If you think need decades’ worth of knowledge and a Ph.D. to start putting aside money for retirement or to plan long-term goals, you don’t. But that also doesn’t mean you don’t need to learn a thing or two about it. Listed below are 10 useful tips form financial advisers to help you accumulate wealth over the coming years.
- Begin as early as possible
Time is your ally when talking about investing. The more time you spend investing your money, the more time it has to accumulate. What is nice about investing is that you also gain compound interest, which is, simply put, the interest you earn on your interest.
- Choose higher returns
Instead of keeping your money stagnant by saving, choose to invest it instead. While saving is the more secure route, investing is all about taking risks to bring in higher returns.
- Prioritize your 401(k)
If the company you work at offers you a 401(k), be sure to apply for it. A 401(k) is a great way of putting aside money that you will eventually need a few years from now. A benefit of the 401(k) is that a portion of your paycheck automatically goes into your retirement savings plan. This will also lower your tax bills since the 401(k) contributions are created with pre-tax dollars.
- Simplify it
Don’t fret if you don’t know how to create a portfolio or decide on the right stocks or mutual funds. Try and check if your 401(k) plan provides “target-date” funds. “Target-date” funds are great for newbie investors. If you’re not too familiar with this, here’s how they work: You pick a year that you think you’ll be retiring by then. As you approach retirement, it starts to change the direction of your investments from something that was high-risking to something that is low-risking.
- Avoid procrastination
As much as possible don’t put off saving until it’s too late. To avoid procrastination, set up a system where money is taken out of your account monthly and transferred into an investment account. Not only does it keep you on track with your savings, but it also removes all the temptations that come with investing.
- Do not be afraid to scatter your investments
Even if you think this company will dominate the market for a very long time, do not invest all of your money into it. Why, you ask? Because if somehow you go it wrong and the company fails, you won’t have anything else to fall back on. Diversification is a concept of having a variety of investments and that is something you should not be afraid to do and something that helps the ride go smoothly.
- How much pain can you take?
Try to figure out how much loss you can take without withdrawing yourself from the market. Beginners without a lot of experience immediately start losing their composure and sell their investments when they see account values falling. In a situation like this, patience is the key. If you want to figure out how much pain you can take, try coming up with a scenario involving investments stocks and losses. If, say, losing $40,000 is enough to drive you over the edge, you might need to reassess the risks in your portfolio.
- Set aside a percentage from your income
A good estimate is to try and set aside 10% to 15% of your income to your retirement plan. If that is not doable, start small and slowly increase your savings time after time.
- Take it with a grain of salt
If you watch the financial news, it’s always best to take everything they say with a grain of salt. As a beginner, you should not freak out about market crashes or let your imagination run wild about predicted market doubles.
- Don’t be afraid to ask for help
If it’s too intimidating to do everything on your own, don’t be afraid to ask for help. Don’t be scared to approach an accountant, a financial adviser, or anyone who is successful in managing money for help.