According to a study conducted by Qualtrics for MagnifyMoney in February, the top investing regret among Americans age 56 and under was not investing more of their money in the markets in the last year.
With volatile markets, uncertainty over the war in Ukraine, and inflation concerns, millions of Americans continue to refrain from investing, preferring the relative safety of checking and savings accounts.
Five financial professionals offer their perspectives on the importance of investing despite volatile markets and share tips anyone can use to get started investing.
Begin Investing Now
If you’re thinking about investing, you should start as soon as possible, according to the experts. If you start at age 22, investing $4178 each year could become a $1.1 million nest egg by age 67, based on historical market return assumptions and adjustments for inflation. Starting just ten years later effectively doubles the amount you need to invest each year to achieve the same outcome.
“Focus more on the amount you save than your investment selection,” says Jay Rishel, a New Bern, NC, Certified Financial Planner. “Contribute to your investment account regularly and automate your investments. Time is your greatest advantage when it comes to investing so start as young as possible regardless of the amount,” Rishel says.
Take Advantage of Your 401(k) Matching Benefits
If you work for a company that offers a 401(k) plan, your employer usually matches a certain percentage of your contributions, essentially providing you with free money.
“You should always defer enough to receive those matching funds,” says Robert Henderson, a Groton, CT, Certified Financial Planner. “Beyond that, open a Roth IRA and begin contributing enough to maximize your contribution limit each year. When you are young and in a (relatively) low tax bracket, the Roth IRA is a no-brainer.”
Dean Lyman, a Lee’s Summit, MO, Certified Financial Planner, agrees. “I help young college graduates set up their first investment account, usually a Roth IRA,” Lyman says. “These accounts are flexible enough that if you need to withdraw your contributions, you can do that at any time. A Roth IRA is a great way to start investing for your retirement.”
If you don’t have access to a 401(k), or even if you do, use all other possible tax-advantaged funds. These include Roth and traditional IRAs and Health Savings Accounts (HSAs), among additional types of investment accounts available to you. HSAs have grown in popularity as contributions are in pre-tax dollars, money grows untaxed, and withdrawals for qualified health-related expenses are tax-free.
Choose Investments Based on Your Level of Knowledge
In a 401(k) plan, your investment choices are limited to what the plan administrator makes available to employees. In an IRA (or a solo 401(k) if you’re self-employed and have an official payroll), you have much more control over your investment options.
If you have no knowledge or confidence in learning how to allocate your investments between stocks and bonds, you may want to consider investing in target-date funds.
“A target-date fund provides investors with a diversified investment portfolio naturally,” says Nathan Mueller, a Pagosa Springs, CO, financial advisor. “Not only does it diversify between stocks and bonds, but it is also diversified in those asset classes. Individual securities in the fund can be in the thousands.”
If you decide to invest in a target-date fund, look for a fund with a name that includes a year close to your planned retirement date (these funds usually target in 5-year increments – e.g., 2030, 2035, 2040, 2045, etc.).
Suppose you’re somewhat confident you can benefit from active management, but you don’t want to do the stock-picking yourself. In that case, robo-advisors offer limited personalized investment advice, often for a relatively low cost, around 0.25% of the assets they manage for you annually.
Robo-advisors ask you a few simple questions. Then, based on your answers, they determine what investment mix, including individual Exchange Traded Funds (ETFs), stocks, and bonds, matches your goal (retirement) and your risk tolerance. Then, they rebalance your portfolio over time and optimize it to lower your tax liability.
“The simplest way to get started is to open an account at a robo-advisor like Schwab’s Intelligent Advisor, Betterment, Wealthfront, or Fidelity Go. Deposit only what you can afford that you don’t need for at least 5 years,” says Blaine Thiederman, an Arvada, CO, Certified Financial Planner. “By doing this, you’re getting a low-cost, simple and smart way to invest your money.”
No matter your confidence level, consider the potential benefits of hiring a financial advisor who can work with you to develop a personalized plan to achieve your financial goals. In addition, many financial advisors offer affordable financial planning services and don’t require a minimum level of assets to serve clients who are just getting started on their investing journey.
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