Plan Your Future
Want to invest your spare cash? Here are 6 expert tips to start
Investing in stocks can be a great way to build long term wealth, but stock ownership among young Americans has dropped 11 percent since the 2008 financial crash. According to a recent Gallup survey, less than a third of 18 to 29-year-olds have money invested in the stock market.
People who haven't invested for the last ten years have missed out on one of the longest bull markets in history. But it's never too late to start investing: make sure you've set aside money for a rainy day, build up a little investment fund, and get serious about your financial future! Here are six tips to get you started on your investing journey.
1. Set some targets
"The first thing you should do is clearly define your goals," says Neal Wadley, vice president of Westwood Wealth Management. "If you begin investing without clearly defined objectives, you may take unnecessary risk or fail to put yourself in a position to earn the rate of return you need to achieve your goals."
Once you know what you want and how much it will cost, talk to a professional. A financial advisor can help you build a diverse investment portfolio that aligns with your preferred level of risk, Wadley says.
2. Ease into the market
Michael Windle, a financial advisor with C. Curtis Financial, says that many new investors rush into a market too quickly. "Start slow," he says. "For example, if you think you have $50,000 to invest, put in $5,000 a month over the next ten months instead of $50,000 all at once."
This process, known as dollar-cost averaging, can help maximize your investment, Windle explains. Purchasing a fixed dollar amount of a particular investment at predetermined intervals takes emotion out of the equation—after all, you're basing your purchases on the calendar, not on the investment's price. Plus, following the progress of an investment over time can give you a feel for the market, and let you know when the investment is performing especially well—or especially poorly.
3. Look for tax breaks
When you're picking investments, don't forget taxes. Some investments can add to your tax burden, while others can boost your after-tax returns.
"For clients that have not taken full advantage of tax-deferred retirement accounts or tax-free education-savings accounts, I've recommended increasing their contributions and/or opening additional accounts," says Wadley.
4. Don't lock it all away
Windle suggests starting with accounts that will give you the greatest flexibility with your money. "Invest in liquid accounts so that if you miscalculated or have an emergency come up that you didn't count on, you won't be stuck paying a penalty to get your money back," he suggests.
Similarly, having a cash reserve on hand can make it easier for you to take advantage when an opportunity comes calling. "For some clients, surplus cash on hand has presented an opportunity," Wadley says, noting that a reserve makes it possible to make quick investments and take advantage of sudden opportunities without having to sell your current holdings.
5. Don't fall for the latest trends
It's easy to get sucked into the latest, hottest investments, but speculating in the investment of the moment is a game best suited to seasoned investors, Windle says. "Too many times I will see someone want to go all in on whatever the newest trend is, whether it's Bitcoin, AI, Internet of Things, Alternative Energy or another new hot topic," he explains. "The problem is that by the time the average investor hears about the new 'hot' investment, it is already too late."
New investors are better off focusing on proven companies and asset classes, like stocks, bonds, and property, rather than chasing trends without a proper understanding of what's driving their value.
6. Review your decisions
Even after you've chosen your investments, Wadley suggests regularly revisiting your goals and reviewing the progress you've made towards them. "I recommend reviewing your investment portfolio on a quarterly or semi-annual basis and focusing on the three-year, five-year, 10-year and longer-term annualized performance," he says.
Whether you're ahead or behind, he suggests working with an expert to adjust your investment strategy to the changing market, and your needs. "A financial advisor can help you avoid making emotional decisions and counsel you on a suitable asset allocation and specific investments that may enable you to earn the long-term return you need to achieve your goals," says Wadley.
Investing involves market risk, including possible loss of principal, and there is no guarantee that investment objectives will be achieved.
The information expressed is being provided for informational and educational purposes only. It is not intended to provide specific advice or recommendations for any individual. JPMorgan Chase and its affiliates do not provide tax, legal or accounting advice. You should carefully consider your needs and objectives before making any decisions. Asset allocation/diversification does not guarantee a profit or protect against a loss. For specific guidance on how this information should be applied to your situation, you should consult your own tax, legal and accounting advisors before engaging in any transaction.
Any type of continuous or periodic investment plan does not guarantee a profit or protect against a loss. Since such a plan involves continuous investment in securities regardless of fluctuating price levels of such securities, you should consider your financial ability to continue your purchases through periods of low price levels.
Investment products and services, such as brokerage and advisory accounts, are offered through J.P. Morgan Securities LLC (JPMS), a member of FINRA and SIPC. Annuities are made available through Chase Insurance Agency, Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. JPMS and CIA are affiliated companies under the common control of JPMorgan Chase & Co. Products not available in all states.
Alex Brophy is a Chase News contributor who focuses on finance and whose work has appeared in Business Insider and Yahoo, among several others.