this story is part ofCNET’s report on how to make smart money move in an uncertain economy.
You may want to skip investing your money because. Becoming a new investor can be a daunting time.
Expert advice is essential for beginners, but social media and internet connectivity means there are more voices vying for your attention and money. Now that anyone can post their investing tips from a smartphone, it can be hard to find trustworthy advice: Following the wrong TikTok financial guru or Twitter crypto bro can lead to major financial mistakes.
How can novice investors navigate today’s economic landscape?and Careful planning and long-term strategy are required.To help you make informed financial decisions this year, CNET spoke with investment experts who explain ways to balance time-tested strategies with new opportunities to support you .
Here are the time-tested best practices for fresh 2022 practices to help you start investing.
First, decide what you want your money to do
Pick stocks, choose mutual funds or buyMight actually be the easy part.But no particular investment, strategy or idea is more important than knowing why You invest first. In other words, what do you want to do with your money?
James Lee, a certified financial planner and president-elect of the Financial Planning Institute, always works with clients by reviewing their life goals before even talking about investment strategies.
“I asked them what goals they have and need financial resources in the future,” Li said. “It’s important to understand what your goals are to inform your timeline and build a portfolio with the appropriate risk and return profile to achieve them.”
While everyone has their own reasons for investing, most of us share the same goals: saving for retirement, buying a home, maybe paying off student debt, starting a business or. Your goals can also evolve, and the larger economic situation should influence your approach.For example, now you may be worried about strengthening your savings in case and .
While it can be challenging to articulate your life purpose or envision your future, doing so is a critical first step in investing. Establishing clear goals and revisiting them every year will help you understand your schedule, strategy, and risk appetite.
Your goals may include external or even non-financial considerations. Anjali Jariwala, certified financial planner and founder of Fit Advisors, says socially conscious investing has become an important touchstone for many.Likewise, given thatan increasing number of investors are building or reconfiguring their portfolios to support those .
Automate your investments (and always get “free money”)
For most of us, a major investment objective is toAccording to CNET Money editor-in-chief Farnoosh Torabi, having financial independence for a comfortable retirement is a top priority for most people. But according to a recent survey by online wealth management platform Personal Capital, only 57 percent of Americans have some form of retirement savings.
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 each paycheck goes toward that investment, making contributions regular and automatic. Second, your employer may match some or all of your contributions.
For example, if your gross monthly income is $4,000 and your employer matches up to 4% of your salary, you’ll need to contribute $160 to get a full employer match. Combine your contributions and your employer’s contributions, and that’s $320 a month, or $3,840 a year. And you can always contribute more — individuals can put up to $20,500 into a 401(k) through 2022. As a general rule of thumb, Jariwala recommends that you invest at least an amount that matches your employer, so you don’t miss out on “free” money.
If you have more money to invest after you’ve used up your 401(k), you can open an IRA, a special type of savings account that provides some tax protection.OneLet you make pre-tax contributions while you work, and when you withdraw your money in retirement, your money will be taxed as ordinary income.
With a Roth IRA, your money is taxed as it enters the account, paving the way for 100% tax-free withdrawals in retirement. This arrangement is ideal for younger workers earlier in their careers or those with low tax rates. The caveat is that “there’s an income limit, so once you hit a certain income level, you can’t contribute any more,” Jariwala said. “When you’re young, it’s a great time to get as many dollars as you can for a Roth IRA.”
Develop an investment strategy focused on your goals
After decades of relative stability, the economic landscape is now changing.We saw therefore.Find become more and more important. Rising prices can eat into your portfolio because the same $100 will be bought for less than the day before. But certain types of assets are more susceptible to inflation than others. Now is the time to explore assets that can help isolate your portfolio, including some retirement accounts, real estate, and Treasury inflation-protected securities, a type of government bond that offsets inflation.
Today, “investing” is often associated with actively trading stocks on Robinhood or other brokerage firms. According to an analysis of the market, this means frequent buying and selling. But earning reliable returns through active investing is extremely difficult — even for professionals — and, for most, it’s not the most practical or efficient way to manage money.
For most people, passive investment models like index funds and ETFs are better options. In contrast to active investing – where you (or your portfolio manager or broker) buy and sell personal investments on a regular basis – passive investing usually means buying and holding assets for the long term.
As the market ebbs and flows, index funds aim to provide an average return of the overall market, tracking the performance of a set market benchmark such as the S&P 500 or the Nasdaq Composite. The rationale is that the market generally outperforms any single investment in the long run. Research shows that index funds generally do better than actively managed funds. Passive investing through mutual funds has been especially productive for generations of young people who had decades to build wealth early in their careers.
Even Warren Buffett, one of the richest men in the world, chairman and CEO of Berkshire Hathaway, is a fan of index funds. Buffett quoted him in an interview in The Little Book of Investing Common Sense: “For the vast majority of investors, low-cost index funds are the smartest equity investments. By investing in index funds regularly, you don’t know anything. Investors can actually outperform most investment professionals.”
Even better, index funds are less risky and generally less expensive than other types of investing — unchecked fees that can eat into your portfolio over time.While buying index funds yourself isn’t particularly complicated,can help determine which makes the most sense for you and manage your portfolio.
Don’t invest more than you can afford to lose in high-risk investments
Once you understand the basics such as retirement, long-term investing, and emergency funds, you may venture into riskier businesses — or those that are less established. Higher-risk investments generally lead to higher returns…if the investment is successful (that’s a big assumption).
Cryptocurrency is an alternative to explore.you canBy purchasing tokens such as Bitcoin and Ethereum on exchanges such as Coinbase, or . But it’s important to understand that And very volatile. This isn’t for everyone: you need a high risk tolerance and financial capital to withstand market declines. You also need to make sure you can afford to lose money and still pay your bills.
Lee recommends investing in cryptocurrencies only if you “have an asset that you can speculate on, meaning the asset can go to zero and it won’t affect your ability to achieve your financial goals.”
Even if you do decide to venture into encryption, it’s prudent to start small. For starters, Jariwala recommends an allocation of no more than 1% to 3% of the total portfolio.
Learn the basics and keep track of the changing world of finance
Of course, any article or piece of advice can only take you so far. That’s why it’s important to be proactive when it comes to your financial future. Part of that is following the news of the day — whether it’s the impact of the pandemic on supply chains or how the war might affect gas prices — and understanding how it affects your bottom line.
Financial books such as Rich Dad, Poor Dad, Financial Management, or The Little Book of Investing Common Sense can enhance your understanding of the fundamentals. (Maybe start with Blinkest, which provides in-depth summaries of over 5,000 books.)
You can also get professional help, and it may not be as expensive as you think. A certified financial planner can help you develop your investment portfolio, manage your finances and help you with your taxes. You can consult the Financial Planning Institute’s PlannerSearch to find someone in your area. Keep in mind that advisors often charge a flat fee or take a percentage of your portfolio in exchange for their services. And make sure your advisors are fiduciaries, which means they are legally required 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 our guideand our list .
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