According to a 2019 Charles Schwab survey, about 59% of Americans considered themselves savers. However, more recent studies show that around 63% of people in the same demographic live paycheck to paycheck.

When you’re just starting out, it can feel like your paychecks barely cover rent, utility bills, debt payments, and groceries. However, during inflationary times, your hard-earned Money buys less bread, gas, or home than it used to. 

After you’ve managed monthly expenses and saved some money in an emergency fund, it’s time to start thinking about Investing. The challenge is determining where to invest and how much to invest.

Luckily, with so many investment options available for beginners today, there’s no excuse to skip out. That’s great news because investing can be a fantastic way to grow your wealth. 

Here, we’ve broken down the process of investments for beginners. 

Why Should you Invest?

In financial circles, the debate between savings and investing is a common one. However, they are two sides of the same coin.

Saving is essential when it comes to building wealth. While it doesn’t generate wealth on its own, it provides the capital needed to invest. At the very least, investing helps you keep up with inflation, ensuring your money retains its purchasing power. At its best, a long-term investment strategy offers the potential for compounding interest, where your earnings generate even more earnings over time.

Now that you know why you should and what investment is, let’s begin to how can you invest money.

Step 1: Figure out what you’re Investing For

You must be thinking, “Shouldn’t my first step be finding some hot, secret stock picks that I will skyrocket my savings?” In truth, successful investing generally starts with understanding why you’re investing, not just what you’re investing in.

Many of us begin our investing with Retirement in mind. In fact, we believe that for most, investing for retirement should be a high priority on your financial to-do list right after making minimum debt payments and building a cash buffer. Understanding where investing fits within your financial priorities can help you make more informed decisions. 

While figuring out your investment goals may not be as exciting as hunting down stock tips, 2qit’s the foundation for making smart investment decisions down the line.

Step 2: Choose an Account Type

Knowing what you’re investing for can help you pick the right account to open. Here are the three main types of accounts you might consider starting with: 

(A) Brokerage Account:

When people talk about trading stock, they typically refer to a brokerage account. Think of a brokerage account as your standard-issue investment account. Here are the basics:

Pros: It’s flexible and easy for anyone 18 or older. There are no limits on how much you can deposit, and you have access to a wide range of investments. You can also withdraw cash whenever you need to.

Cons: Taxes. You’ll generally pay taxes on investment profits each year, like gains from selling investments, dividends, or interest.

When to Consider: Great for trading a full range of investments for specific goals or building wealth. However, if you’re investing for retirement, consider starting with one of the next two account types. That said, opening a brokerage account with no fees or minimums (like Fidelity’s) can be a smart move to have it ready.

(B) 401(k):

An employer-sponsored retirement savings account that offers tax advantages for saving for your golden years. While typically offered by most companies, it’s always a good idea to confirm your eligibility with your Human Resources (HR) department.  

If your employer doesn’t offer a 401(k), there may be similar plans available, such as 403(b) or 457(b) accounts. These plans share many of the same benefits as 401(k)s.

Pro: This plan gives you tax benefits by allowing pre-taxed contributions, which lower your taxable income. Your investments grow deferred until withdrawal, and many employers match your contributions, providing additional savings.

Cons: There are strict withdrawal rules before age 59 and half, and limited investment options within the plan may restrict your choices.

When to Consider: 401(k) plans have limitations, but they are a good way to save for retirement. If available through your employer, they are generally a wise investment for your future financial Security.

(C) IRA

An Individual Retirement Account (IRA) is a retirement plan in which you can open and manage your account independently outside of your workplace. The traditional IRA is a straightforward option among the various types of IRAs.

Pros: IRAs offer tax benefits similar to 401(k)s. Contributions are often tax-deductible, potentially lowering your taxable income. You also enjoy flexibility in contributions and a broader range of investment options, including individual stocks.

Cons: There are eligibility rules dictating who can contribute, annual contribution limits, and guidelines for withdrawals. Choosing the right type of IRA requires careful consideration of your financial situation and retirement goals.

When to consider: Consider opening a traditional IRA if your employer doesn’t offer 401(k) or a similar plan. It can be particularly advantageous if you anticipate being in a lower tax bracket during retirement, potentially benefiting from tax-deferred Growth and tax-deductible contributions.

Step 3: Open the Account

Deciding where to open your investment account depends on the type you’re considering. For a 401(k), use your employer’s chosen provider. For an IRA or brokerage account, select a financial institution that suits your needs and is known for its range of investment options and user-friendly services.

Step 4: How Much to Invest

Every investor’s situation is unique, but the best rule of thumb for saving is to save as much as possible. A good starting point is saving 20% of your income. This allows you to build a significant amount of capital over your career.

Initially, prioritize building an emergency fund equivalent to three to six months of living expenses. This safety net ensures you’re prepared for unexpected financial challenges.

Once you’ve saved enough for emergencies, invest any additional savings that aren’t needed for short-term expenses. If your workplace offers a retirement account like a 401(k) with matching contributions, take advantage of this opportunity. Contributing enough to earn the full match is like receiving your employer’s free money, which significantly increases your savings.

Investing wisely and staying committed over the long term can multiply your capital.

Step 5: Understand your Investment Option

Once you decide where do I invest money and how to invest, you’ll need to choose what to invest in. Every investment carries risk, and it’s important to understand each instrument. 

Investing is more like building a balanced Diet than a high-stakes poker game. Just like you wouldn’t survive on kale chips alone (no matter how trendy they are), focusing on a few “hot” investments can be risky. Instead, try to expand your options, such as investing in stocks and bonds, to diversify your portfolio. 

For young investors or those with long-term goals, a higher allocation to stocks can be beneficial. Understanding your overall investment strategy is crucial to understanding good places to invest money.

The Most Popular Investment Options Are: 

• Bonds and Stocks: Buying individual stocks and bonds is often viewed as the traditional form of investing, though it’s also the most intricate and time-consuming. If you choose this approach, prepare to spend hours and days in researching stocks, building a diversified portfolio, and managing your investments actively. Investments beginners have simpler alternatives to start investing with less complexity and initial investment.
• Investing in Funds or ETFs: Mutual funds and ETFs offer a packaged approach to investing, akin to buying a prefilled grocery basket. You can mix and match them to create a diversified portfolio tailored to your goals. Alternatively, opt for an all-in-one fund, which simplifies management with a single investment covering various assets. Target-date funds, designed for Retirement Planning, are ideal for 401(k) or IRA investments, adjusting asset allocation based on your retirement timeline.
• Professional Management Options: For those needing guidance, professional management is an option. Despite misconceptions of being exclusive to the wealthy, low-cost robo advisors provide accessible professional management. These automated services handle day-to-day management efficiently, making investing easier and more affordable.

Final Words

So that was it our investment beginners guide. Investing is a crucial tool for building long-term wealth and achieving financial goals. While these steps provide a solid foundation, consulting with a professional financial advisor can offer personalized guidance based on your unique financial situation and goals. If you’re seeking expert advice, consider contacting Prosperity Financial Advice for tailored investment strategies and financial planning. 

We can help you navigate the investment landscape with Clarity and certainty. Our team of experts will craft a personalized strategy aligned with your goals, ensuring a smooth transition to financial security and a comfortable retirement. We use a data-driven approach to maximize your returns while minimizing risk.

The post A Comprehensive Beginner’s Guide to Investment in 2024 appeared first on Prosperity Financial Group | San Ramon, CA.

Elliot Kallen Wealth Manager | Registered Principal

For more than three decades, Elliot has provided customized wealth management solutions for entrepreneurs, business owners, retirees, and millennials.

Elliot and his wife, Tammy, are passionate about giving back to the community through their 501(c)(3) foundation, A Brighter Day. Through his partnership with A Brighter Day Charity, the Kallen family has helped local teens and young adults recognize and access resources to cope with the risks of stress and depression.

He enjoys spending his free time with his family. Some of his hobbies include cooking, wine, golf, travel, and studying history.

He lives in Lafayette, California with his wife, step-daughter, and grandson.