New Year, New Savings Plan: 5 Smart Tips for Beginning Investors

this story is part 12 days tipshelps you get the most out of your technology, home, and health during the holiday season.

Becoming an investor is not easy. on the other hand, Federal Reserve Rate Hike has helped to develop an interest in high yield savings account To go up considerably, stock market The S&P 500 Index is down about 20% in 2022.

Economic uncertainty calls for a cautious investment approach. For beginners, expert investment advice is a must.

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But now that everyone can send out investment tips from their smartphones, it’s getting harder to find reliable advice. Following his TikTok financial guru or his Twitter cryptocurrency blogger wrong could lead to serious financial mistakes.

How can a novice investor navigate today’s economic climate? build wealth When savings for retirement It requires careful planning and long-term strategy. To help you make smart money decisions this year, CNET spoke with investment experts to explain how to balance proven strategies with new opportunities to support you. investment target.

Here are some proven and fresh best practices for 2023 to help you start investing.

Decide what you want to spend your money on first

choose stocks, choose or buy mutual funds Bitcoin It might actually be the easy part.But no particular investment, strategy, or philosophy is as important as knowing why I invested in the first place. In other words, what do you want with your money?

James Lee, a certified financial planner and president-elect of the Financial Planning Association, begins by ascertaining his clients’ life goals, even before talking about investment strategies.

“Ask them what their future goals are for which they need funding,” Lee said. “It’s important to understand what the goals are in order to inform the timeline and build a portfolio with the right risk and return characteristics to achieve those goals.”

We all invest for different reasons, but most of us have a common goal. Fund your child’s college educationGoals can also evolve, and larger economic conditions should influence your approach.For example, you may be currently worried about strengthening your nest eggs Soaring Inflation When rising interest rates.

It can be difficult to articulate your life goals and envision your future, but doing so is an important first step in investing. Setting clear goals and reviewing them each year will help you know your timing, strategy, and willingness to take risks.

Your goals may include external and even non-financial considerations. According to Anjali Jariwala, his planner and founder of Fit Advisors, socially conscious investing has become an important touchstone for many. Similarly, climate changemore and more investors are establishing or restructuring their portfolios to more environmentally friendly.

Automate your investments (and always receive “free money”)

For most of us, the primary investment goal is to build a nest egg. retirementAccording to Farnoosh Torabi, General Editor of CNET Money, becoming financially independent so that you can retire comfortably is a top priority for most people. But only 57% of Americans have some form of retirement savings, according to a recently published survey by Personal Capital, an online wealth management platform.

If you work for a company that offers a 401(k) or employer-sponsored retirement account, there are two good reasons to opt in. First, a portion of every salary goes to that investment, with regular and automatic contributions. Second, your employer may offset some or all of your contributions.

For example, if your monthly income is $4,000 and your employer matches up to 4% of your salary, you must contribute $160 to receive full employer matching. Your contributions and your employer’s contributions add up to $320 a month, or $3,840 a year. Also, you can always donate more. In 2022, individuals can contribute up to $20,500 to her 401(k). As a general rule of thumb, Jariwala recommends throwing in at least an employer-matched amount so you don’t miss the “free” money.

Also, if you have more money to invest after reaching your 401(k) limit, you can open an IRA. An IRA is a special class of savings account that offers tax protection.a Traditional IRA You can make pre-tax contributions while you are employed, and the money you withdraw when you retire is taxed as ordinary income.

With a Roth IRA, your money is taxed on the way into your account, and you can withdraw it 100% tax-free when you retire. This placement is ideal for young workers, early career workers, or low tax workers. A word of caution, “There are income limits, so once you reach a certain income level, you can’t donate any more,” Jariwala said. “When you’re young, it’s a great opportunity to put as many dollars into the Los IRA as possible.”

Develop a goal-focused investment strategy

Economic conditions that have been relatively stable for decades are now changing. Inflation hits 40-year high and we are watching interest rate hike as a Inflation-resistant investment opportunities has become increasingly important. The same $100 buys less than the day before, so higher prices can erode a portfolio. However, some types of assets are more susceptible to inflation than others. This is the time to consider assets that help insulate your portfolio, such as some retirement accounts, real estate, and Treasury Inflation Protection Securities, a type of government bond that fights inflation.

Today, “investing” is often associated with actively trading stocks on Robinhood or other brokerage firms. This means frequent buying and selling based on market analysis. But getting a solid return through active investing is very difficult, even for professionals, and is not the most practical or effective way to manage money for most people.

Passive investment methods such as using index funds or ETFs are a better choice for most people. In contrast to active investing, where you (or your portfolio manager or broker) buy and sell individual investments on a regular basis, passive investing usually means buying and selling assets over the long term.

In response to market ups and downs, index funds are designed to provide average returns across markets and track the performance of established market benchmarks such as the Standard & Poor’s 500 and the Nasdaq Composite. The rationale is that, in the long run, markets usually outperform single investments. Research shows that index funds typically outperform actively managed funds. Passive investing through mutual funds is especially effective for younger generations who have built their wealth early in their careers for decades.

Even Warren Buffett, one of the richest people in the world and Chairman and CEO of Berkshire Hathaway, is a fan of index funds. As quoted in The Little Book of Common Sense Investing, Buffet said in an interview: Better than most investment professionals, in fact. ”

Even better, index funds are less risky and typically less expensive than other types of investments. Buying your own index fund isn’t particularly complicated, Robo Advisor Identify what means the most to you and help you manage your portfolio.

Don’t invest more than you can afford to lose in risky investments

Once you’ve covered the basics of retirement, long-term investments, and emergency funding, you might reach for riskier or less successful ventures. Risky investments often yield higher returns…if the investment is successful (and that’s a big one).

Cryptocurrency is one alternative to explore.You can do it invest in crypto Buy tokens such as Bitcoin or Ethereum on exchanges such as Coinbase, or binanceBut it’s important to understand Crypto remains unregulated and highly volatile. Not for everyone. You need a high risk tolerance and the financial headroom to withstand a market crash. You also need to make sure you can pay your bills even if you lose money.

Lee recommends investing in cryptocurrencies only if “you have assets that you can afford to speculate on, meaning your assets can go to zero and it won’t affect your ability to meet your financial goals.” Recommended.

Even if you decide to dip your toes in the sea of ​​crypto, it’s wise to start small. For starters, Jariwala recommends allocating no more than 1% to 3% of his total portfolio.

Learn Fundamentals and Track the Changing Financial World

Of course, one article or piece of advice can only go so far. That’s why it’s important to be proactive when it comes to your financial future. Part of that is tracking the news of the day and understanding how it impacts bottom lines, whether it’s the impact of the pandemic on supply chains or the impact of war on gasoline prices.

Financial books such as Rich Dad, Poor Dad, Total Money Transformation, and Common Sense Investing Booklets can deepen your understanding of the fundamentals. (Perhaps a good place to start is Blinkist, which provides detailed summaries of over 5,000 books.)

You can also get professional help, and it may not cost as much as you think. Certified Financial Her Planner can help you build your portfolio, manage your finances, and help with your taxes. You can find someone in your area by browsing her PlannerSearch for the Financial Planning Association. Note that advisors typically charge a flat fee or receive a portion of their portfolio in exchange for their services. Also, make sure your advisor is a fiduciary. In other words, advisors are legally obligated to put your financial interests first.

There is no one-size-fits-all approach to investing. But there have never been more self-service tools and resources to help you get started.

For more information, check out the following guides: How to Invest in Cryptocurrencies in 2022 and our list best robo-advisor.

The editorial content on this page is based solely on the objective and independent evaluation of our writers and is not influenced by any advertising or partnership. It is not provided or commissioned by any third party. However, we may receive compensation for clicking links to products or services offered by our partners.

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