Investing is not only for the wealthy. Everyone who has some sort of financial savings can do so to get returns on any investment. Merely investing is not enough. You might need to do it smartly to get the maximum out of the returns. The probability of a successful investment depends on the amount of risk the investor is willing to take and how flexible is their profile.
The following article explains five smart ways for beginners to make an intelligent investment decision:
Don’t hesitate to take risks
The smartest and the most primary investment tip is to be open to take calculated risks while putting your savings in an investment plan. Many investors in their 20s make the mistake of avoiding taking risks even though a financial investment which does not seem to be fruitful might give good returns in the long run. Reaching a million mark on the investment profile requires certain risks and a reasonable allocation toward stocks.
Accept your employer’s generosity
Employers have investment plans such as 401(k) for saving for retirement. These investment programs allow you to contribute directly from your paycheck and are tax-deferred. Some employers also offer the benefit of matching the contributions up to a certain percentage of the salary. You can also invest in Roth individual retirement accounts (IRAs) if you meet their certain income requirements. Roth IRAs offer potentially bigger returns as you don’t have to pay for federal taxes when you withdraw money after retirement.
Invest in index funds or exchange-traded funds
The best way to invest in stocks and bonds is through exchange-traded funds (ETFs) or index funds. It can be a smart investment tip as these types of funds hold pieces of different investments and mimic the performance of a different index. An index tracks a portion of the stock market. For instance, the S&P (Standard and Poor’s) 500 tracks the 500 largest companies in our country. The idea is to build a diversified profile containing several funds within the 401(k). The profile can include national and international stocks and small allocation bonds.
Seek a financial advisor’s assistance
It is yet another smart investment tip. Although it might seem easy to invest in ETFs and index funds, you might still need some help allocating funds in the right investment plans. Hence, make sure to hire financial management companies in such cases. Robo-advisors, which are computer-based online investment companies, offer management services at 0.50% of the total investment profile. It also includes investment expenses and management fees.
Raise your savings rate
It can be sufficient to put away $100 or less for investment until your 20s. But, over time, you might need to save more to get the maximum returns on your investment during retirement. There are several online retirement calculators that can help you deduce your monthly savings goal. For instance, increasing your savings rate by 1.5% on your annual raise can get you close to $2 million on retirement, if you started out at a salary of $35,000 a year. Hence, it is advised to increase the savings rate as your earnings progress.
