Are you new to investing? Investing can seem daunting, especially when you feel you have no clue where to begin. You’re not alone. If you’re a first-time investor who’s ready to consider long-term investment options to grow your wealth, this guide is here to help you learn how to start investing.
- Investing is about long-term financial stability and wealth-building, but it doesn’t have to be complicated. You can — and should — begin investing now.
- Set yourself up for success by first setting your financial goals and determining your timeline, risk tolerance, and the amount you’d like to initially invest. Start small and make adjustments as needed.
- Do your research. The more you educate yourself about things like investment vehicles and diversified portfolios, the better you can identify and hone the best strategy for achieving your long-term financial goals.
Why should I invest now?
Every dollar you invest now means potential for growth, so the sooner you begin, the better. More than building wealth, investing can also provide tax benefits, long-term security in the form of financial independence and leaving a legacy for your loved ones, as well as protection against inflation (which decreases the purchasing power of the dollar).
Think of investing as a marathon, not a sprint. It’s about sustainable growth over time so you can secure the financial future you plan for. Starting small now sets you up for the long-haul and allows you the space to learn and adapt as markets naturally fluctuate over time.
Step 1: Build off a solid foundation.
While there’s no “bad” place to start, it’s best not to start at zero. After all, a foundation is necessary to build upward. In this case, that means beginning by first:
- Paying down high-interest debt — think ones with high annual percentage rates (APRs) like credit card debt and personal loans
- Building an emergency fund that covers 3-6 months of your living expenses for anything urgent or unexpected.
Find your financial footing first, then invest after that.
Step 2: Set your goals.
When you’re ready to invest your hard-earned money, it’s integral that you identify your goals, timeline, and the level of potential risk you’d like to take on.
A good place to start? Decide what’s important to you and go from there. Are you hoping to grow your retirement account on a shorter timeline and retire earlier than 65? Or perhaps you’re more focused on setting your new or growing family up for financial security 10-20 years down the line and prefer a lower-risk investment option?
Whatever your short- and long-term goals, make note of them. What is your desired end result and timeline for each? Taking the time upfront to think through these questions will keep you on track to meet your goals.
Step 3: Determine an amount to invest.
Consider your overall annual income and decide what portion you’d like to begin investing. Generally, people invest about 10-15% of their income, but don’t be afraid to start small, especially as inflation has impacted basic needs like housing and groceries. Any amount is better than nothing. And remember, you can always adjust that amount depending on the circumstance. The point is to put something toward your investments and be consistent, while allowing for flexibility as you learn what works best for your budget and adapting to any outside factors that might impact your strategy.
Note: Take into account your total investment package when considering what amount you’d like to invest. For instance, if you already contribute 5% of your income to an employer’s 401(k) plan and want to invest a total of 15% of your income, you would invest the remaining 10% elsewhere.
Step 4: Decide who will manage your investments.
Are you a hands-on type of person who enjoys doing things yourself? Or do you prefer to leave things to the experts? Depending on how much time for education and management you’d like to dedicate to the endeavor, you can opt to self-direct your investments or engage a wealth manager — like those here at Landmark Financial — to guide your investments for you.
While there are even online brokerages and robo-advisors available, you’ll want to consider factors like your own level of comfort and education or any fees or commissions associated when choosing who will manage your investments.
Step 5: Research your investment vehicle options and build your portfolio.
You don’t need to be an expert on finances — that’s our job — but it doesn’t hurt to conduct some research on your investment options. The key to risk management is diversifying your portfolio, so consider investing in multiple different types of vehicles. Luckily, there are several from which to choose, each with their own advantages. Let’s take a look at a few.
- Stocks are a type of security where a person can buy shares of individual companies, meaning they share ownership of the company. These tend to be higher risk.
- Bonds involve loaning your money to the government or private company(ies) in exchange for regular interest payments and the payback of the face value of your loan on a specified date.
- Exchange-Traded Funds (ETFs) are generally a good place to start for people new to investing, as they offer diversification through a bundle of stocks or bonds you can invest in at one time.
- Mutual Funds, while very similar to ETFs, are actively managed by a fund manager, who selects investments on your behalf.
- Treasury Bonds, Bills, and Notes are high-yield, low-risk savings options with liquidity and added tax benefits. Read more about these savings options here.
- Retirement Accounts, such as IRAs and 401(k)s, offer tax benefits and can also mean matching options through an employer’s 401(k).
- Did you know you can also use your health savings account (HSA) to save for retirement? Take a look at this guide for how to use your tax-advantaged HSA to invest for the future.
- Community Investments are a socially responsible investment tool to put your money toward doing good, as they direct capital toward projects that benefit underserved communities. Learn more about socially responsible (or impact) investing here.
Taking into account your goals, timeline, and desired level of risk, build the investment portfolio that works best for you.
Step 6: Monitor, learn, and adapt.
Your investment portfolio is not something you “watch like a hawk.” You’ll want to monitor your investments periodically, of course, but it’s best not to make decisions that are based on emotion or the whims of the economy. Give your investments time and space to grow, while continuing to educate yourself and consult experts for advice, if needed. Learn from any setbacks and make adjustments if or when the situation arises.
Need help with how to start investing?
Taking that first step toward investing your hard-earned money can be scary. Don’t let fear or uncertainty stop you from making a move toward securing the financial future you want. We’re here to take the guesswork out of your financial decision-making. Get in touch with us here.
This material was created by Starling Digital for use by Landmark Financial, LLC and does not represent the views and opinions of Avantax Wealth Management or its subsidiaries.