The Challenge of Staying Financially Afloat
A staggering 78% of Americans report earning just enough to cover their monthly bills, making it difficult to break free from the cycle. To escape this financial treadmill, many are turning to investing as a solution.
Although investing may seem complicated, it’s not impossible to learn the basics. After the dramatic surge of GameStop stock, many new investors entered the market, hoping to pay down their debts. Like any significant financial decision, investing requires careful consideration and some learning before taking the plunge.
Seeking Help and Guidance in Investing
Many first-time investors wonder where to find assistance. Although there are numerous resources available, they can be useless if people don’t know what to ask. Dheerja Kaur, head of core product at Robinhood, notes that many individuals feel that investing tools and resources aren’t designed for them.
Investing apps like Robinhood, Acorns, Stash, and Invstr are making the process more accessible to everyone. However, this new generation of investors drawn by these apps still needs guidance to develop a solid investment plan. For those new to the market or considering entering, consulting a professional to establish goals is essential. Here are some steps to help set yourself up for a successful investment journey:
1. Choosing a Financial Planner or Investment Adviser
It’s crucial to interview potential financial advisers, as they will be handling your money. Seek referrals from trusted acquaintances, and ask about how investment decisions are made and how the adviser or firm is compensated. Make sure the adviser is independent and not incentivized to sell specific products.
2. Familiarizing Yourself with Investment Terms
Before diving into investing, it’s helpful to understand common terms like asset allocation, fiduciary, brokerage account, retirement account, investment vehicle, ETF, mutual fund, and Registered Investment Adviser (RIA).
3. Determining How Much to Invest
The amount you should invest depends on your personal situation, but financial planner Monica Sipes suggests saving at least 20% of your income. Investing apps with fractional share options can be helpful for beginners looking to start small.
4. Deciding How Many Stocks to Own
Consider the investment vehicle and account type before deciding how many stocks to include in your portfolio. While opinions vary, diversification is key, and many financial planners recommend using index funds for novice investors.
5. When Your Portfolio Starts Making Money
It’s impossible to predict when your investments will generate profits, so it’s essential to maintain a long-term view and not focus solely on market fluctuations.
6. Understanding Tax Implications
Investing can have varying impacts on your taxes. Retirement accounts like 401(k)s or IRAs typically have minimal tax implications, while short-term gains on non-retirement investments may be subject to higher taxes.
Every investing journey is unique, and the process can be as complex or straightforward as you choose. It’s crucial to seek trustworthy guidance and embrace the inherent risks involved in investing.
Investing Responsibly and Staying Informed
As you embark on your investing journey, remember that responsible investing requires continuous learning and staying informed about market trends and changes. Here are some tips to help you stay on track and make wise investment decisions:
7. Create a Diversified Portfolio
Diversification helps to spread your investments across various asset classes, reducing the overall risk. It’s crucial to have a mix of stocks, bonds, and other investment vehicles to mitigate potential losses and ensure steady growth.
8. Keep Emotions in Check
Investing can be an emotional rollercoaster, but it’s essential to stay focused on your long-term goals and avoid making impulsive decisions based on market fluctuations. Remain patient and disciplined, and remember that short-term volatility is expected in any investment journey.
9. Regularly Review Your Portfolio
As your financial situation, goals, and risk tolerance change over time, it’s essential to review your portfolio periodically and make necessary adjustments. This may involve rebalancing your investments to maintain the desired asset allocation and risk level.
10. Stay Informed and Educated
Continuously learning about investing strategies, market trends, and financial news can help you make informed decisions and improve your investment performance. Read articles, attend webinars, or join investment clubs to broaden your knowledge and stay up-to-date.
11. Seek Professional Advice When Needed
There’s no shame in seeking professional guidance if you’re unsure about an investment decision or need help adjusting your strategy. Financial planners and advisers can provide valuable insights and advice tailored to your specific situation and goals.
12. Start Early and Invest Consistently
The earlier you start investing, the more time you have to grow your wealth and take advantage of compound interest. Consistently investing, even in small amounts, can significantly impact your financial future. Develop a habit of investing regularly, regardless of market conditions, and let time work in your favor.
Remember, investing is a lifelong journey that requires patience, discipline, and continuous learning. By following these tips and seeking professional guidance when needed, you can successfully navigate the world of investing and work towards achieving your financial goals.
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