Saving for the future, investing to grow your money and building wealth has little to do with the economic cycle, the stock market valuation or even how much money you earn.
It’s your mindset that can hinder your financial outcome and keep you trapped at an unsatisfying level of financial success. And, unless you can embrace a positive financial mindset, your ability to save, invest and build wealth will be hindered for the rest of your financial life.
The process of investing and wealth-building can be improved by a adhering to the following tips to set yourself up for potential financial success and freedom:
1. Start Early
It’s important to invest a percentage of your salary each month. And, starting early could be a way to dramatically increase your savings over time. The good thing about starting early is you can get the benefits of compound interest!
2. Set Investment Goals
Are you saving up to buy a house? Or putting money away for retirement? Investing with a purpose will help you determine the right strategy and keep you on track to pursue your financial goals. Determine your financial freedom number.
3. Know Your Time Horizon
If you think you’ll need the money within the next five years, you might consider less volatile investments, like fixed income securities. Investing for the long-term (think: 15 or more years)? You might think about adopting a less conservative strategy.
4. Assess Your Risk Level
Knowing how much risk you’re willing to take on will help you narrow down your investment choices and keep you from letting your emotions guide your investing during periods of high market volatility.
5. Analyze Your Budget
Take your monthly income and take a list of your monthly expenses and create a budget (for instance, the popular 50/30/20 budget). By looking at your spending, you may discover extra money to invest each month.
6. Know Your Investment Choices
Familiarize yourself with different investment types to see what makes sense for you. Are you interested in international stocks and ETFs (exchange-traded funds)? Maybe bonds and mutual funds?
7. Go It Alone or Use an Advisor
If you’re the independent type, you may be drawn to Self-Directed Trading. Or if you prefer an advisor or to automate your investments with a Robo Portfolio.
8. Consider Avoiding Individual Stocks and Bonds; Invest in Market Index Funds
If you’re still learning the ropes, you might be more comfortable sticking to broader based investments like index funds and ETFs. These types of investments require less of your time and are less risky since they invest in numerous companies. As an alternative, an market index fund is an investment that tracks a market index, typically made up of stocks, like the S&P 500, or bonds. Index funds typically invest in all the components that are included in the index they track,
9. Diversify Your Portfolio
If all your investments are your company’s stock, and they go out of business, you’ll wish you had a diversified portfolio. You may reduce your risk by holding a variety of securities that react differently to market changes.
10. Think Long-term
History shows whenever the market takes a dip due to volatility, it eventually bounces back. Be patient and disciplined: Give your money time, make consistent contributions and wait out inevitable market downturns.
11. Don’t Forget High Interest Debt
School loans or credit card debt can make allocating money to investments a tough choice. It’s possible to reduce your debt and invest, and we can help you accomplish both.
12. Get Your Match
Many employers offer a 401(k) match, which can be a great incentive to invest for retirement, helping you to potentially build tax deferred savings.
13. Save and Invest for Retirement
When you’re young, retirement seems like eons away — but for many, regardless of age, now is the best time to start saving for your golden years. You may consider looking into Traditional and Roth IRAs to get started. The typical retirement strategy is built on the pillars of your pension, 401(k) plan, your Traditional IRA, and taxable savings.
14. Automate Your Contributions and Pay Yourself First
Pay yourself first instead of saving what remains after monthly expenses. Set up recurring investments to take advantage of dollar cost averaging. With this strategy, instead of trying to time the market, you invest the same amount each month — sometimes you might buy high, but other times, you’ll purchase low.
15. Beware of Fads
Just because everyone is jumping on the latest meme stock or investing app doesn’t mean you should. Fad stocks are often unpredictable, so if this doesn’t align with your investment strategy, feel confident to sit them out.
16. Be Informed
A prospectus sheet details the performance of a company to help you understand its stock performance. And digital tools can help you track your investments, too. If you cannot dedicate time to read and research, invest in a market index fund which is one of the easiest and most effective ways for investors to build wealth.
17. Don’t Neglect Your Emergency (or Peace of Mind) Fund
Investing grows your money and helps build long-term financial freedom, but you need to be prepared for short-term unexpected expenses. So when setting out on your own, don’t forget to start setting aside funds in an emergency (or peace of mind) fund. This money should be liquid (not invested in securities), so you can access it for unexpected expenses.
18. Watch Out for Fees
Some brokers will charge a commission fee whenever you buy or sell stocks, which add up and make a dent in your overall returns. Trade U.S. stocks and ETFs commission-free with our Self-Directed Trading.
19. Ask for Help
Investing can get complicated. Don’t be afraid to reach out to a financial advisor for advice and support.
20. Adjust as You Go
As life circumstances change, it might make sense to move your money into different types of investment accounts or change up how much you contribute. Any time your financial circumstances change, remember to reassess your financial goals, plan and investments.
21. Create and Follow a Financial Plan
Every living adult needs to financially plan. A financial plan is a comprehensive overview of your financial goals, net worth, cash flow, debt, taxes, risk tolerance, time horizon and it provides the steps you need to take to achieve and manage them.
22. Investing has risks.
No one knows exactly what will happen in the future and investments could lose money, so be aware of how much you are able to invest and be comfortable leaving it there for a period of time since it may have ups and downs.
23. A Wealthy (or Positive Financial) Mindset
It’s imperative that you refocus your mindset and change how you think about yourself, your finances, and the world around you. If you keep thinking about things the same way, you’re going to get the same results. Change in the world around you doesn’t happen until you change yourself. Embrace and grow your positive financial mindset about money, wealth and financial freedom.
Getting Started
Getting started is often the hardest step for most new investor to take, but starting to invest today is advice worth implementing! “The best time to plant a tree is twenty years ago; the second best time is today.” And, what’s true for a tree is also true for growing your money.
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