You don’t have to go through a complicated process when you want to learn to invest. Below are simple steps you need to take to get started and learn how to plan for your family’s future.
1. Put aside money in your budget to invest
Your target should be to invest 15% of your gross household income so that it covers your retirement.
Why should you aim for 15%? When you put 15% of your income to invest consistently for years, you will achieve financial independence because time and compound interest are going to come into play. You are going to build wealth if you follow this. You are going to live a great life as a result.
Investing 15% is going to leave you with some room in your budget for other important things like paying off your house early or saving for your kid’s college fund.
If you are finding it hard to get to 15%, then you need to closely look at your monthly budget. You can use the old-fashioned spreadsheet or an app. A budget will help you stay on track with spending and show areas where you can cut down on expenses so you can have more money left for your retirement.
Below are some easy ways of saving money in your monthly budget:
Packing lunch instead of eating out with your colleagues every day.
Canceling your cables and going for a cheaper streaming service.
Skipping your cup of coffee at the shop and brewing your own in the morning.
Cutting back on brand-name items and getting the generic option (nobody is going to fight you for choosing Fruity O’s over Fruit Loops).
Work with an independent insurance agent to see whether it is possible to save on your insurance premiums.
Find easy and effortless ways to earn money on the side.
The savings from these tips don’t seem much, they add pretty fast and you are going to see how much you can save at the end of the month. This is going to give your investment efforts a huge boost. It boils down to your choice – investing needs to be your top priority, even if you have to cut out little luxuries. Making these sacrifices now will pay years down the line, and you will be very happy you did that.
2. Investing in mutual funds
You have heard about the different types of investments – bonds, stocks, precious metals, and cryptocurrency. But one investment has managed to stand out from the rest: mutual funds.
This is a type of investment where investors pool their money and then invest it in stocks. This is going to be managed by pros who buy stocks in different companies.
The best way to invest in the long-term is through good growth stock mutual funds because they let you spread your investment across many companies – from the most stable and largest to the fast-growing and newest. The process of spreading money among many companies is called diversification and it is an important investing principle. It is going to help in avoiding the risks that come with having all your money in just one company’s stock.
You should never put your eggs in one basket. Mutual funds are going to put the eggs in many different baskets. You can further spread the eggs by investing in four types of mutual funds.
Growth and income funds (they are also known as small-cap funds): They are the most predictable when it comes to market performance.
Growth funds (they are also known as mid-cap funds): They are stable funds that focus on growing companies. They have a moderate risk and reward.
Aggressive growth funds (also known as small-cap funds): They are the wild child. You don’t know how they will do, which falls in the category of high risk and high reward.
International funds: Investing in foreign-owned companies
A common myth is that millionaires take a big risk to become wealthy. Or that they inherited all the money they have. This is not the case.
There is a lot of research done on millionaires that lets people know more about them and how they built their wealth. A study involving thousands of millionaires painted a picture of what it looks like and how they did it.
Of all the millionaires, not any of them said that they made most of their money on a single stock. Speak to the experts at Asset Values and begin your investment plan.
3. Investing in a 401 (k)
If your employer is offering a matching contribution on your 401 (k), then you should invest there first. A 401 (k) is an employer-sponsored savings plan that lets employees contribute to their retirement savings account. The account has a wide range of investments including mutual funds. Retirement accounts can have different names – like 403 (b) for nonprofits and TSP for federal employees.
If you want to make the most of your investment, then it is best to reach your employer’s match, which is mostly a percentage of income. If your employer matches up to 4%, then you need to do that. This is like free money being offered to you; take advantage of it to grow your investment.
Controlling your finances has mode to do with behavior than math. Consistency is very important because that is how you will have your healthy nest egg. This is a marathon, not a sprint.
The good thing about contributing to 401(k) is it is an automatic payroll deduction. Once you set the contributions, you don’t have to think about that anymore. There are also tax benefits that come with 401(k) plans. The contributions made to this plan are pre-tax dollars, which means you don’t have to pay for the taxes until you withdraw it in your retirement.
There is also Roth 401(k) which many companies offer. With this, the contributions are in after-tax dollars, which means you don’t have to pay taxes when you withdraw the funds in retirement. A Roth 401(k) is the better option compared to a 401(k). If the 401(k) comes with a match and it is the only option, it is still a good way to invest.
Among the millionaires studied, the most common path to wealth creation was consistently investing in employer-sponsored plans. You can do the same; there is no reason why you shouldn’t do it too.
4. Contributing to a Roth IRA
The goal is to invest 15% of your income. You are not going to invest all of the 15% in the employer match in a 401(k), which is why you need to max on your Roth IRA too.
A Roth IRA is like a Roth 401(k) in the sense that you have to pay taxes on the money first before investing it.
When most people hear the word Roth, they start to be concerned. The good thing about investing in your Roth is that the money will grow tax-free. When you decide to withdraw the money in retirement, you don’t have to worry about paying taxes. If it grows by hundreds of thousands with time, the money is going to be all yours and you can withdraw it in retirement.
The total amount someone can contribute to either a traditional IRA or Roth IRA is $6,000 – or $7,000 for those 50 years and over. Talk to a financial advisor so they can provide you with more details and know your options.
If you decide to directly invest using an investing firm or financial advisor, then you can automate your Roth IRA savings. You will need paperwork to do this, but it is worth it because the time and effort it takes to fill out a form or two will be worth it when you don’t have to worry about transferring the money to your investments. Once you max out your annual Roth IRA limit, you can go to your 401(k) and then invest the remaining amount so you get to the 15%.
If your employer has a Roth 401(k) with good mutual fund options, you can choose to put all the 15% there. If the investment options in your 401(k) are not up to your standards, then invest up to where the employer matches then max on your Roth IRA because this is where you can choose the best mutual funds.
If you don’t have these options, or you need another option to invest 15% of your income, then consider putting the money in a brokerage account and then investing in mutual funds.
5. Working with an investment professional
You most likely want to make sure you get everything right as you get started with your investment journey. It is a good idea to work with someone who is experienced in this field because they will come with a lot of knowledge and information that you wouldn’t know. Get in touch with the professionals at Asset Value.
You also have a lot of questions that you need answers to before investing. You have to start looking for the best funds in the market and managing your 401(k). You might also want to know how to set up your Roth IRA. Working with an investment professional is going to make things easier for you and they can help you invest. You will get answers to all of the questions you have. Working with a pro ensures you make the best decision because you have the right information.
A good investment professional is going to:
Help in keeping your investment on track by regularly checking-in
Helping you learn more about investment choices so you make the best decision
Offering client-first approach
Investing is personal to an individual, which is why you should have someone you can trust during the process. You will get help coming up with a retirement plan that will help you achieve your goals. You will find it easier to work with a pro. It also gives peace of mind.