Don’t Make Rash Investment Decisions Today Until You Check These 3 Boxes | Smart Change: Personal Finances


(Kailey Hagen)

Investing can seem pretty scary right now with all the chatter about an impending recession. Beginners in particular may wonder if now is the right time to invest safely, and the truth is, it depends. Investing is a great way to grow your wealth, but you need to check the following three boxes before you start.

1. You have an emergency fund

Emergency funds are essential to successful investing because they allow you to leave your investments alone until you are ready to sell them. When you don’t have emergency savings, you may have no choice but to sell your investments, possibly at a loss, when unexpected costs arise to avoid debt.

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You should keep at least three months of living expenses in a high-yield savings account for your emergency fund. Some people feel more comfortable saving six or 12 months of living expenses. It’s up to you. You may need to adjust the amount you keep in your emergency fund as your budget changes over time, and if you spend some of it, you’ll need to set aside some money to replenish it to help you recover. be prepared for the next emergency.

2. You have money that you don’t plan to spend in the next five to seven years

It’s also not wise to spend the money you plan to spend over the next few years, as the stock market can be quite volatile in the short term. Although there is a good chance that you can grow your wealth over several decades, this is less certain if you only invest for short periods.

Keep money you save for short-term purchases, such as a car or house, in a savings account. This way, you won’t have to worry about losing money, and you’ll have access to your funds when you need them. Some online savings accounts even let you put your money in different digital envelopes, so you can separate your funds for each of your personal goals.

3. You have a strategy to help you avoid emotional decisions

Watching the value of your portfolio plummet is not an easy thing to do, which is why many experienced investors try not to pay too much attention to the daily movements of their investments. This helps them avoid the temptation to buy or sell based on recent performance. If you’re investing for the long term, those short-term fluctuations don’t matter anyway.

Once you’ve invested your money and are sure you’re sufficiently diversified, avoid checking your portfolio more than once every few months. See if you can set up automatic contributions so you don’t have to check your balance every time you want to add money to your account. Many taxable brokerage accounts and even some retirement accounts allow you to enter your bank routing and account numbers and set up automatic transfers on a schedule.

Are you ready to start?

Growing your wealth through investing is rarely a linear process, but it can be very profitable in the long run. So once you’ve checked those boxes, don’t be afraid to dive in.

If you’re new to investing, an index fund is a great place to start. It is a set of stocks that mimics the performance of its target market index. They are quite affordable and provide instant diversification. Many also have historically high yields.

To start, you can first choose the index you are interested in. S&P500 is a solid choice for many beginners. It contains 500 of the largest companies in the United States, including top performers in several market sectors. Then you need to look for a fund based on this index. It will often have the index name in the fund name.

You may want to compare a few index funds before deciding on one. Look at their historical performance and expense ratios. These are annual fees expressed as a percentage of your assets. For example, an expense ratio of 0.03% means that you will owe the fund manager 0.03% of your assets invested in the fund each year.

Once you’ve chosen a fund, all you have to do is invest your money or set up an automatic contribution schedule and wait. It will take time and you may lose money in the short term, but stay the course and focus on the long-term growth potential.

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