Beginner investors, start here: How to start building wealth and saving for retirement in {{ year }} – NextAdvisor | Vette Leader

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If your goal for the New Year is to invest in your future, but you’re not sure exactly where to start, you’ve come to the right place. Investing doesn’t have to be confusing or complicated. In fact, investing in your future is one of the best long-term steps you can take, especially if you’re a few decades away from retirement.

While investing itself is easy once you get it set up, it’s not always easy to know where to start. The amount of investment information available can be overwhelming, and it can be easy to find yourself sifting through ill-advised stock picks, unsolicited advice from family members, and market news that’s always loaded with drama.

Starting early and investing often is the secret to a healthy retirement account. Plus, the power of compound interest – which can be a huge boost if you invest long term – can put your money to work for you, so it grows even while you sleep.

“You have to make headlines,” advises Jill Fopiano, president and CEO of O’Brien Wealth Partners. “It’s easy to find conflicting articles about the exact same investments.”

Not sure where to start? We’re here to sort that out for you. The best investment strategies are often the simplest. Let’s take a look at a few popular investment options for beginners.

Overview of the investment strategy for beginners

Before you start investing, it’s important to note a few things.

First, consider your budget and emergency savings. Experts recommend that you set aside about six months of expenses in a savings account before investing seriously in the market. However, if you have an employer-sponsored 401(k), it’s a good idea to at least contribute while you build your emergency fund. In this way, you can continue to benefit from the employer contribution adjustment. But get your emergency fund moving.

In most cases, it is advisable to pay off high-interest debt before investing. Those with student loans or mortgages below 5% APR may want to slowly deleverage while investing in the stock market. However, personal loans and credit card balances with 10% APR or more should really be of concern first, since any market gains are likely to be overshadowed only by the interest on that debt.

After you’ve set aside enough money for the bad times, review your budget and invest as much as you want (or can). Remember that even $5 is enough to invest. Small, constant amounts add up over time, and the important thing is to be consistent and get started as soon as possible.

Understand investment vehicles

401(k)s, Roth IRAs and traditional IRAs

In order to acquire one of the funds mentioned below, you need an investment vehicle. This is where special retirement accounts like an employee-sponsored 401(k) or Roth or Traditional IRA come into play. Using a retirement account to buy investments is an effective way to invest for the long term. These accounts have tax benefits that allow your earnings to grow tax-free or exempt for years.

Taxable Broker Accounts

Unlike a retirement account, which offers certain tax benefits if you withdraw it at the appropriate age (no earlier than 59½), a regular investment account, where you can be taxed on gains and withdrawals, is called a brokerage account.

With a brokerage account, you can buy securities such as stocks, bonds, and index funds. Unlike retirement accounts, there are no rules about how much you can deposit and when you can withdraw. Check out NextAdvisor’s list of the best online stock brokers for the best options for low fees and great customer service.

1. Target Date Fund

Now that you’ve read about investment vehicles, it’s time to learn about the investments themselves. Experts love target date funds, and with good reason. Target date funds are a mix of stocks and bonds in a single fund that automatically become more conservative over time. Target date funds are designed to reduce risk as you get closer to retirement and often include a year in their name, e.g. B. “Target date 2060 fund”. Employer-sponsored retirement plans often offer deadline funds as investment options because they allow employees to easily set them up and forget them, so to speak.

“Target date funds offer an easy way to save for a specific date and time, and they give access to a variety of markets,” says Fopiano. This is an advantage because you don’t have to pick individual stocks or do a lot of research.

Target date funds are a great place to start if you want something simple. You can invest in one through your employee-sponsored 401(k) plan, a brokerage account, or through your individual Roth or traditional IRA.

In fact, the multimillionaire investor and founder of the Personal Finance Club told NextAdvisor that if he could transform his entire portfolio, he’d invest in a single effective date fund.

2. Index funds

Index funds are investments that track and attempt to match an index, such as B. the overall market, the S&P 500 and many others.

“An index fund is an exciting and relatively safe way to make your first investment because it’s diversified, has lower fees, and gives you exposure to a large chunk of the market in a single transaction,” says Melanie Mortimer, President of the SIFMA Foundation, at Educational nonprofit organization.

You can also start investing in index funds with small amounts of money. For example, Fidelity does not have a minimum investment requirement to purchase units of its Fidelity® ZERO Large Cap Index Fund or its Fidelity® ZERO Extended Market Index Fund. Most major investment managers offer similar funds that the average consumer can easily open with a small initial investment. NextAdvisor recommends low-cost, broad-based index funds as an excellent place to invest.

Like a target date fund, index funds can be purchased through a taxable brokerage account or through tax-advantaged retirement accounts such as your 401(k) or traditional or Roth IRA.

3. ETFs

An ETF is a type of security that tracks a specific index, sector, or commodity that you can buy and sell throughout the day like a stock. Unlike mutual funds, which you can only trade once a day at market close, ETFs are traded on an exchange (hence the name).

Because of their tax efficiency, ETFs are also a good choice for taxable brokerage accounts.

Here’s how to start investing today

If you need help with your investment portfolio, a robo-advisor can ask you a few questions about your risk tolerance and investment timeline to determine the best investments for you. Robo advisors are used by most investors and are reliable. Once you know your risk tolerance, you can open an account. You can stick with a robo-advisor or consider NextAdvisor’s list of the best online brokers for a more traditional or self-managed option.

The power of consistency

Try to invest on a regular basis, e.g. B. every time you get paid. This strategy is known as dollar cost averaging because over time you make regular contributions and get used to investing. Just focus on consistency. Some employers can even automatically deposit a portion of your paycheck into your investment account. Once the money is in your account, make sure it’s not just lying around.

Take the extra step to make sure it’s actually being invested. Depending on the account type, simply transferring money is not always enough. Many online brokers also require you to buy the stocks or funds you want to invest in.

pro tip

For most investors, we recommend a low-cost, broad-market index fund that tracks the entire stock market or the S&P 500, which are available from most brokers and pension plans.

Finally, stop by every now and then. “You don’t want to check it every day,” says Fopiano. “Markets go up and down, but if you think long-term, you can handle falling markets.” It’s best to verify that your accounts are performing as expected, that dividends are being paid (and reinvested, if you choose) and that Your investments match your level of risk and your future goals.

With continuity, time on the market, and investments you feel comfortable with, you’ll be building your future self with big bucks when you’re ready to retire.

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