6 Tips to Begin Your Investment Journey
A new year brings new goals and a fresh start. If your New Year’s resolutions include investing for the future, congratulations! You’re taking the first step toward building wealth and achieving financial independence.
To start your investment journey off on the right foot, we’ve compiled the following tips to help you begin investing in 2024.
#1 – Work with a fiduciary advisor.
A great way to start investing is by working with a qualified fiduciary advisor to establish an investment strategy that makes sense for you, given your current financial situation and goals for the future. Fiduciary advisors are held to fiduciary duty standards, which means they’re legally obligated to act in clients’ best interests at all times.
In contrast, some advisors are incentivized by investment managers and/or insurance companies to sell clients certain products that may or may not be in the client’s best interest. This practice can lead to high fees and the long-term erosion of your assets.
Look for an advisor who provides:
- 100% of his or her services as a fiduciary advisor – It’s important to ensure your advisor serves solely as a fiduciary, meaning they’re putting your best interests first. Be wary of “dually registered” advisors who serve as a fiduciary in some situations and as commissioned brokers in other situations.
- Low-cost, tax-efficient strategies – The long-term impact of unnecessary tax exposure and investment expenses can mean the difference between achieving your goals or not. Be sure to choose an advisor who proactively looks for opportunities to minimize both your investment expenses and your taxes.
- An approach based on rational, science-driven, academic research – There’s a lot of misleading financial data out there. Your advisor should have the knowledge, background and experience to get to the facts and develop well-researched solutions to the specific challenges you face.
#2 – Establish clear investing goals.
The investment strategy that works for your friend or relative may not be the best approach for you. That’s because everyone has different goals for the future. A great way to begin your investing journey is by establishing an overall financial plan. A solid financial plan can serve as a blueprint to guide all aspects of your financial life and can help ensure your investment decisions make sense, given your overall financial situation.
Consider working with an advisory team with experience navigating a wide range of financial challenges, including debt management, insurance planning, retirement planning, budgeting, estate planning, tax planning and preparation, etc.
#3 – Start simple.
One of the easiest ways to start investing is through a retirement plan. If you have access to a workplace plan, such as a 401k or 403b, make sure you’re contributing enough to take full advantage of any company matching contributions. If you don’t have access to a workplace plan, consider opening a traditional or Roth IRA.
Once you have an account in place, commit to making regular contributions. Automatic payroll deferrals are a great way to effortlessly build an account balance. Each year, have a goal of increasing your contributions by 1% to 2%. Even a small increase can have a big impact on your retirement savings over time, and you’re unlikely to even notice the impact on your take-home pay.
Once you’re comfortable investing in a retirement plan, consider opening an investment account. Your wealth manager can help you open and invest in an account that makes sense for you. With steady contributions and the right allocation, you’ll be able to watch your portfolio value grow over time.
#4 – Diversify.
Regardless of where you are in your investing journey, it’s important to maintain a diversified portfolio. Investing in different types of assets can help spread out your risk, because when one sector or investment type is performing poorly, another investment type that’s performing better can help smooth out overall portfolio volatility. While diversification won’t prevent losses, it can reduce your risk of being too heavily invested in the worst performing part of the market.
To achieve adequate diversification, consider combining stocks with bonds, large company stocks with small company stocks, U.S. stocks with international stocks, and investments from different sectors, such as technology, energy, healthcare, etc. It’s also important to be aware of the underlying holdings in your mutual funds to ensure you’re not overly weighted in a certain area.
Also, don’t forget that diversification should occur across all accounts within your portfolio. For example, if you’re heavily invested in your employer’s stock within your retirement plan, it may make sense to increase your allocation to bonds within your IRA.
#5 – Don’t neglect your emergency savings.
While investing in a diversified mix of stocks and bonds is a great way to build your wealth over time, it’s also important to have access to a liquid emergency fund. Consider saving three to six months of living expenses in a short-term account separate from your invested assets. Not only can this emergency savings help cover unexpected expenses but it can also save you from needing to sell out of your investments at inopportune times, thereby locking in portfolio losses that can be difficult to recover from.
#6 – Protect your nest egg.
As you build your investment portfolio, be sure to implement a variety of risk management strategies. Work with your wealth manager to determine which of the following strategies make sense for your particular situation.
- Disability/income replacement insurance
- Long-term care and health insurance
- Car insurance/home insurance
- Umbrella liability insurance
- Specialty insurance for business owners
Could you use some help getting started? Creative Planning is here for you. Our experienced professionals serve as fiduciaries to clients, providing advice that’s always conflict-free and in your best interests. We understand it can be difficult to take the first step in building an investment portfolio, which is why we work with you to establish a strategy to support you exactly where you are in your investing journey while helping you prepare for your future goals.
To get started, schedule a call with a member of our team. We look forward to getting to know you.
