How To Start Investing
Make it your goal: this is going to be the year you start investing to grow your money. Don’t worry that you’re too late —as the saying goes, the best day to start investing was yesterday, and the second best day is today. Too much extra cash sitting in your checking account might feel safe, but it could grow more productively in investments. By harnessing the power of a balanced portfolio over a long period of time, you may be able to withstand all the ups and downs of the market and build a more secure future. Here are first steps to start your investing journey:
Budget First Before Investing
You can’t start investing until you determine how much money you have available to invest. That starts with making a clear budget and saving plan. Once you have three to six months of expenses saved in your emergency fund, you can start deciding what to do with the rest.
Take the time to decide on your short-term and long-term financial goals. Maybe you want to concentrate on paying down debt or saving for a down payment on a house in the short term. In the long term, you may be more focused on saving for your children’s education or your retirement. The nature of these goals will dictate the kind of investment vehicle you choose, based on when you need the money and how much risk you can tolerate. If you don’t need access to your money until you retire, for example, you take a much longer view and try somewhat riskier investments. Estimate how much money you might need to retire, and then use historical rates to calculate how much you need to invest each month to reach that goal.
Risk and Reward
There are no sure things. That’s why all investments come with the disclaimer that “past performance is no guarantee of future returns.” While no one can predict the future, you can be honest with yourself about how much risk you’re willing to take. The least risky investments (such as savings accounts, CDs, and Treasury bonds) offer a guaranteed return, but often a smaller one. Riskier investments (such as stocks, mutual funds, and real estate) can offer a higher return over time, but they come with downside risk too. If you have more disposable income and more time to reach your goal, you may want to take a riskier path in the hopes of a higher reward, whereas investors with less money to spare and nearer-term goals may want to be more cautious.
Diversify, Diversify, Diversify
Nothing is riskier than putting all your money into one stock, because you’re placing all your faith and future in the hands of one company. If anything goes wrong, you may be in for trouble. Investing in only one sector or even one asset class can come with similar risks. You may want to consider spreading your investments across many different areas so that your portfolio doesn’t lean too heavily in any one direction. You can pick and choose these investments, or invest in funds that diversify for you. Either way, diversification may ease your risk.
Ready, Set, Invest
To get started investing, you first need to set up an investment account. This could include retirement accounts like 401(k)s or IRAs, or basic investment accounts. Retirement accounts come with tremendous tax advantages, but they also heavily penalize early withdrawals. Basic accounts, on the other hand, have fewer tax benefits but let you withdraw money whenever you like. Whichever account you choose, the full range of stocks, bonds, and funds are now available for you to buy and sell.
The most important thing when investing is to find an advisor you trust. Get in touch with us today at Plimoth Investment Advisors, and we’ll work with you to build a personalized portfolio that helps you grow your money for years to come.
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