The Right Time to Start Investing
Your trusted Financial Planners and Educators
I want to start investing but don’t know where to start. It may seem painfully obvious but investing should relative to your goals. Have well defined goals as to what you would like to see your accounts do. Here are some thoughts about how you may want to approach investing for the first time:
- Build an emergency fund: Before diving into investments, it's crucial to have an emergency fund in place. Aim to save 3-6 months' worth of living expenses in a readily accessible account to handle unexpected expenses or financial setbacks. This fund acts as a safety net, providing stability and preventing the need to dip into investments prematurely.
- Pay off high-interest debt: If you have high-interest debt, such as credit card debt or loans with interest rates higher than potential investment returns, it may be wise to prioritize paying off that debt first. The interest you save from paying off debt can outweigh potential investment gains.
- Understand your financial goals: Clarify your financial goals, both short-term and long-term. Determine whether you are investing for retirement, a down payment on a house, education, or other specific objectives. This will help shape your investment strategy and time horizon.
- Assess your risk tolerance: Evaluate your comfort level with risk. Investments come with varying degrees of risk, and it's important to understand how much volatility you can tolerate. STOCKS DON’T ALWAYS GO UP. Generally, investments with higher potential returns tend to carry more risk. Consider your age, financial obligations, and investment knowledge when determining your risk tolerance.
- Start with a solid financial foundation: Ensure that you have a solid foundation in terms of budgeting, saving, and debt management. Establishing good financial habits and a strong financial base will provide a solid platform for your investment journey.
- Take advantage of employer-sponsored plans: If your employer offers a retirement plan, such as a 401(k) or a similar program, it's often beneficial to participate, especially if they provide matching contributions. Employer matches are essentially free money, and contributing to such plans can help you start investing while benefiting from tax advantages. Additionally, you are able to contribute greater amounts to an employer sponsored plan that you can to an IRA. For employees under 50 maximum contribution to a 401k is $22,500 in 2023. If you include employer contributions, the limit is $66,000. For an Individual Retirement Account (IRA) it is $6,500.
- Educate yourself about investment options: Take the time to learn about various investment options and understand how they align with your goals and risk tolerance. Consider researching stocks, bonds, mutual funds, index funds, exchange-traded funds (ETFs), and other investment vehicles. You can also consult with a financial advisor who can provide guidance tailored to your needs.
- Invest for the long term: Investing is a long-term endeavor, and it's generally advisable to have a long-term perspective. The longer you remain invested, the more potential your investments have to grow and withstand short-term market fluctuations. Time in the market is often more important than trying to time the market.
- Start small and diversify: Begin with an amount you are comfortable investing and gradually increase your investment contributions over time. What is key here is leveraging “dollar-cost-averaging”. Even if it is $10 per month make sure it is consistent. Diversify your investments across different asset classes, industries, and geographic regions to help mitigate risk. This can be achieved through investment vehicles like mutual funds or ETFs that offer broad market exposure.
- Monitor and adjust: Regularly review your investment portfolio and make adjustments as needed. Reassess your goals, risk tolerance, and market conditions periodically. Consider rebalancing your portfolio to maintain the desired asset allocation