Investing your money wisely is a crucial step towards securing your financial future. While the prospect of investing might seem daunting to beginners, it's not as complex as it appears. In this post, we intend to outline some information that can help newcomers build on a solid foundation.
1. Understand Your Financial Goals
You want to start investing but you do not know where to start. It is essential to define your financial goals, without knowing these, what is the real reason for even investing? Some examples consist of: are you investing for retirement, purchasing a home, or simply growing your wealth? Knowing your goals will guide you on how you should invest. Your goals should be specific, measurable, achievable, relevant, and time-bound (SMART).
2. Build an Emergency Fund
Now that you know your goals, next you need to secure your household. Before investing, you should make sure you have an emergency fund in place. At Kingdom Guard, we suggest you have a minimum of 2 months of expenses before starting to contribute towards other investments. This makes sure if any large expenses arise out of nowhere it will prevent you from withdrawing funds prematurely in case of unexpected expenses. The final goal is to consistently contribute to the emergency fund until you have 6 months of expenses saved.
3. Educate Yourself
Beginners should take time to educate themselves about various investment options. Read books, attend seminars, follow financial news, talk to a financial advisor, and consider online courses. Understanding the basics of investment will empower you to make informed decisions. There are too many people who consider themselves financial guru’s or professionals. It is important that your morals, thought process, and beliefs align with where you obtain your information to keep a solid foundation of understanding. After all, the best investment is to invest in yourself!
4. Pay Off High-Interest Debt
A lot of times, people only think of investing as putting money into “investment accounts”. Investing at its core is what will have the highest return on your investment. High-interest debt, like credit card debt, can erode your wealth faster than investments can build it. Start by paying off any high-interest debt before diving into investments. The interest you save by paying off debt is essentially the return on your money. Usually this is anything over 9%, depending on what the reason for the debt is (i.e. a vehicle depreciates rapidly, this is not necessarily worth paying off early instead of investing).
5. Diversify Your Portfolio
First, what is a portfolio? A portfolio is all assets and liabilities that you have. Things like checking, savings, investment accounts, and more are all items that are considered to be part of your portfolio. Diversification is a key strategy in investment. Rather than putting all your money into a single investment, spread it across various asset classes such as stocks, bonds, real estate, and commodities. Diversifying reduces risk and helps protect your portfolio from market fluctuations.
6. Understand Risk Tolerance
Assess your risk tolerance, which is your ability and willingness to endure the ups and downs of the market. Typically, younger investors can afford to take more risks, while those nearing retirement may prefer a more conservative approach. Your risk tolerance should align with your financial goals and how your portfolio is allocated.
7. Choosing the Proper Investment Account
A great starting point for beginners is to usually invest in the stock market instead of real estate or commodities, etc. This is because of the simplicity of opening up these types of accounts and low minimum cost to start. You financial goals will determine what type of account to open. If you want to save for retirement, accounts such as Roth or Traditional IRA accounts can be a great route (depending on your income level). Other retirement account alternatives are those offered by your employer such as 401(k)s or 403(b)s. These accounts offer tax advantages and many employers also match a portion of your contributions, which is essentially free money. These types of accounts do not let you pull the money out of them until age 59.5, if you are investing for something prior to retirement, you would invest in what is called a “Non-Qualified” account. You have access to this money at any given point in time without penalty.
7. Invest Regularly
Consistency is vital in investing. Establish a routine for contributing to your investments. Whether it's monthly or quarterly, regular contributions help you take advantage of dollar-cost averaging and compound interest, which can lead to substantial long-term gains.
9. Avoid Emotional Decisions
The market can be volatile, and emotions can lead to impulsive decisions. Stay calm and avoid making emotional investments or withdrawing funds in response to market fluctuations. A long-term perspective is often more rewarding. Do not think this is a get rich quick method, when purchasing investments, remember, they have an objective. Invest the money where you do not intend to touch it until you need it, that way you are not concerned about the market fluctuations as much.
10. Continuously Monitor and Adjust
As you gain experience, keep an eye on your investments. Rebalance your portfolio as needed to maintain your desired asset allocation. As your financial goals evolve, adjust your investment strategy accordingly.
Conclusion
Investing wisely is an essential step in securing your financial future. While it may seem overwhelming to beginners, it's a manageable process with the proper approach. Start by understanding your goals, educating yourself, and taking small, consistent steps toward building your investment portfolio. By following these guidelines and maintaining a long-term perspective, you'll be on your way to financial success. Remember that the key to wise investing is patience, discipline, continuous learning, and just making that first step!
Investing involves risk which includes potential loss of principal. Provided content is for overview and informational purposes only and is not intended and should not be relied upon as individualized tax, legal, fiduciary, or investment advice. The use of asset allocation or diversification does not assure a profit or guarantee against a loss.