At present, many Americans’ primary financial goal is simply remaining solvent.
As many as 78% of Americans only make enough income each month to cover their bills, creating an endless cycle. One way out is investing.
Investing isn’t complicated. I won’t pretend that after reading some articles you will know exactly how to go about buying your first stock; although that might happen.
Since GameStop stock began skyrocketing two weeks ago, new investors have rushed into the market in hopes of earning enough income to repay loans.
As with most major financial decisions you make in life, investing is something which requires thoughtful consideration and setting aside enough time to fully comprehend its fundamentals before diving in head first.
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My conversations with non-market colleagues often revolved around one issue: Whom do I turn to for assistance?
There are countless sources available, but unless people know where to look they won’t yield much benefit.
Dheerja Kaur, head of Robinhood’s core product department agreed with USA TODAY’s assessment that resources and tools for investing do not suit their individual needs. “People believe resources and tools for investing do not meet those specific requirements,” Kaur stated.
Robinhood recently made headlines by creating an economic disruption fueled by individual investors betting on stocks such as GameStop, AMC and Blackberry. Acorns, Stash and Invstr are making investing easier for minorities, women and all investors.
There’s a growing community of investors drawn to apps who don’t know how to plan out their investment portfolio properly, yet are drawn in. But don’t despair: experts in various areas exist; just need someone else who does!
Beginning investors looking to venture into the market should contact an experienced advisor in order to set goals and establish strategies. Here are a few steps you can take towards taking an appropriate investment path:
What Should I Look For In A Financial Planner Or Investment Adviser?
When selecting a financial advisor, it’s essential that you conduct an interview. Remember, this individual will be managing your finances so don’t rely on name recognition alone when making a selection decision – instead take an informed approach in selecting one who meets all of your criteria.
“Negotiate with those you trust and respect before beginning this search process… the field of financial management, investment planning and planning for the future can often be unpredictable,” according to Monica Sipes, an accredited professional in financial planning with Exencial Wealth Advisors and senior wealth advisor.
“To start off with, consider inquiring how investments decisions are made,” advised the adviser. “Make sure you’re comfortable with the process – whether an adviser makes these decisions directly for you, or whether the firm outsources it,” she advised. Additionally, inquire as to what their fees or payment will be like and ask any pertinent questions such as what compensation the adviser or firm may receive in return.
If you still feel that you have not received enough value from them, ask a classic interview question such as, “what else should I be asking you?” and the response should provide insight into their work approach, dedication and expertise.
“Make sure that the adviser you select is not under any pressure to sell specific products to you; independent financial advisers are your best choice,” suggested Brian Walsh Jr. of Walsh & Nicholson Financial Group. Fiduciaries have an ethical obligation to advise only products or investments which best suit their customer.
He stressed the importance of researching your options carefully before making a quick decision. You should consult multiple advisors and select one who resonates with your personality and best fits into your plan.
Sipes recommends visiting www.letsmakeaplan.org in order to locate financial advisers in their area.
What Investment Terms Should I Know?
Knowledgeable investors know it can also be helpful to have some words related to investing on their lips before encountering them in real-life. According to financial advisors, here are some words they suggest learning:
- Asset allocation is a strategy to match your risk tolerance with your goals through asset distribution in a portfolio.
- Fiduciary: Someone or an institution acting on your behalf as your trustee.
- Account for brokerage: An account established with a registered brokerage firm to make trades on your behalf.
- Retirement Account: an account which can be accessed upon retirement (or in emergency situations).
- An investment vehicle refers to any product used for investing, such as bonds, certificates of deposit options, stocks or futures.
- Exchange-Traded Funds: Exchange-traded funds (ETF) are collective security investments made up of individual securities that trade on an exchange market.
- Mutual funds are investment vehicles comprised of funds collected from investors that invest in various securities.
- Registered Investment Advisor (RIA) refers to any company or individual providing investment advice and managing portfolios for wealthy clients.
Source: Investopedia.com
How Much Money Should I Be Investing?
A resource such as Investopedia may offer guidance.
Investment decisions should always be a personal one, yet there are key points which have proven their effectiveness over time.
At a minimum, advised Sipes, investors should save at least 20 percent of their earnings. His most dedicated investors tend to save 40-50 percent or more.
As an investor just starting out, making that initial commitment can be daunting. Apps like Robinhood and Acorns provide convenient investing solutions by enabling users to invest up to $1 per day with fractional shares – providing an ideal way for newcomers to familiarize themselves with investing procedures and experience their first transactions with fractional shares. Your deposit amount depends solely upon your risk tolerance.
Investment apps make investing accessible for novice investors: here’s how I started investing with only $100.
“What I often advise my clients is to ensure you have at least three to six months worth of essential living costs saved up in an emergency savings account, including savings for short-term emergencies,” noted Walsh. Additionally, contribute to any company retirement plans available (and benefit from matching contributions if they exist); contributing depends on both how much net cash flow remains each month as well as your goals.
How Many Stocks Should I Own?
Before investing in stocks, investors are advised to carefully consider their account and investment vehicle as these details could influence how many stocks are needed to adequately diversify their portfolios.
“Investments in individual stocks shouldn’t be considered until your portfolio meets your objectives and reaches them effectively,” Walsh noted, noting that research had demonstrated that having more than 20 shares didn’t necessarily equate to increased risk-based diversification. Walsh advised investors instead to build portfolios with ETFs or funds costing less money that provide seven to ten funds as suitable diversifiers in one’s investment portfolio – further proof of why investing in single stocks alone shouldn’t be done at any cost.
Sipes believes that 35-50 stocks make an effective portfolio. He states, however, that selecting specific stocks can be difficult. Therefore, for new investors who may find picking individual stocks difficult, index funds such as ETFs could provide the perfect way to start out.
As previously discussed, this highlights the significance of meeting with a financial planner who understands your goals and needs intimately.
Sipes reminds us of this by emphasizing the value of continuous effort over one-off efforts. “It is essential to set goals and follow through on them – this has enabled many clients to realize great successes”, she stated.
When Does My Portfolio Start Making Money?
Let me see the money, right? Investing can be daunting due to its combination of control and risk, so positive reinforcement – particularly financial reinforcement – is often most successful when teaching someone how to invest.
“Hopefully, your portfolio starts earning money immediately,” stated Walsh.
“When investing, keep the long term in mind,” according to Mr. Haile. “No one can predict the market; one day you may start investing and by the next it has dropped 10-20% or gone up! There is no way of knowing for certain.”
How Does Investing Affect My Taxes?
Investments may have no significant effect on your tax return or can make an immense difference.
Sipes noted that investing in retirement accounts such as an IRA, 401(k), or IRA won’t have much of an effect on tax-deferred funds; whereas investing $10,000 in Tesla during the past year and seeing it turn into $70,000 within 12 months could have an enormous effect on any taxes due in short order.”
Don’t worry; capital gains taxes are usually calculated according to when and how much money is taken out from accounts.
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Further: What are the capital gains tax rates in 2021, and what steps can be taken to minimize them?
“For gains realized from positions held for more than one year, capital gain tax rates range from 15-22% depending on your tax bracket,” according to Walsh. If your gains occur within less than 12 months of entering the market, these gains are treated as normal income and taxed accordingly.
Everybody’s investing journey differs, yet everyone must start somewhere by making the choice to invest the funds we have. From there on out, it can be as complex or straightforward as desired, yet one thing remains certain for both novice and seasoned investors: investing is an opportunity for risk taking.