Editor’s Note: This story originally appeared on The Penny Hoarder.
New year, new investment strategy? Sorry, but that’s not what you’ll find here.
The investment doesn’t really change from year to year. It takes patience, consistency, and a focus on long-term results.
That’s why our top investing tips for 2022 sound familiar. The best ways to invest in 2022 will still be the best ways to invest in 2023 and even 2033.
If you’re ready to make 2022 the year your money sizzles, follow these investing tips. Then sit back and watch that nest egg grow.
1. Invest while in debt? Here’s how to prioritize
You don’t have to wait to be debt free to start investing. But sometimes it makes sense to focus on paying off debt first. Here’s how to prioritize:
- 401(k) correspondence from your employer. Contribute to your 401(k) plan to match your business unless it puts you in more debt.
- Pay off your high-interest debt. Any debt that costs you more than 6% to 8% a year in interest (ahem, ahem, credit card debt) takes priority before you invest more.
- Maximizing your Roth IRA. Contribute as much as you can to your Roth IRA once you’ve reduced that costly debt. The Roth IRA limits for 2021 and 2022 are $6,000 if you’re under age 50 or $7,000 if you’re 50 or older.
- From there, it’s up to you. You decide whether you want to spend more money on investing or on low-interest debt.
2. Start with low-cost index funds
When you’re new to investing, the best place to start is with the S&P 500 index funds – which happen to be Warren Buffett’s preferred choice for most investors.
You’ll become an investor in 500 of America’s biggest companies, like Apple, Amazon, and Johnson & Johnson. With just one purchase, you’ll get a diversified portfolio.
3. Minimize your investment costs
Look for funds with an expense ratio below 0.1%. This means that less than $1 out of $1,000 is spent on fees.
Some good S&P 500 funds that meet this criterion in no particular order: SPDR S&P 500 ETF Trust (SPY), S&P 500 Index Fund (SWPX), iShares Core 500 ETF (IVV), Fidelity 500 Index Fund (FXAIX), and Vanguard S&P 500 ETF (VOO).
4. Invest no matter what the stock market does
The most successful investors practice averaging, which means you invest on a regular schedule whether the stock market is up or down.
Your money will buy less when the market is bullish, but you reduce your investment costs over time because you are also locking in low prices.
5. Take risks (but do it smartly)
By “taking risks”, we don’t mean that you should invest everything in Shiba Inu or try your hand at options trading. But for your money to grow, it is inevitable to take risks.
When you’re a beginner investor, it’s important to invest primarily in stocks – and that involves short-term risk. Fortunately, the stock market has a proven track record of recovery over time.
As you approach retirement, you reduce your risk by investing more in bonds and less in stocks.
6. Let a robot make your investment decisions
Figuring out the right mix of stocks and bonds based on your age and risk tolerance can be tricky, even for an investment professional. So why not outsource the task to robots?
If you have a Roth or a traditional IRA or a taxable brokerage account, you can often use a robo-advisor to automatically allocate your investments. Do not worry. They generally provide superior results to their human counterparts, and they are much cheaper.
Although robo-advisors are unusual for 401(k), you can make an automatic investment by choosing target date funds.
7. Never invest your emergency fund
If 2020 has taught us anything, it’s the importance of having an emergency fund that could cover you for at least three to six months. This money does not belong to the stock market.
Store it in a savings account, money market account, or certificate of deposit (CD). The downside, of course, is that interest rates are miniscule. But because these are FDIC-insured accounts, you know your money will be there no matter what.
8. Understand the difference between investing and speculating
The world can’t get enough of risky stock trading moves, like the GameStop and AMC short cuts. Short-term trading is essentially a game of chance. You bet on the daily vagaries of the market.
Investing is letting your money grow for five to ten years or more. If you want to risk money on day trading, go for it. But treat it like slot machine money: only invest what you’re willing to lose.
9. Avoid super cheap stocks
When you see a stock that costs a few dollars or less, don’t mistake it for a bargain. These stocks are often very cheap because they could soon be worthless.
Companies that issue penny stocks generally have no track record of profitability, and many turn out to be scams. Investing in bankrupt stock is a bad decision, even if the business was once profitable. In bankruptcy proceedings, common stock usually ends up worthless.
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