When you want your money to grow, you have to invest it. But where do you start? You want to make sure your hard-earned savings don’t disappear. This beginner’s guide to investing your savings will get you on the right track.
Talk to a Financial Advisor
The best place get started with investing to find a financial advisor. They can show you options for mutual funds or index funds.
A mutual fund is a pool of many investors’ money actively managed by a fund manager who chooses investments and collects a shareholder fee.
An index fund is designed to track an index, like S&P 500. It’s meant to rise and fall with that index as a whole. Markets do have bad years, and stocks aren’t great if you need the money short-term, but markets have historically always grown over time.
If an index fund sounds right for you, you may also want to use a robo-advisor. The fees are usually lower, and it’s the kind of investment that you can “set and forget.”
An example of a robo-advisor is Ellevest. They’re the first financial company built by women, for women and they’ve hit $1 billion in client investments! Ellevest is the 2021 winner for Best Robo-Advisor for IRA Investing, so you know you’re getting amazing service with them. Learn more below! But first, check out the best IRA companies to invest in 2022.
Ellevest: If you are looking for a tool to invest, check out Ellevest. Ellevest is a digital investment advisor whose algorithms factor in gender differences in pay, career breaks, and lifespan.
Another factor that set's them apart is that they are a goal based investing platform. So you set your goals, and the system tells you how much you should invest to meet it on time.
The best part is that they offer a free goal-based investment plan with no obligations to invest with them.
Diversify Your Portfolio
As your savings begin to grow, you have to start thinking about diversifying your portfolio.
The idea behind diversification is simple: don’t put all your eggs in one basket. By spreading your money across several asset classes, you protect yourself from various market situations that could hurt your savings.
A diversified portfolio spreads its assets between stocks, bonds, and cash alternatives. Stocks are great when the economy is growing and bonds work well when interest rates are high. Cash alternatives—like gold bullion—act as a safe haven for wealth.
Cash alternatives are a particularly good asset to learn about as your savings grow. Gold bullion is a useful counter-balance to inflation and stock market crashes. Investors tend to flock toward the safe haven when they lack confidence in stocks or in times of economic uncertainty (like the current COVID-19 pandemic), pushing prices higher.
When you learn about bullion investing you can start preparing your savings for an economic downturn. They are inevitable, so if you can find any asset class that grows during a recession, you’ll be doing well for yourself in the long term.
Keep an Emergency Fund
From day one, you need an emergency fund. It’s a great idea to put as much money as you can afford into investments, but you don’t want to have to withdraw that money should something happens.
Keep about $1,000 or more in reserve as an emergency fund when you first invest. From there, you want to save up about three to six months of living expenses, preparing you to weather a period of unemployment.
Put money toward your portfolio and your emergency savings in tandem to grow both.
Read these articles to better understand the importance of emergency funds:
Refine Your Goals and Expectations
One of the most important things you can do before you start investing is to refine your goals. Your goals and your timelines will help determine which financial products you should invest in because they will help you determine your risk tolerance.
Risk tolerance is all about figuring out whether or not you can afford to lose money. Why would you want to invest if you were going to lose money, you ask? It’s a real risk no matter where you put your money. Stock markets crash, bonds can lose gains to inflation, housing bubbles pop – there’s no avoiding risk, but some assets are less risky than others.
The longer you can wait before you need to withdraw your savings, the more risk you can take on. If you have 35 years before you retire, you can put the bulk of your savings in risky investments because you have time to enjoy the fruits of an economic recovery. If you want to withdraw your money within five years, it makes more sense to avoid risks so that you know you will at least have the principal.
A diversified portfolio spreads risks around and makes sure your money won’t all vanish with a bad day on the markets. It’s about building resilience and making sure your savings are there for you.
After reading this, you may have more questions about how to invest your savings to make the most money. Ellevest is there to help! Sign up with Ellevest today and start investing the smart way.