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If investing is one of your New Year's resolutions, here’s how to get started
These days, you don't need much capital or expertise to start growing your money in the market.
Whether you're trying to save up a chunk of money or pay down debt, a new year usually calls for revisiting our money goals.
As we come off yet another year of living through the pandemic, however, the importance of our financial wellbeing is even more pronounced. More and more people are recognizing the importance of having an emergency fund, a good credit score and an investing strategy so you can grow your net worth.
The good news: All these financial goals are very achievable with a little bit of work and dedication. If you specifically want to get started building your wealth, there are ways to ease into investing that are low risk and don't involve day-trading stocks, a trend we saw take off with many young and new investors during the pandemic.
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Here's how to get started investing in the new year
Thankfully, it's never been easier to invest in the stock market. You no longer need a large amount of money or the expertise to put your money to work for you.
"No need to pore over complex treatises on the subject or dizzying charts," says Margaret Price and Jill Gianola, co-authors of "Single Women and Money: How to Live Well on Your Income."
Start simple, with a tax-advantaged retirement fund, such as a 401(k) sponsored by your employer or an IRA (Individual Retirement Account) that you set up on your own, says Price and Gianola.
With employer-sponsored plans, see if your 401(k) offers target-date funds to get you started. With a target-date fund, you choose a fund based on the year you plan to retire. For example, if you plan to retire in 2050, you would pick a fund closest to 2050. As you approach your target retirement year, your fund will re-balance to lower the number of riskier investments. "This easy-to-grasp offering does the investing work for you," Price says.
When choosing an IRA, younger investors who expect to be in a higher tax bracket when they retire should opt for a Roth IRA over a traditional IRA. With Roth IRAs, you pay taxes upfront by contributing after-tax dollars and later in retirement your withdrawals are tax-free (as long as your account has been open for at least five years).
With traditional IRAs, however, you delay paying any taxes until you withdraw funds from your account later in retirement. You can find Roth IRAs at big brokerages like Fidelity Investments, as well as with online brokers like Ally Invest, but more and more fintech firms like SoFi and Wealthfront also offer IRAs.
Investing beyond your retirement account
If you don't know much about investing, a robo-advisor can be a good tool to help you get started. Using algorithms and data, robo-advisors are essentially software platforms that invest on your behalf. The top robo-advisors automatically rebalance your portfolio from time to time based on your risk tolerance, market conditions and other factors.
Betterment, for example, will recommend a portfolio based on your goals and risk tolerance, and it will automatically adjust whenever you make a deposit, withdraw funds or change your target allocation. There is no minimum balance required for Betterment Digital Investing, and the annual account fee is a low 0.25% of your fund balance.
You might also consider using an investing app that makes it easier than ever to invest small amounts, or micro-invest. Micro-investing simply means you're investing small amounts of money in the market consistently so that over time your contributions add up. It's a good strategy for newbies who want to dip their toe into the investing pool before diving all in.
One app that offers micro-investing is Acorns, which lets users invest the "spare change" they accrue when making everyday purchases on things like coffee and groceries. (NBCUniversal and Comcast are investors in Acorns.)
Charles Schwab's recently launched the Schwab Starter Kit™, which is geared toward first-time investors. Schwab will match your initial $50 deposit with $10 worth of fractional shares in each of the top five S&P 500 companies. The kit provides educational content (short videos and step-by-step guides) about how to weather market swings and protect against volatility. Investors will get access to budget planners, easy-to-use tools to make sure that their investments are in line with their goals, as well as 24/7 investment professionals on standby.
If investing is one of your New Year's resolutions, kudos to you for prioritizing your future. Getting started is easy, whether your first step is signing up for a tax-advantaged retirement account, or going beyond just your 401(k) or IRA and using a robo-advisor, an app or a broker's stock kit for beginners.
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