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Investing 101 - Basic Tips for Saving & Investing

Updated: Aug 31, 2023

Today, we're talking about Investing 101, part of a 4 week series about investing.


In this post there are basic tips on automating savings, saving early and often with salary increases or bonuses, choosing low cost investment choices initially that fit your risk tolerance and goals, how to know when it's time you may need help investing and diversifying your portfolio, and what investing considerations you should know.


Saving and Investing

Automating Savings


One of the best ways to save money is to automate your savings. This means setting up a system where a certain amount of money is automatically transferred from your checking account to your savings account on a regular basis. This way, you don't have to worry about remembering to save money, and you're less likely to spend it.


There are a number of different ways to automate your savings. You can do it through your bank, your employer, or a financial advisor. If you're not sure how to automate your savings, talk to your bank or financial advisor. They can help you set up a system that works for you.


Saving Early and Often


Another important investing principle is to save early and often. The sooner you start saving, the more time your money has to grow. Even if you can only save a small amount of money each month, it will add up over time.


For example, let's say you save $200 per month for 30 years. If you earn an average annual return of 7%, you will have over $100,000 saved which has grown to nearly $244,000!!!


However, if you wait 10 years before you save $200 per month, only having 20 years to accumulate, you will only have about $50,000 saved. But that amount has only grown with the same returns to $104,000. A 235% difference!


As you can see, saving early and often can make a big difference in your financial future. So, if you're not already saving money, start today!


Choosing Low-Cost Investments


When you're first starting out, it's important to choose low-cost investments. This means investing in funds that have low fees. Fees can eat away at your returns, so it's important to minimize them as much as possible.


There are a number of different low-cost investment options available. You can invest in index funds, which track a specific market index, such as the S&P 500. Index funds are a good option for investors who are looking for a low-cost, diversified investment.


You can also invest in exchange-traded funds (ETFs), which are similar to index funds. ETFs are traded on exchanges, just like stocks. This means that you can buy and sell them throughout the day, which can be helpful if you're looking to make frequent trades.


Investing Based on Your Risk Tolerance


When you're choosing investments, it's important to consider your risk tolerance. This means how much risk you're willing to take with your money. If you're not comfortable with a lot of risk, you may want to invest in more conservative investments, such as bonds.


If you're willing to take on more risk, you may want to invest in stocks. Stocks are more volatile than bonds, but they also have the potential to generate higher returns.

If you're not sure what your risk tolerance is, you can take a risk tolerance quiz. Once you know your risk tolerance, you can choose investments that are appropriate for you.


It's important to remember that there is no one-size-fits-all investment strategy. The best investment strategy for you will depend on your individual circumstances and risk tolerance.


Diversifying Your Portfolio


Another important investing principle is to diversify your portfolio. This means investing in a variety of different assets, such as stocks, bonds, and real estate. Diversifying your portfolio can help reduce your risk.


For example, if you only invest in stocks, and the stock market crashes, you could lose a lot of money. However, if you have a diversified portfolio, you may be able to offset some of your losses by investing in assets that perform well when the stock market is down.


Getting Help When You Need It


If you're not sure how to invest your money, or if you need help developing an investment strategy, you may want to consider getting help from a financial advisor. A financial advisor can help you assess your financial situation and develop an investment plan that meets your individual needs.


Investing Considerations


There are a few other important investing considerations to keep in mind. These include:

  • Investing for the long term. The stock market is volatile, and there will be ups and downs. However, over the long term, the stock market has historically trended upwards. This means that if you invest for the long term, you're more likely to see your investments grow.

  • Rebalancing your portfolio. As your investments grow, you may need to rebalance your portfolio. This means selling some of your winners and buying some of your losers. Rebalancing can help keep your portfolio diversified and help you stay on track with your investment goals.

  • Taxes. When you sell investments, you may have to pay taxes on the gains. It's important to understand the tax implications of your investments so that you can make informed decisions.

Conclusion


Investing can be a great way to grow your money over time. However, it's important to remember that investing is not without risk. You should only invest money that you can afford to lose.

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