How to Invest Intentionally to Create Wealth and Wellbeing
Investing isn’t just for people who “have” money. Everyone can benefit from investing. And it’s an essential skill in mastering money.
If you are new to investing, you may find yourself hesitating to even get involved in it. That’s a natural response anytime we are confused about anything. But almost ironically, one of the biggest obstacles to investing is simply getting started.
With investing, big rewards will come over time. It’s not the glitz and glam you see in the news. Very rarely do people create wealth by buying the latest “it” stock. Most people create wealth with a steady, consistent, and passive approach to investing.
How to Start Investing: The Basics
Investing is mostly about increasing the value of your money over time.
What’s the difference between saving and investing? With savings, your goal is to preserve your money. When you save you’re storing money. With investing, your goal is to grow your money. That comes with risks and for many investing in the stock market is a calculated risk that has shown consistent growth in the long-term.
There are two basic ways to benefit from investing, and each serves a different function:
- Creating passive income streams – With this strategy, you’re focusing on buying investments that will provide a revenue stream. This can be in the form of interest and dividends.
- Growing your money – This is about investing your money in growth type assets, primarily equities (stocks) and often real estate. The basic idea is that you buy an investment today for $10, and 10 years from now it’s worth $100.
In an optimal investment strategy, you will be accomplishing both objectives to some degree. Though the conventional wisdom is that you should pursue growth when you’re in your twenties and thirties, then gradually shift to income as you move into your forties and fifties and are preparing for retirement.
Why You Should Invest
Investing is all about putting your money to work for you. Early in life, you need to work to earn money – which is to say that you will work for everything you get. But as you accumulate investment wealth, the income and growth from your portfolio should begin to gradually replace your income.
By the time you reach retirement, your investment income should completely replace your earned income, enabling you to enjoy a comfortable retirement.
How to Invest Easily
Though investing can seem somewhat exotic if you’ve never done it before, the process is very basic. For the most part, you are saving money, but you are doing so primarily for the purpose of growing it for future needs.
The best way to invest is through automatic payroll deductions. You can simply have an equal amount deducted from your paycheck each pay period and sent into a savings account, a mutual fund, or a brokerage account.
What you are doing is automating the investment process in such a way that it will require no time or effort on your part.
Ways to Invest
Start with Your Employer’s 401-k Retirement Plan
Many overlook their employer’s retirement plan when thinking about investing. It’s the simplest way to make your money grow.
- Sign up for your company’s retirement plan.
- Use payroll deductions to contribute each pay period.
And if your company matches your contribution, then contribute at least the match. Otherwise, you’ll be leaving money on the table.
Max Your Roth IRAs
A brokerage account can be set up for retirement contributions, such as an individual retirement account (IRA). There are different qualifiers to determine if you can open a traditional (pre-tax) or Roth (after-tax) IRA. In general, you can contribute to both a Roth IRA and an employer-sponsored retirement plan, such as a 401(k), subject to IRS limits.
You can open IRAs with your local bank or through a brokerage. IRAs with a bank can have a variable rate similar to a savings account. Whereas IRAs with a brokerage can be invested in a variety of assets including stocks, bonds, mutual funds, and exchange-traded funds (ETFs).
Invest with a Taxable Investment Account
When people think of investing, they often think about buying stocks using brokerage accounts. In fact, online brokerage accounts is an easy way to buy stocks and funds without any IRS limits. Online brokerage accounts are perfect for the DIY investor.
Many online brokerages offer minimal fees or zero-commission trades. In addition to a wide assortment of tools and training that will help you with the whole process too.
If you need financial advice, but may not meet the minimum assets for in-person financial advisors, consider a Robo-advisor that uses an investment philosophy and algorithms to help you create the right mix for your investments.
With brokerages you have options:
What If You Have Very Little to Invest
There are many online brokerages that enable investors of all income to start investing in stocks and index funds. Many of these apps allow you to start with as little as $5 to buy an index fund and others allow you to buy fractional shares.
What You Need to Know About the Mechanics of Investing
There’s no such thing as an all-weather investment so you will need to diversify–have a mix of stocks, fixed-income investments, cash type assets, and even certain tangibles, such as real estate and precious metals.
Stocks essentially represent your core growth investments, while fixed-income investments represent your income investments. Cash is the extra capital that you have available to take advantage of investments as they present themselves. And tangibles have a way of performing well when other asset types don’t.
Stay away from exotic investments
If you are a beginner investor, stick with the basics as listed above. Stay away from any temptation there may be to engage in options, day trading, or any other investment strategies that represent a significantly higher risk.
Go with funds whenever possible
Rather than getting into individual stocks, hold mutual funds and ETFs instead. The fund managers do the stock-picking for you, and you pay a lot less in transaction fees than if you try to assemble a large portfolio of stocks yourself.
Add to your portfolio on a continuous basis
Investing isn’t about reaching a certain portfolio size. It is a process of continuous growth. That growth should come from two directions: from investment earnings, and from additional contributions. Continue to fund your portfolio on a regular basis.
Adopt the long-term view
No matter what, you have to adopt a long-term view when it comes to investing. There will be times when your investment portfolio is down, and you will need to look past the moment and continue to focus on long-term growth. Virtually every bear market in history has eventually turned into a bull market. That’s exactly what you should be waiting for any time the market is down. The biggest benefits always come from those who invest for decades, and not years or months.