Getting started with investing can seem a little intimidating. There are so many terms and different funds or stocks to choose some people just give up before starting. Don’t be one of those people. Do your research and learn a little about where to put your money. You worked hard for that money so put a little effort into where you’d like to invest and grow it. There are some simple ways to invest your money that will pay off when you’re ready to retire. Here are some basic investing tips for beginners.
Start Investing Now
The younger you start investing, the more you will earn. The power of compound earnings is something that cannot be stressed enough. Compound earnings means that any money you earn is reinvested to earn additional returns. And the earlier you start investing, the more benefit you gain from compounding. It is understandable that younger people may have more debt and it may seem impossible to invest. However, you can invest significantly less each month in your twenties versus starting to invest in your thirties or forties and still have more income in retirement.
If you’re no longer in your twenties, don’t fret. It is never too late to start investing and the same still holds true. Starting today will net you more than if you start next year. Check out this calculator to better understand the outstanding benefits of compound interest.
Index Funds Are Your Friend
Index Funds are a simple, inexpensive and profitable option for the passive investor. In recent years, index funds have routinely produced better returns than more expensive, actively managed portfolios. These are stable funds that you can invest in and not have to worry about trading every time the market moves. Index funds that pay dividends are even better. Not only are you earning money on the price of the fund, but you will also earn money from the dividends that is reinvested.
Employer Retirement Plan
If your employer has a retirement plan like a 401(k), you should be contributing to it. Especially, if there is an employer match. That is free money and a guaranteed return on your investment so be sure to take advantage of it. When you decide to contribute to your employer’s plan, the money will go directly from your paycheck to your investment. That’s great because you never see the money and your investing becomes automatic.
Roth IRA
Investing tips for beginners could not be complete without the Roth IRA. The Roth IRA should be at the top of your list when investing for retirement and should be one of the first investments in your portfolio. Money that you invest in a Roth IRA is after tax, meaning you’ve already paid taxes on it. So you lose the tax write off on the front end but the beauty is you never pay taxes on the money it earns. The reason you want to do this early is because there are limitations on how much you can invest and how much income you can earn to be eligible to invest. You could end up with hundreds of thousands of dollars that are tax free at retirement. You can also invest the money in your Roth in other funds like index funds. Some employers are now offering the Roth option as well. Check out this article on the Roth IRA.
Target-Date Mutual Funds
These mutual funds are like a basket of investments that may include a mix of stocks and bonds. There is a date associated with the fund that will match up with your anticipated retirement date. So if your target date to retire is in 2040, you would choose a fund with the date of 2040. The fund will hold mostly stocks in the beginning while getting more conservative and more into bonds as you approach retirement. It is all automatically set to have more risk at the start and less risk as you age.
Health Savings Account (HSA)
If your employer offers a high deductible insurance plan, you may be eligible for the health savings account. The HSA offers the triple tax advantage. That means the HSA allows you to contribute to your account tax free, grow your account earnings tax free and take the distributions from the account, you guessed it, tax free! Of course, you must spend the distributions on approved medical expenses which we all will have sooner or later. You also have the opportunity to invest the funds in your account to let them grow even more. Check out this article for more information on the HSA.
Don’t get caught up in all the hype you see on the internet about the get rich quick methods. Start slow with the boring but tried and true way to make great money for your future. Investing doesn’t need to be intimidating, just do your research and learn all you can. You will be able to carry that knowledge with you for your whole investing career.
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