Starting to invest is one of the smartest decisions you can make in your entire life. It’s a great opportunity to prepare for the future and save for retirement.
Not everyone wants to work forever, but investing wisely can help ensure that doesn’t happen.
Investing from the outside can seem intimidating and you may not know where to start. It’s easy to get overwhelmed with all the different opinions out there and the chaos you might see in the news.
Being able to invest is such a valuable skill, but it takes time and effort.
To be a successful investor, the ideal is to start as soon as possible. Starting early allows your investments to earn interest for longer and make you more money.
Another key is to be disciplined and patient, this is especially important in 2022. The stock market has done very well in recent years.
In 2019 the S&P 500 rose by 28.88%, in 2020 by 16.26% and in 2021 by 26.89%. However, through 2022, the S&P 500 is down about 20%.
In times of economic turmoil, it’s easy to lose control of your investment strategy and panic sell. This is why being disciplined and patient with your investments is so crucial.
In this article, we’ll cover some factors to consider when getting started and how to make your money work for you.
Starting
At what age would you like to retire? How do you want your life to be in the future? How quickly do you want to see results? There are many factors to consider when determining your investment strategy.
Investing for the first time – Budget
First, you need to figure out your investment budget. One of the biggest mistakes is that you need a lot of money to start investing when you don’t.
In reality, you need to make sure that you are financially stable to invest and that you can invest often.
Financial advisors suggest building an emergency fund. This fund prepares you for any unexpected costs that life may throw at you.
In times of need, the last thing you want to do is sell your investments to cover your expenses.
All investments have associated risks and returns are not guaranteed. Sometimes your investments will go wrong and you will need money.
Having an emergency fund gives you the money you need and makes your investments grow. Financial experts recommend setting aside 3 to 6 months of expenses.
Investing for the first time – Risk
Know your risk tolerance and how you feel when your investments are in the red. Every investment has a risk and you have to be content with the potential loss of money.
People often say they have a risk tolerance until there is volatility and they are scared to sell.
It is important to find the balance between the profitability and the risk involved in the investment. When considering stocks and bonds, stocks tend to have higher returns, but higher risk.
Bonds have lower yields with less risk. There are ways to offset risk such as diversifying a portfolio.
Investing for the first time: strategy
What type of investor are you? Passive and active are two ways of investing. A passive investor thinks long term and is not as involved.
Refunds may take a while to arrive, but they will in the future. Usually, there is less risk and less effort.
Long-term investors will invest in mutual funds that do the work for you. People saving for retirement tend to take a more passive approach.
Being an active investor takes more time and research. You will need to analyze and keep track of your holdings once purchased. Active management involves more risk, but the returns are much higher.
As for the actual strategy, dollar cost averaging and lump sum are two simple ways to do this. A lump sum is when you invest a large amount at once. The risk is higher, but you could see a faster return on your investment.
Dollar cost averaging is when you buy an asset regardless of price over specific time intervals. This can help eliminate the risk. Combining both strategies can also lead to success.
Where to invest?
Once you’re ready to get started, you need to decide who manages your money. Investing is very common with all available resources in 2022; all you have to do is set up an account online.
You are responsible for your own choices, so take the time to research everything.
If you don’t have confidence in yourself, there are financial advisors and Robo-advisors. An advisor controls your goals and already has all the knowledge to make decisions. Make sure the advisor is pay-only and does not charge commissions.
A Robo-advisor uses algorithms to make decisions for you. They are cheaper than a real advisor, but limited in general knowledge of wealth. To learn more about a robo-advisor, click here.
Investment options
If you’re saving for retirement, you likely have a 401(k) through your employer or a traditional or Roth IRA. These accounts are tax-advantaged, allowing your investments to grow tax-free for a long time.
For the regular investor, a taxable brokerage account can be opened. Taxes are deducted on winnings and withdrawals.
Once you figure out what type of account to open, what do you invest in? Let’s take a look at some popular investment options.
stocks
When done right, investing in stocks is one of the most effective ways to build wealth. Shares are a part of the ownership of a company.
There are so many different types of stocks that vary in price, risk, company size and potential. Individual stocks require a fair amount of due diligence before being purchased.
good ones
Bonds are a way for a company to raise money. You lend them your money now and they pay you back after a certain number of years. They will pay you interest on your investment.
Bonds are less risky because you know how much they will pay you back. Yields are lower than stocks and they should be no be the only one you invest in.
background
Mutual funds are a mix of investments under one roof. They do the research for you by choosing which stocks and bonds will be in the fund. Mutual funds are diverse and less risky than individual stocks.
Those saving for retirement often choose to invest in mutual funds because of the stability and quality of long-term returns. Investment funds are managed by professionals.
Index funds track the performance of major stock indexes such as the Dow Jones or the S&P 500. For example, the S&P 500 is made up of large corporations such as Amazon, Apple, Google and many more. So you’re buying a stake in all of these great companies without having to buy shares of each individual stock.
Exchange traded funds
ETFs are similar to mutual funds, but they can be actively traded like a stock. Mutual funds usually require a minimum investment, while ETFs are purchased through stocks.
ETFs are a viable option for those looking to diversify their portfolio on a smaller budget.
wrapping
Investing in 2022 has never been easier. All the tools are in front of you, be responsible and start investing.
Investing is exciting, but you need to make sure you are prepared and financially educated. It is very easy to make bad decisions and potentially lose everything. To avoid as many losses as possible, follow these tips.
Quick Tips
Be consistent: Invest at regular intervals and check your investments with some frequency. Don’t watch your investments too actively as this can lead to getting caught up in yo-yoing.
Think long term: Watching your investments go up and down can cause stress which is never what you want. Think long term and know that down spells are in the past. Don’t panic and stick to your investment plan.
Diversify: Diversification is one of the easiest ways to limit risk and volatility in your portfolio. When the stock market doesn’t do well like it has in 2022 so far, diversification protects you because you are invested in a range of assets. This will help mitigate losses and maximize long-term returns.
Don’t chase clues: The news and the internet are full of tips and the next thing that’s going to blow up. Sometimes they can be viable, but don’t follow them blindly. Do your own research and make the decision that best suits your wallet.
