Invest In Yourself: Your Greatest Asset

There are many ways to invest your money, from stocks and bonds to real estate and cryptocurrencies. But the best approach for you depends on several factors, including your risk tolerance, the amount of money you have to invest, and your time horizon.

Before you start investing, it's important to determine your financial goals, assess your income sources, and establish an emergency fund. It's also crucial to pay off any high-interest debt. Once you've taken these steps, you can decide on the types of investments that align with your goals and risk tolerance.

1. High-yield savings accounts and certificates of deposit (CDs): These offer higher interest rates than traditional savings accounts and are suitable for short-term savings or money you need to access occasionally.

2. Bonds: These are loans to a company or government and are considered a safer investment option, especially for those nearing retirement. There are corporate bonds, municipal bonds, and government bonds.

3. Mutual funds and exchange-traded funds (ETFs): Mutual funds pool investors' money to buy stocks, bonds, or other assets, while ETFs trade on major stock exchanges and can be bought and sold throughout the trading day. Both offer diversification and are suitable for long-term goals like retirement.

4. Index funds: These funds track a particular market index, such as the S&P 500, and are designed to provide returns that match the underlying index's performance. They are more cost-effective than actively managed funds and less volatile.

5. Stocks: Investing in stocks of individual companies offers the potential for higher returns but also comes with higher risk. It's important to diversify your portfolio and limit individual stock holdings to a small percentage of your overall portfolio.

High-yield savings accounts

• They are offered by online banks and credit unions, which have lower operating costs than traditional banks and can thus offer higher interest rates and lower fees.
• The interest rates on these accounts can be more than 10 times the current average annual percentage yield (APY) of savings accounts.
• There is usually no risk involved with high-yield savings accounts, as they are insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA), which insure deposits up to $250,000 per depositor.
• These accounts often have no monthly maintenance fees, minimum balance requirements, or hidden fees.
• They are ideal for short-term financial goals, such as building an emergency fund or saving for a down payment on a home.
• To maximize your savings, it is important to regularly monitor the interest rates offered by different banks and choose an account with a competitive rate and favourable terms.
• Some high-yield savings accounts offer additional features, such as ATM cards, automated savings tools, and mobile banking apps.
• While these accounts offer higher interest rates than traditional savings accounts, they may not be suitable for long-term retirement savings.
• UFB Direct High Yield Savings: This account offers an impressive 5.25% APY with no monthly fees or minimum balance requirements. It also provides an ATM card for cash withdrawals at over 91,000 fee-free ATMs nationwide.
• Laurel Road High Yield Savings: This account provides a competitive 5.15% APY with no monthly fees or balance requirements. It is a digital banking platform owned by KeyBank, which offers additional features such as checking accounts, credit cards, and loans.
• Varo Savings Account: This account offers an APY of 3.00% and the potential to earn 5.00% on balances up to $5,000 by meeting certain requirements, such as receiving direct deposits of at least $1,000 per month. It also offers automated savings tools and a secured credit card to help build your credit score.
• LendingClub High-Yield Savings: This account offers a strong 5.00% APY with no monthly fees and a minimum opening deposit of $100. It provides a free ATM card for access to over 37,000 MoneyPass or SUM ATMs nationwide.
• Bask Bank Interest Savings Account: This account offers a high APY of 5.10% with no monthly fees, minimum deposit requirements, or balance requirements. However, it does not offer a debit or ATM card, so customers must rely on electronic transfers to access their funds.

Long-term investments

Time Horizon

Understanding your time horizon, or how long you plan to invest for, is crucial. Long-term investing typically means a minimum of three to five years, but it can be much longer, especially when planning for retirement. By investing for the long term, you give your investments time to ride out any short-term market volatility and increase your chances of overall growth.

Risk Tolerance

It's important to be honest about your risk tolerance. Some investments, like stocks, come with higher risks but also offer greater potential returns. If you're not comfortable with high-risk investments, consider more conservative options like bonds or cash investments. Remember, the key is to make investment choices that align with your risk tolerance to avoid unnecessary stress.

Diversification

Diversifying your portfolio is a fundamental strategy. By spreading your investments across different asset classes, such as stocks, bonds, real estate, and commodities, you can mitigate risk. Different asset classes often perform differently under various economic conditions, so diversification helps smooth out your returns over time.

Investment Strategy

It's essential to pick an investment strategy that suits your goals and risk tolerance and then stick with it. Whether you choose to invest in individual stocks, mutual funds, exchange-traded funds (ETFs), or a mix of these, consistency is key. Market downturns can be scary, but staying committed to your strategy and avoiding knee-jerk reactions is usually the best approach.

Regular Review

While sticking to your strategy is important, it's also necessary to review your investments periodically. Checking in at least annually allows you to ensure your allocations are on target and make any necessary adjustments. It's a good opportunity to rebalance your portfolio, ensuring it aligns with your risk tolerance and financial goals.

Costs

Investing costs, such as expense ratios and management fees, can eat into your returns over time. Keep an eye on these costs and consider lower-cost options like index funds or robo-advisors, which can provide a more affordable, automated investment service.

Tax Implications

When investing for the long term, don't forget to consider the tax implications. Certain investment vehicles, like Roth IRAs, offer tax advantages that can boost your long-term gains. Be mindful of taxes when making investment decisions, as they can impact your overall returns.

Long-term investing requires a patient and disciplined approach. By focusing on these key areas, you can maximise your chances of success and work towards your financial goals.

Stocks

Step 1: Set Clear Investment Goals

Begin by specifying your financial objectives. Clear goals will guide your investment decisions and help you stay focused. Consider both short-term and long-term goals, as the timeframe will affect your investment strategy. For example, younger investors tend to focus more on long-term growth and wealth accumulation, while those closer to retirement typically prefer capital preservation and income generation.

Step 2: Determine How Much You Can Afford To Invest

Pinpointing how much you can afford to put into stocks requires a clear-eyed assessment of your finances. This step helps ensure that you are investing responsibly without endangering your financial stability. It's important to review your income sources, establish an emergency fund, pay off high-interest debts, and create a budget to decide how much you can comfortably invest in stocks.

Step 3: Determine Your Tolerance for Risk

Understanding your risk tolerance is crucial. It helps you align your comfort level with the inherent uncertainties of the stock market and your financial goals. Reflect on your comfort with market volatility, consider your investment timeline, and assess your financial cushion. Your risk tolerance will dictate the types of stocks and other investments you choose.

Step 4: Choose an Investment Account

You'll need to choose the type of account you'll use for investing. Each account type has features, benefits, and drawbacks, and the right one for you will depend on your goals, risk tolerance, and investment style. You can choose from regular brokerage accounts, retirement accounts, and managed accounts, each with different tax implications and contribution requirements.

Step 5: Fund Your Stock Account

You'll need to provide personal information, such as your Social Security number, address, and employment details, to open your chosen brokerage account. You can then fund it through methods like bank transfer, check deposit, or transfer from another brokerage account. Consider setting up automatic contributions to invest a fixed amount at regular intervals, cutting your risk of making impulsive decisions based on short-term market news.

Step 6: Pick Your Stocks

Look for stability, a strong track record, and the potential for steady growth when choosing stocks. As a beginner, focus on blue-chip stocks (large, well-established companies with a history of reliable performance), dividend stocks (companies that pay regular dividends), defensive stocks (industries that perform well during downturns), and ETFs (traded like stocks but track market indexes, offering instant diversification).

Step 7: Learn, Monitor, and Review

Successful investors are lifelong learners, so continue educating yourself about the market, the global economy, industry trends, and the companies you invest in. Use stock simulators to practice trading risk-free, and learn about diversification to spread your investments across diverse asset classes to reduce risk and improve potential returns. Regularly monitor and review your investments to stay on track with your financial goals.

Tips for Beginners:

• Start with a small amount: You can start investing in stocks with a relatively small amount of money. Many online brokerages have no minimum deposit requirements.
• Consider stock funds: Stock funds, including mutual funds and ETFs, offer diversification and are managed by professional fund managers. They are a good option for beginners to gain experience without the need to pick individual stocks.
• Understand the risks: Investing is a commitment of resources with inherent risks. It's possible that the value of your investment won't increase, so managing your risk to achieve your financial goals is key.

Emergency funds

Importance of Emergency Funds

Having an emergency fund is crucial for everyone, as it offers financial security and peace of mind. This fund should be easily accessible and set aside specifically for unforeseen events such as a job loss, medical emergency, or essential home repairs. By creating this fund, you can avoid dipping into your regular savings or investments, ensuring that your long-term financial goals remain on track.

Determine the Adequate Amount

The general rule of thumb is to save enough to cover at least three to six months' worth of living expenses. This includes essential costs such as rent or mortgage payments, utilities, groceries, transportation, and any other necessary expenses. By calculating these costs, you can set a clear target for your emergency fund.

Where to Keep Emergency Funds

It is recommended to keep your emergency fund in a high-yield savings account or money market account. These accounts offer easy access to your money while also providing a modest return on your savings. Additionally, some accounts may offer features like check-writing privileges or debit cards for added convenience.

Build and Maintain the Fund

Building an emergency fund takes discipline and consistency. Review your budget and identify areas where you can cut back on non-essential spending. Allocate a fixed amount from each paycheck towards the fund and consider setting up automatic transfers to a dedicated savings account. Even small contributions can add up over time.

When to Use Emergency Funds

Use your emergency fund for genuine emergencies or unexpected essential expenses. For example, if you suddenly lose your job, need to repair a broken furnace in the middle of winter, or face unexpected medical bills. It is important to distinguish between 'wants' and 'needs' when deciding to use these funds.

Regularly Evaluate and Adjust

Life circumstances can change, so it's important to periodically review and adjust your emergency fund. For instance, if your income increases or you experience inflation, you may need to save more to maintain the same level of coverage. Similarly, if your expenses decrease, you may be able to lower your emergency fund contributions.

Passive investments

Passive investing is a long-term strategy for building wealth by buying securities that mirror stock market indexes and holding them for a long time. It is a buy-and-hold strategy, meaning that investors purchase securities to own them for the long term, rather than seeking to profit from short-term price fluctuations. The goal of passive investing is to build wealth gradually and it is considered less risky than active investing, where investors research and select individual companies and frequently buy and sell stocks in an attempt to beat the market.

Passive investing is often less expensive than active investing because fund managers are not picking stocks or bonds. Passive funds allow a particular index to guide which securities are traded, meaning there is no added expense for research analysts. Passive investment funds also tend to have lower fees and operating expenses than actively managed funds.

Some of the key benefits of passive investing include:

• Ultra-low fees: Oversight is much less expensive because there is no one picking stocks.
• Transparency: It is always clear which assets are in an index fund.
• Tax efficiency: The buy-and-hold strategy typically does not result in a massive capital gains tax for the year.
• Simplicity: Owning an index or group of indices is easier to implement and understand than a dynamic strategy that requires constant research and adjustment.

However, passive investing also has some drawbacks. It is subject to total market risk, meaning that when the overall stock market or bond prices fall, so do index funds. There is also a lack of flexibility as passive investors are stuck with the stocks that the index holds, regardless of how they are performing.

There are several ways to be a passive investor, including buying index funds or exchange-traded funds (ETFs). Both are types of mutual funds that let you invest in holdings from various industries, helping you to diversify your portfolio. ETFs might be a good choice for investors who want to be more hands-on when managing their passive portfolio as they can be traded during market hours like stocks.

Overall, passive investing can be an attractive option for hands-off investors who want to see returns with less risk over a longer period.

Frequently asked questions