A Beginners Guide to Investing

Are you new to investing? Are you a young adult and don’t know where to start? Embarking on the journey of investing can be both exciting and daunting, especially for inexperienced or new investors. With a plethora of investment options available and financial jargon to decipher, it's essential to have a trusted guide and a well-thought-out plan. In this article, we will explore the fundamental principles of investing for new investors and why today is the best day to begin!

Building a Solid Foundation

Before we talk about investments, consider the pillars of a solid personal finance foundation. This is part of the crucial groundwork helping to ensure your future investments work toward your envisioned goals. We recommend you begin by establishing an emergency fund to cover unexpected expenses. Aim to save three to six months' worth of living expenses in a high-yield savings account or money market fund. Next, identify the goals, needs, or wants you wish to accomplish prior to retirement and fund those appropriately. Typically, it is advised to utilize a money market vehicle when investing for goals within a timeframe of two years or less. When setting goals for two years and beyond, other investments may be considered. Lastly, prioritize contributions to retirement accounts, such as a 401(k) or an IRA, to take advantage of tax benefits, an employer match, and compound interest over time.

Choosing the Right Investments: A Beginner's Dilemma

Selecting the right investments is crucial for new investors, and ClearPlan Wealth Management is here to provide expert guidance every step of the way. Our team of experienced advisors will collaborate closely with you to understand your financial goals, risk tolerance, and investment preferences. We will help you build a diversified portfolio, tailored to your unique needs, often incorporating low-cost index funds or exchange-traded funds (ETFs).

Have you considered establishing a Roth IRA? There are significant tax benefits associated with a Roth IRA, especially for a new investor. Later in your career or life, you may not qualify to contribute to a Roth IRA so, it is a particularly important consideration for younger adults or new investors.

Have you recently changed jobs? We can also assist by analyzing the applicable pros and cons of a 401k rollover. Our advisors will help you optimize your financial framework, helping to ensure your investments align with your long-term financial goals and objectives.

Managing Risk: Finding the Right Balance

One of the most frequent questions a new investor may ask is, “Should I invest in riskier investment options or use a more conservative approach with my portfolio?”. While avoiding risk entirely may seem appealing, it can also limit the potential for long-term returns. There are many factors to consider, such as age, risk tolerance, expected career path and income potential. It is always important to strike a balance, based on your individual profile and preferences. You can help to balance potential risk and reward by diversifying investments across different asset classes and sectors. This approach can help to mitigate risk while still allowing for possible growth opportunities. This is where ClearPlan Wealth Management excels, serving as a guide and mentor on the path to prosperity.

Young Adults Can Benefit from Compound Interest

One of the most significant advantages of investing in a 401(k) while you are young is … time. The earlier you begin contributing to your retirement savings, the more time your investments have an opportunity to grow. Even small contributions, made consistently over time, can have substantial impact thanks to the power of compounding interest. Compounding interest is the concept of earning interest not only on your initial investment but also on the interest that accumulates over time. What does this mean? The longer your money remains invested, the more opportunity the money can grow exponentially. By investing in a 401(k) early, the money has more time to compound, allowing you to potentially accumulate significant wealth over the years. By starting young, you can take full advantage of this powerful wealth-building tool.

"Pay Yourself First": A Foundation for Financial Success

The concept of "paying yourself first" is a fundamental principle of personal finance that emphasizes the importance of prioritizing savings and investments before other expenses. This strategy is also beneficial for self-employed individuals. Essentially, the concept centers around allocating a portion of your income to savings and investments before paying bills or discretionary spending. By adopting a "me first" budgeting approach, you help to make sure your financial goals remain a top priority, potentially setting yourself up for long-term success and financial security.

To implement a "me first" budget, begin by determining your financial goals, whether it is saving for retirement, building an emergency fund, or purchasing a home. Next, automate your savings and investment contributions by setting up routine transfers from your checking account to your savings or retirement accounts. This approach helps provide consistency and discipline in saving and investing, even if your income fluctuates.

Setting Yourself Up for Financial Success

Navigating the world of investing, as a new investor, requires careful planning, knowledge, discipline, and patience. Having a trusted wealth manager by your side can be instrumental for helping to plan a successful future. At ClearPlan Wealth Management, we work, together with you, to help select investments, structure your finances effectively, facilitate to manage risk wisely, and prioritize savings through a "me first" budgeting strategy.

Our practice believes that every successful person has the fundamental desire to create prosperity for themselves and their loved ones. New investors are no exception! We provide a comprehensive and collaborative approach to financial planning. By listening, offering guidance, and engaging valued resources, we look forward to partnering with you to consider every aspect of your life, helping to create your vision of long-term success. Start the conversation!

Any opinions are those of ClearPlan Wealth Management and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy, including asset allocation and diversification. 401k plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to income tax and, if taken prior to age 59 ½, may be subject to a 10% federal tax penalty. Like Traditional IRAs, contribution limits apply to ROTH IRAs. In addition, with a ROTH IRA, your allowable contribution may be reduced or eliminated if your annual income exceeds certain limits. Contributions to a ROTH IRA are never tax-deductible, but if certain conditions are met, distributions will be completely tax free. Every investor situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.