Whether you’re a Millennial or Gen Z or you’ve been around for a lot longer, properly investing your money is the key to achieving your financial goals — whether that means saving to buy a home or car, for your education or your kids’, or for your retirement.
While you need to save money to invest money, they’re not the same thing. Saving money in a savings or checking account is a great start but interest rates are low or non-existent so your savings will likely never grow faster than the rate of inflation. That means $1 you save today will actually decrease in value a year or 10 years from now.
Investing — in stocks, bonds, mutual funds, or real estate, for instance — can be riskier than simply saving your money but the potential returns are higher too.
What you invest in is up to you — and ideally an investment advisor — but regardless of where you put your money, there are some basic tips everyone should be mindful of:
Get rid of your credit card debt – or make sure it’s manageable: Investing $1,000 for the long term is a great idea but if you have $1,000 of credit card debt, it’s best to pay that off first. That’s because your credit card is likely charging you 15% or more in interest while investing in a mutual fund, for example, may only give you a 5% return.
Make sure you have cash on hand — in a savings or checking account: We know, we just told you returns are low in these accounts but it’s always important to have money that’s easily accessible for emergencies that may arise — a layoff, an accident, a natural disaster. The last thing you want is to have to sell a long-term investment because you need the cash right now.
Live below your means: As you get older, you’re likely to make more money, through raises and promotions. But too often, people start spending more as their salary increases — on fancy restaurants, clothes, cars, and trips. A good way to avoid this is to automatically set most or all of your raise aside, for instance in your company’s 401K, and invest it instead of spending it.
Understand your risk tolerance: Investments like stocks, bonds, mutual funds, and real estate can earn you a lot of money but you can lose it too. An investment advisor — and not your brother’s roommate’s uncle (unless he’s an investment advisor!) — can help you evaluate the risks and whether they’re worth taking.
Diversify, diversify, diversify: Everyone’s heard of that one guy who invested $100 in Amazon or Apple 20 years ago and now they’re a millionaire. The reality is that’s as rare as a hole in one. The best way to grow your money over time is to invest in a variety of different stocks, bonds, real estate, industries, and regions of the world. Real estate may dip one year but tech stocks might increase. Your goal is to smooth out these ups and downs and still make high enough returns for your investments to grow beyond the rate of inflation.
Invest for the long term: Most solid investments will grow over ten years or more. So, avoid volatile “too good to be true” investments, choose a diversity of great ones (see above) and forget about them.
What are your favorite investing tips? We want to hear about them! Please share your two cents with the Shop Talk community.
Did you know? Do you know your monthly expenses?
A great place to start investing — or a way to invest better — is to understand what you’re spending on every month. It’ll help you determine how much you can invest and where you can cut back to invest even more.