover the basics first: Before you dive into the world of investing, take a look at your current financial situation. Are you contributing to your 401(k) at least up to your employer match (after all, this is the easiest way to start investing)? Do you have cash set aside for a rainy day? What about high-interest debt like credit cards? Understanding your current financial situation can help you prioritize saving, investing, and paying off debt.
- Know your why: Knowing why you want to invest and what the money is for are two of the most important considerations. Do you need easy access to this money if you fall on hard times? Will you need this money in the next few years – maybe to buy a home? Is this money you’re saving for retirement? These questions help you determine the right type of accounts to use and how much to invest.
- Understand the risk: You may be lured by specific types of investments, like individual stocks, crypto, or rental real estate. All investments have some level of risk. To understand the potential risk involved, evaluate how much you can expect to lose, the opportunity for gain, and how easy you can get your money out of an investment. You should also understand how much risk you can personally handle and how much risk is needed to reach your goals.
- Keep it simple and diversify: When starting out, look at mutual funds or ETFs that offer more diversification than individual stocks. Automated portfolio managers, known as robo advisors, are another easy way to dip your toe into investing. Also, keep it simple. Having multiple bank accounts and investments can complicate your life and make managing your finances that much harder. In the words of Leonardo da Vinci, “Simplicity is the ultimate sophistication.”
Finally, don’t be afraid to ask for help. The best investment strategy comes after you understand your entire financial picture. Winging it and Googling for answers can be risky when it comes to managing your life savings. Not everyone has the discipline and knowledge to be a successful long-term DIY investor. A financial advisor can help you get organized and develop a cohesive investment strategy that helps you reach your long-term goals.
American Rescue Plan
The latest stimulus package was signed into law by President Biden earlier this month. My colleague, Anjali Jariwala of FIT Advisors, explains several key provisions here.
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New on the Worth Listening Podcast!
Episode107: Planning for a Financial Windfall
You might think of a financial windfall as a life-changing event, like winning the lottery or receiving a large inheritance. You can also receive windfalls in the form of tax refunds, stimulus checks, and signing bonuses. Lauryn and I discuss why it’s helpful to have money goals established before receiving a windfall and what to consider when managing this unexpected money. Check out the episode here.
You can also listen to the Worth Listening Podcast on Apple Podcasts, Google Play, and Stitcher.
Still have questions about investing? If you could use some help developing a long-term, cohesive investment strategy, I would love to have a conversation!
Cheers,
Chloé A. Moore, CFP®
Founder, Financial Staples
Was this email forwarded to you? Join our mailing list here and receive free access to our guide: Budgeting for Beginners.
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