When it comes to financial investment, many people find themselves in a situation similar to that of the anonymous reader who wrote to us. They have set aside money in savings and retirement accounts and now want to know what the next step is. In this article, we will provide some tips on how to start investing money after securing your financial future.
Increase Retirement Savings
First and foremost, you need to make sure you are setting aside enough money for retirement. If you have a Roth IRA, is this the only account you have? If so, that may be insufficient. Many people incorrectly estimate how much money they will need in retirement and do not save enough. According to a survey conducted by the Federal Reserve, only 36% of Americans feel their retirement savings are on track to meet their goals.
Therefore, it is recommended to increase retirement savings by opening another investment account where you will invest funds to utilize in retirement years. This could be an employer-sponsored account like a 401K or a “traditional” investment account where you will make regular contributions over the long term.
Investing in Other Assets
Once you have secured your financial future, you can start investing in other assets. You still need to save money, but with your savings account already strong, you might want to consider saving less and investing more. Make sure to allocate a budget for investing, just as you do for saving.
You may be thinking now: Are the markets performing poorly? That’s true, but this is the time to buy stocks and other assets at lower prices. This way, when the markets start performing better, you will benefit from larger gains.
So where do you start? You already have a brokerage account for your retirement account, and for convenience, it is recommended to continue using the same broker and open another investment account. Fund it regularly and consistently. The simplest way to invest is to put your money in index funds and exchange-traded funds (ETFs). This way, you won’t need to pick any individual stocks, and you will be able to reduce risks with market fluctuations.
Once you decide what you want to buy, invest in those assets regularly, regardless of market fluctuations. This approach is called “dollar-cost averaging,” and over time, it serves as a good way to manage risk and ensure that you do not spend too much on investment by making irregular purchases.
If you do this consistently, you will find that you can accumulate a good amount for yourself that you can use to buy a home, pay for a wedding, or even fund a great vacation. Investing is not limited to retirement, and the earlier you start, the more money you will have to spend on things you consider important, without having to dip into your savings account.
Good luck!
– Kristen
If you have questions about money, Kristen is here to help. Submit an anonymous question and she may answer it in a future article.
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Sources:
Board of Governors of The Federal Reserve System. “Economic Well-Being of U.S. Households in 2020 – May 2021.”
Source: https://www.thebalancemoney.com/how-to-build-wealth-6374107
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