Even those who are daunted when thinking about their finances understand the importance of budgeting and planning for the future. Investing is probably the part of personal finances that is the most intimidating, but it’s actually not as complicated as you may think. 

Perhaps you’re just starting out investing, or perhaps you’ve been investing for a while but are unfamiliar with some of the basics. In this short guide, we’ll give you a solid foundation that will help remove barriers that may have kept you from investing altogether or from getting more involved in your investments.

Let’s first look at the two main reasons you should start investing.

Why should I invest?

Save for your retirement and grow your wealth

The main reason most people invest is to save up for their retirement. By putting money aside during your working years, you have the opportunity to ensure that a certain amount of money is available to you and your loved ones when you retire. 

If you invest your money through an IRA or another retirement account, you can gain certain tax advantages. Some investment vehicles, such as an employer-sponsored 401(k) and a Traditional IRA, allow you to invest your pre-tax dollars, which reduces your taxable income and increases the amount of money you have available for investing. Other accounts rely on after-tax contributions but then don’t tax your distributions. (You can find an in-depth look at your options in the article “What are the different types of IRA accounts?”)

Building up your retirement savings also means that you won’t have to rely solely on benefits such as Social Security, which is heavily underfunded and, thus, might face an uncertain future. Investing for retirement can therefore help you achieve financial security and freedom because you can live off the funds you’ve invested and enjoy the earnings that your investment portfolio has produced.

To grow your wealth, you need to invest your money in assets that can produce a higher rate of return than savings account in the bank. Especially in today’s low-rate environment, letting your money sit idly by in a savings account, which generates less than 1% a year, will decrease your wealth due to inflation, so you should explore investing.

Reach your financial goals

When saving up for retirement, you’ll likely have specific goals in mind. Perhaps you’ve created a budget for your golden years and want to ensure you have a certain amount of money available each month to maintain your desired standard of living. Perhaps you’d like to do lots of traveling. Or perhaps you want to move to a different state — or even a different country — and want money set aside for those purposes.

You might also consider investing if you want to meet other financial goals, outside of retirement. Are you planning on sending your kids to college? Or helping your grandkids with their tuition? Other goals could be buying a new home or a cottage or starting/expanding your own business.

Whatever financial goals you’re pursuing, you’ll need the funds to reach those goals, and investing can help you build such funds.

The simple rule of thumb is to just start. Here’s how.

How do I get started with investing?

Start investing as early as possible

This is pretty simple, really: Starting as early as you can is one of the best ways to see solid returns. Not only will you be able to put aside more money over the years, you’ll also benefit from compound earnings, which means your investment earnings will start earning returns on their own — it’s a snowball effect.

How does compounding work? Let’s say you invest $500 every month for ten years with an average return of 5% per year. At the end of the ten years, your portfolio will be worth $77,641.14, and of that amount, $17,641.14 is your total interest earned.

The longer your time horizon, the more benefit you’ll see from compounding.

Another reason to start investing as early as possible is that it gives your investments time to recover from the inevitable market corrections. All markets have their ups and downs, but if you start investing early, you’ll have more time to ride them out.

Set your investment goals

Before you decide how much to invest and what assets to invest in, it’s crucial you set your financial goals as they determine how much you should be investing. What do you expect your expenses will be during retirement? Do you want to set extra money aside for traveling and unexpected health care costs? 

As part of setting your financial goals, you need to determine the “when” — at what age are you planning on retiring? Or, if you’re saving up for your children’s or grandchildren’s education, when do you expect they’ll start the college or university adventure?

No one wants their standard of living to decrease upon retirement, and by properly setting your financial goals and creating a budget, you can ensure that you can maintain the standard of living you’re used to.

Decide how much to invest

Now that you’ve set your financial goals, you can determine how much money you should be investing.

In general, there is no minimum amount required to start investing — every dollar counts and will grow over time. To determine the best amount required to start investing, consider your time horizon and the amount of money you need. Then, work backward and break down the amount you should invest per month to reach those goals.

If you’re contributing to a retirement account, there may be special requirements in place for minimum or maximum contributions. For instance, if you have a retirement account at work, such as a 401(k) that offers matching contributions, your minimum amount to invest into that account should be at least enough to earn the full match amount. The matching contribution is practically free money, which you don’t want to miss out on.

Always seek the help of an experienced advisor who can help you determine what the best amount is to start investing and to contribute every month.

Choose your investment strategy

Once you’ve narrowed in on your financial goals, your time horizon, and how much you should be investing, it’s time to consider your investment strategy. A key component of the strategy is your risk profile. Should you be aggressive and pursue high-risk investments with the potential for huge gains? Or is your best option to invest in low-risk assets that may produce smaller but more stable returns?

Your strategy depends in part on your comfort level, and you should revisit it over time. For instance, investors saving for retirement may be more risk-tolerant at the beginning of their investing but then switch to a risk-averse portfolio as they get close to retirement age because they will have less time to recuperate from potential losses.

Understand your investment options and build a diversified portfolio

When speaking to your advisor, you should ask about your investment options in order to understand their advantages and disadvantages. 

Your advisor can help you build a diversified portfolio to reduce risk and maximize returns. Diversification means that you invest in a mix of asset classes such as bonds, stocks, and precious metals, and if your portfolio is properly diversified, it will protect your investments against market volatility and inflation. 

To truly diversify your portfolio, you will want to include assets that aren’t correlated. For instance, we recommend diversifying your portfolio with physical precious metals, which typically increase in value when assets such as stocks drop in value. Stock market corrections are inevitable, and once the next one happens, you don’t want to risk losing a huge chunk of your hard-earned money.

Financial advisors are licensed to offer and provide “paper” investments like stock and bonds. They do not have the ability to provide physical gold and silver, which is the reason why most are unaware of the benefits of having gold and silver in your portfolio. With that being said, many financial advisors will not present an asset class that is outside of what their firm can offer.

 

You should certainly include stocks and bonds in your investment portfolio, but you should diversify outside of Wall Street and the banking system so that you are hedging your investments against corrections in the stock and bond markets.

I’m investing — what now?

You’ve set your financial goals, spoken to an advisor, and built a diversified portfolio. Most of the hard work is done, and you can sit back and relax — for the time being. Are you an active investor, one who wants to be heavily invested in the decision-making? Or are you more of a passive investor who wants to put your investments on autopilot and let someone else do the hard work?

Either way, your job isn’t done yet if you want to get the most out of your investments.

Keep investing

It goes without saying that you should keep investing. Of course, you’ve set a budget, and you’re contributing to your investments on a regular basis. But you can also consider increasing your investment amount as you go — perhaps a job promotion is increasing your income, or you come across extra money through an inheritance or the sale of that second car that’s been sitting in your garage.

Monitor your investments

It’s also important that you keep an eye on your investments to ensure you’re on the right track towards your investment goals. Most of the time, you’ll have online access to review your account balance, and you will also receive regular statements. You may also wish to do an annual review with your advisor to make any adjustments necessary to meet changing market conditions or changes to your own financial situation. 

Be proactive, not reactive

We are living in unprecedented times. Federal debt is spiraling out of control, and our central bank is printing trillions of dollars. The largest monetary experiment in history is unfolding in front of us.

This is a very hard environment to find a safe, conservative investment in that can provide growth when the dollar is being devalued at this capacity, and it’s important that you are proactive in protecting your portfolio because once the dollar collapses, it will be too late to hedge against the crisis.

Adjust your financial goals if needed

Just like your financial situation may change over time, so may your financial goals. Perhaps you want to retire earlier than planned, perhaps you want to move to a different, less expensive area when you retire, or perhaps you have another child that you wish to put through college. Adjust your financial goals along the way as your priorities change because your financial goals impact how much you need to invest.

Don’t be intimidated by investing

Investing can seem intimidating, especially if you’re just starting out. However, if you follow the advice in this guide to start investing, you are well on your way. Investing can provide financial security, so the work involved is well worth it as it can give you peace of mind about your financial future.

So, there’s no reason to wait to start investing. Research your investment options today and call Gold Alliance to learn how investing in physical precious metals can protect and grow your investment portfolio.