New To Investing? How To Get Started In 2022

Did you know that almost half of New Year’s resolutions are related to money? In fact, 44% of Americans said they wanted to save more money in 2021. So, as you look ahead to 2022, you might have decided that this is the year you start investing. The great news is that it doesn’t have to be complicated. Here’s what you need to know.

Start now.

It is never too early, or too late to start saving for retirement. That’s because the earlier you start, the more time your money has to grow and take advantage of “compound interest,” which is the interest paid on the interest your money has already earned. Here’s how it works: Say you invest $2,500 and it earns $50 in interest. The balance in your account is now $2,550, which is the new amount that is now earning interest. Essentially it’s interest on top of interest, and the longer you save, the faster the account will grow. Try this handy calculator to see how it works.

However, remember investing is not a substitute for saving for near-term needs. You should first always have an emergency fund that you can easily access for unexpected expenses.

Make your investing automatic.

The best way to get in a habit of investing is to “pay yourself first.” This means you should decide how much you’re going to invest each month and stick to it. One smart strategy is to open a separate savings account and see if your company will deposit a portion of your paycheck directly to the new account. If you don’t see it in your checking account, you’ll be far less likely to spend it.

Invest at least up to your company’s 401(k) match.

Many companies offer a 401(k) Savings Plan as part of their benefit plans. A 401(k) Plan is an attractive way to invest because you fund it with "pre-tax” dollars, which means that amount is deductible from your income prior to paying taxes. Often companies will match a percentage of the amount you deposit, for example: one common formula is to match 50 cents of each dollar you put in, up to 6% of your salary. If your company offers this type of program, you should at least put in that minimum amount as it’s literally free money. Another bonus of a 401(k) Plan is this money automatically comes out of your paycheck, so as mentioned above, you are not likely to miss it.

Learn how your accounts work.

Before making any investment, know whether you will owe taxes or penalties for withdrawals, when those start, and how much they will be. For example, with a 401(k) account, you will owe fees for taking money out before retirement, while with a brokerage account, you can sell stocks, but you might owe taxes on the gains. You should never invest in something if you are not sure how it works.

Understand diversification.

You’ve heard the adage not to put all your eggs in one basket – the same holds true for investing. Diversification can mean buying different “asset classes,” such as stocks, bonds and mutual funds, or it might mean buying stocks in different industries, such as healthcare, technology and consumer goods. The concept behind diversification is that it’s unlikely all investments will depreciate simultaneously. So even if one industry has a rough day, chances are good your other investments can stay strong.

Educate yourself.

It’s important to know what you’re investing in and choose solid companies or products that have the most likely chances of growing over time. Remember the media – and social media in particular – tend to favor the flashy over the tried and true. It’s easy to get caught up in fads like “meme stocks” or dive into cryptocurrency without really understanding it. Those might not be bad investments, but just because everyone is talking about them may not  make them good investment for you If you want to know more – and you should –visit Valley Strong’s comprehensive library of resources.

Stay the course.

Investing is a crucial way to secure your financial future, but make sure never to put your current finances in jeopardy by investing in risky assets. For more specific information about managing your investment portfolio, contact Valley Strong Retirement and Wealth Management Group to talk to an advisor who can help you assess your risk tolerance, develop a plan, and build a financial portfolio to help you pursue your financial goals.