At this point in time your top money priorities may just involve meeting monthly expenses and paying off student loans. If you’re just trying to make ends meet, thinking about serious investing may seem a long ways off. But it doesn’t hurt to understand the basics so you know what your options are when you have some spare cash to stash away. So how do you get started?
“There’s no one-plan-fits-all when it comes to investing,” says Mark Kull, Northwestern Mutual financial advisor in Louisville, Kentucky. “The best choices should be tailored your individual circumstances, risk tolerance, time frame and goals.”
And don’t confuse “goals” for your money, with investing, he cautions: “An investment is money set aside for the long term – years into the future – for goals like college funding or retirement. Savings is the money you set aside for emergencies and major purchases like a car or a condo.”
There are a variety of investing vehicles and the returns you get are tied to the amount of risk you’re willing to take. It’s important to remember that different types of investments react differently to market conditions.
Kull offers some general principles for investors to consider:
- Stash some cash.
You can plan for a rainy day by having funds with easy access so you don’t have to tap into investments. Northwestern Mutual’s, How Much Should I Set Aside for Emergencies? tool can help you figure out the right amount to squirrel away.
- Have a financial plan.
Think through your goals, identify your targets and complete a risk tolerance/investor profile questionnaire. This is where a financial advisor can be a big help. An expert takes the emotion out of your finances and can help you stay the course.
- Revisit your plan regularly.
Review your plan every couple of years, or when you’re making a major life change like getting married, purchasing a home, or switching careers.
- Take advantage of the power of tax deferral.
As soon as it’s available, consider contributing to an employer’s retirement plan, like a 401(k). It’s never too soon to start saving for the future. And many employers will match a portion of your contribution, which is an added bonus or money on the table. Tip: Increasing your contribution amounts by as little as one percent can go a long way toward building a sizeable nest egg. To see how, check out the Retirement Savings Calculator.
- Leverage the power of compounding.
Compounding is your money’s ability to grow over time.Consider the Rule of 72. This is the number of years needed to double your money at a given interest rate. All you do is divide 72 by the interest rate: money invested at 10% will double in 7.2 years.
Try out these handy calculators to learn more: