Investing is one of the smartest ways to grow your hard-earned money over the long term. While it can seem daunting to get started, it doesn’t have to be.
Check Out: Tony Robbins — These 3 Investments Will Make You Rich Read Next: 5 Genius Things All Wealthy People Do With Their Money
According to a recent GOBankingRates survey, almost 50% of the survey’s participants reported not owning any stocks, with 22% having less than $15,000 in total stock investments. To add, only 17% of those surveyed said they have more than $35,000 invested.
If you identify as part of the half of Americans who aren’t investing, whether due to fear of risk or a lack of understanding, learning more can help you get started.
According to Dave Ramsey, you’ll need to conquer the first three steps of the “7 Baby Steps” before following the investment tips. Let’s break down the exact steps:
Step 1: Save $1,000 for your starter emergency fund.
Step 2: Pay off all debt (except the house) using the debt snowball method.
Step 3: Save 3-6 months of expenses in a fully funded emergency fund.
Step 4: Start investing 15% of your household income in retirement.
Building an emergency fund and paying off all debt first will put you on the right track.
Learn More: I’m a Financial Advisor — I’d Invest My First $5,000 in These 6 Stocks
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6 Key Steps To Start Investing This Year
Once you’ve mastered the first three steps of the “7 Baby Steps,” Ramsey explained the six most important steps to start investing in 2024:
Define your investing goals: Setting clearly defined investing goals for yourself is key. Ask yourself questions like: “At what age do I want to retire?” as well as “When do I want to make a downpayment on a home?” or “How much do I need to save for my child’s college fund?” Different goals have different timelines, so you’ll want to be sure that you’re investing appropriately for each one.
Determine how much you’ll invest: Evaluate your income and debt levels before investing. As a general rule of thumb, it’s advisable to save at least 15% of your income toward your retirement. While every investment goal may not be long-term and geared towards retirement,it’s important to reduce or eliminate debt (especially credit card debt which carries a high interest rate) before making investments, as highlighted earlier.
Choose your investment vehicles: There are a plethora of investment vehicles to choose from. These can range from a traditional or Roth 401(k), a traditional or Roth IRA, a Simple IRA or SEP IRA (if you’re self-employed), a 529 college savings plan, as well as mutual funds, ETFs, and bonds to name a few. You’ll want to revisit your defined investment goals before deciding which investment vehicles are right for you.
Solidify an investment strategy: Realistically, there are two main types of investment strategies: short-term and long-term. If your main objective is to save for retirement, a long-term investment strategy — including a diversified portfolio of conservative, low-risk investments such as established mutual funds and ETFs — is crucial. On the other hand, if you’re planning for a short-term investing strategy to save for a new car or a down payment on a home, taking advantage of a no-risk high-yield savings account or a money market account (MMA) is a safer bet.
Start an investment account: Now that you’ve defined clear investment goals and created a strategy, the next step is to open the investment accounts. Financial institutions such as Fidelity Investments, Vanguard, and Charles Schwab allow you to open a variety of different investment accounts that should meet your needs.
Consult with a financial professional: Be sure to consult with a financial professional such as a certified financial planner (CFP), a financial consultant, a financial coach, or an accountant. It’s a smart move to consult with an expert when you’re starting to invest to maximize your returns and navigate complex tax rules.
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This article originally appeared on GOBankingRates.com: Dave Ramsey’s 6 Tips To Start Investing in 2024
And to go one step further, we recommend dividing your mutual fund investments equally between four types of funds: growth and income, growth, aggressive growth, and international.
And to go one step further, we recommend dividing your mutual fund investments equally between four types of funds: growth and income, growth, aggressive growth, and international.
Ramsey is a huge proponent of investing in low-cost S&P 500 index funds and letting that money compound and grow. The S&P 500 — a strong measure for the U.S. stock market as a whole — enjoyed a stellar 26.06% annual return in 2023 — and the market has started 2024 by edging closer to record highs.
The 10-5-3 rule is a simple rule of thumb in the world of investment that suggests average annual returns on different asset classes: stocks, bonds, and cash. According to this rule, stocks can potentially return 10% annually, bonds 5%, and cash 3%.
One simple rule of thumb I tend to adopt is going by the 4-3-2-1 ratios to budgeting. This ratio allocates 40% of your income towards expenses, 30% towards housing, 20% towards savings and investments and 10% towards insurance.
To build a three-fund portfolio, invest in a total stock market index fund, a total international stock index fund, and a total bond market fund. These can be either mutual funds or ETFs (exchange-traded funds).
Once you're free of debt and sitting on enough savings to survive at least a quarter of a year, Ramsey says the most important thing you can do with your paycheck is to save 15% of it — each and every pay period — in a tax-advantaged account.
According to the Ramsey Solutions post, the recommendation is to invest 15% of your household income for retirement. The article uses the example of a household income which is $80,000 annually. Based on these earnings, each year you need to invest $12,000 towards your retirement savings.
In investing, the 80-20 rule generally holds that 20% of the holdings in a portfolio are responsible for 80% of the portfolio's growth. On the flip side, 20% of a portfolio's holdings could be responsible for 80% of its losses.
Action Alerts Plus portfolio manager and TheStreet's founder Jim Cramer says that if you don't do your stock homework you should not be investing your own money.
There are two approaches you could take. The first is increasing the amount you invest monthly. Bumping up your monthly contributions to $200 would put you over the $1 million mark. The other option would be to try to exceed a 7% annual return with your investments.
Doubling money would require investment into individual stocks, options, cryptocurrency, or high-risk projects. Individual stock investments carry greater risk than diversification over a basket of stocks such as a sector or an index fund.
Ramsey's general recommendation in his Baby Steps has long been to start with having $1,000 saved in a starter emergency fund. If you earn under $20,000 a year, the post on Ramsey Solutions said you may adjust this amount to $500.
The 4% rule limits annual withdrawals from your retirement accounts to 4% of the total balance in your first year of retirement. That means if you retire with $1 million saved, you'd take out $40,000. According to the rule, this amount is safe enough that you won't risk running out of money during a 30-year retirement.
It consists of four low-cost index funds, equally weighted, with exposure to large caps, small caps, and small-cap value. The portfolio aims to capture risk premiums based on historical evidence, particularly focusing on size and value factors.
Introduction: My name is Merrill Bechtelar CPA, I am a clean, agreeable, glorious, magnificent, witty, enchanting, comfortable person who loves writing and wants to share my knowledge and understanding with you.
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