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Only 37% of young adults under age 35 reported investing in the stock market in 2017 and 2018. Over the long-term, investing is one of the best pathways towards sustainable wealth. However, it can be overwhelming to know how (and where) to start.
Fortunately, we all begin somewhere! Even if you only have a few dollars, you can start your journey towards financial independence. Let’s get into what you need to know about investing for beginners.
Start with Your Employer’s Retirement Plan
Many employers support their employees’ retirements by providing 401(k), 403(b), or 457(b) options.
These retirement plans are simple, but they can be a powerful tool in propelling your investing strategy. You choose how much you can contribute to the plan, and this can be as little as 1%.
Best of all? Many companies offer employee matches. That means if you contribute up to that match, you’ll receive free money in return!
Furthermore, contributions are tax-deferred. This lowers your taxable income each year, which also reduces the amount you owe to the IRS come tax season.
Consider Robo Advising
Robo advisors create ‘smart’ investment portfolios based on your risk tolerance and financial status. The Robo advisor reallocates your assets for you. All you need to focus on is funding your account.
That said, you’ll want to pay attention to management fees. Ideally, you should choose a firm with the lowest management fees available (as these fees can eat up your valuable gains).
Choose the Right Funds
If you’re taking a DIY-investing approach, make sure that you’re opting for the best funds. This selection process starts by identifying your risk tolerance.
Whether you’re passionate about investing in renewable energy or marijuana companies, most experts recommend that you look at investing as a big-picture game. In other words, rather than focusing on the daily trends, you want to focus your efforts on how the money can grow in the long-term.
That said, you may also have practical, time-limited goals such as funding a child’s college education or purchasing a new house.
In terms of identifying your risk tolerance, you need to assess how comfortable you can be with market downturns. Are you the type of person who would panic and sell if your funds take a nosedive? Or, are you the person who can sit and wait it out?
You also want to pay attention to expense ratios. It takes spending money to make money, and each fund has different upfront costs. If you’re starting, aim to focus on funds that have low expense ratios (between 0.50-1%).
Finally, remember that stock prices dramatically vary. Some cost several hundred dollars for a single share. However, there are also many, high-performing top stocks under $5!
Diversify Your Options
Smart investors don’t put all their eggs in one financial basket. They balance their portfolios- sometimes with a mixture of both conventional and unconventional choices. The theory is that if one area suffers, the rest of the areas can balance it out.
Final Thoughts on Investing for Beginners
As it turns out, investing for beginners isn’t as mysterious as it may seem. With the right planning and strategizing, you’ll be well on your way towards financial success!Interested in learning more about what to look for when picking stocks? Check out this article today!