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| How to start investing your money in 6 steps |
After some stocks rose rapidly in the stock market two weeks ago, new investors went to the market hoping to make enough money to pay off debt.
Like most of the big financial decisions of your life, investing requires careful consideration and taking some time to learn the basics before dipping your toe in the water. The only option to grow your money, why did new investors buy stocks during the pandemic?
Speaking to my colleagues who are not in the market, one thing kept asking itself: Who do I go to for help?
Well, there are endless resources, but if people don't even know what to do with those resources, then these resources are useless.
There is a whole new generation of investors attracted by applications that have not planned their investment portfolio. But as the saying goes, you don't have to have an answer for everything, you just need to know who does.
For both new investors and those considering joining the market, it would be in their best interest to sit down with a professional to set some goals.
Here are some steps to put yourself on a good investment path:
1. What should I look for in a financial planner or investment advisor?
When choosing a financial advisor, it is important to conduct an interview. This is the one who will handle your money, so you shouldn't rely on a fancy title on your own or choose the first option.
“Start by asking people you know and trust... Financial planning and investment management is very much a referral type of business,” said Monica Sipes, certified financial planner and senior wealth advisor at Exencial Wealth Advisors.
"First, ask how investment decisions are made," she said. "Make sure you're comfortable with that — it could be an individual consultant [making those decisions], it could be a company level, or maybe they're outsourced. Also, ask, how is the consultant or the company compensated."
If you still don't feel like you've had enough of them, try the classic interview, "What else should I ask you?" The answer can give you a sense of the work style, commitment, and experience a counselor has.
You also want to make sure that the advisor is not motivated to sell you certain products and is an independent advisor, said Brian Walsh, Jr., chief financial advisor at Walsh & Nicholson Financial Group. “Trustees are legally obligated to recommend only investments and products that are in the best interest of the client.”
He added that you should not rush to a decision and that you should do your research, meet with several consultants and go with the right person for you.
There are also resources for finding financial advisors if you are the first to take this step in your family or friend.
2. What investment terms should I know?
It's also a good idea to know some of the investment terms before you encounter them. Here is a list of terms that financial advisors advise you to know:
Asset Allocation: A strategy that balances your tolerance for risk and objectives by dividing up portfolio assets.
Credit Agency: The person or company that acts on your behalf.
Brokerage Account: An account with a brokerage firm licensed to conduct trades on your behalf.
Retirement account: An account accessed after retirement (or during an emergency, in some cases).
Investment vehicle: the products you invest in, for example certificates of deposit, bonds, stocks, options or futures contracts.
ETF: An exchange-traded fund is a type of security made up of a group of securities.
Mutual Fund: An investment vehicle consisting of a pool of money collected from several investors to invest in securities
Registered Investment Advisor (RIA): A person or company that advises high net worth individuals on investments and manages their investment portfolios.
3. How much money should I invest?
This is subjective, as with most investment decisions. However, there are some key points that have proven over time to yield good results.
“At a minimum, you need to save 20% [of your income],” Sipes said. "My most serious investors probably save roughly 40-50%."
If you're starting out, committing to that amount of money is nerve-wracking. Investment apps, such as Robinhood and Acorns, have options to invest as little as $1 at a time in fractional shares, which is a great option for those who want to learn about the process. The amount of money you invest, in the end, is what you decide - and it depends on your tolerance for risk.
Investing apps make it easy for beginners: Here's how I got started with $100
“What I tell clients is that you first want to make sure you have three to six months of living expenses in the emergency fund, such as short-term savings,” Walsh said. "Make sure you contribute to your employer's retirement plan if one is offered, and take advantage of the match if one is available. From there, it will depend on how much net cash flow you have left each month and what your goals are."
4. How many shares should I own?
Before hoarding, investors would be wise to think about the investment instrument and account they are using because these details can play a role in the number of shares needed to diversify.
"If you're investing in individual stocks, which I don't recommend unless the rest of your portfolio is built in a way that reaches your goals, then no more than 20 stocks will suffice," Walsh said, noting that research has shown that more than 20 stocks in the portfolio "do not perform." necessarily to better diversify risk in general. We build portfolios using low-cost funds and ETFs and usually have seven to 10 funds in a given portfolio. There is no need for more than that."
On the other hand, Sipes believes that 35 to 50 stocks can create a diversified portfolio. “Picking individual stocks can be tricky, so often for novice investors, I recommend index funds, such as an ETF or something like that.”
Again, this highlights the importance of sitting down with a financial planner who takes your situation and goals into account.
To this end, Sipes reminds us that consistency trumps amount. "It's important to make a plan and stick to it," she said. "This is where we see clients achieve a lot of success."
5. When does my wallet start making money?
Show me the money, am I right? The scariest part of investing is risk and control. As with all learning, positive reinforcement works best - especially if that reinforcement is money.
“Hopefully your wallet will start making money right away,” Walsh said.
"When you invest, you need to make sure you have a long-term view. Nobody can time the markets," he added. “You can start investing and the next day the market goes down 10% or goes up 10%, and there is no way of knowing.
6. How does the investment affect my taxes?
An investment can't have any effect on your taxes or can have a lot.
“Investing in a retirement account, such as a 401(k) or an IRA, will not have a (significant) impact on tax-deferred accounts,” Sipes said. In as little as 12 months it could have a massive impact on the short-term dividend taxes that come into effect.”
But fear not, capital gains taxes can usually be managed depending on the amount and time of withdrawal from your account.
Walsh explained, “If you hold your positions for more than one year, any gains will be taxed at a capital gains tax rate of 15% or 20% depending on your tax bracket.” If you hold positions for less than one year, your earnings are taxed as normal income."
Everyone's investment journey is different, but we all start with the decision to make our money work for us. The whole process can be as complicated or hands-free as you like. One thing remains constant for new and experienced investors alike: it's a risk.
Look for reliable help and do not be afraid. We are all "the market" in some sense, so we all have the same chances to go up or down.
This column should not be considered financial advice. Contact a professional financial planner to determine if the investment is right for you and how it fits with your personal financial goals. The opinions and opinions expressed in this column are those of the author.
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