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Investing for Beginners: How to Plan for Your Future Today

October 11, 2021

You probably already know that one of the best ways to grow your money for the future is to invest it.  The first place to start is with your employer’s 401(k) which allows you to contribute on a regular basis, and not worry about what the market is doing on a daily basis.  Many 401(k) plans offer a company matching percentage, which is supplemented money.  For example: your employer offers a 3% match, make sure that you’re contributing at least 3% of your income to receive the full match.

If the idea of where to invest your hard-earned money is intimidating, there are usually mutual fund choices in an employer plan that provide an easy start point.  One type of diversified mutual fund will normally have a targeted year of retirement in the name, and this allows the mutual fund to manage your money for you.  What other investment decisions are important to consider?  Let’s explore how to start investing in a way that’s diversified with reasonable risk for your goals.

How to Start Investing: 5 Smart Ways to Save and Grow Your Money

One of the best pieces of advice for people looking to begin investing is to start as early as possible. Investing while you’re still young is one of the best ways to see long-term accumulations in a noticeable way.  Over time, the investment returns you earn on your original investment amount (also known as principal) start to compound and grow even more. Basically, you begin to earn interest on your contributions, therefore your earnings earns more interest. This compounding allows your account balance to grow at a faster rate over a long period of time.

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  1. Decide How Much to Invest
The biggest step in the process is deciding how much you’re comfortable investing.  It’s often recommended you consider investing 10%-15% of your total income into your retirement plan each year.  However, if that isn’t possible, consider at least contributing enough to receive the full company match that is offered.  
  1. Learn about Different Types of Investments
When it comes to investing your money, especially for retirement, you will normally have several different mutual fund choices in your employer 401(k) plan.  If you are doing additional investing outside your employer you may be looking at individual stocks, bonds or Exchange-Traded Funds (ETFs).  Each type of investment carries some risk, so understanding the common pitfalls will help you make informed decisions.
  • Mutual Funds — Mutual funds are made up of stocks, bonds, cash or all three.  They can be invested in the U.S. or internationally.  There are other types of mutual funds with a year of retirement designated in their name, and will combine a mix of stock and bond investments packaged together.  By purchasing a diverse collection of stocks and bonds, it’s possible to mitigate risk and grow your investments over time.
  •  Exchange-Traded Funds (ETFs) — ETFs are similar to mutual funds, but hold a bundle of investments packaged together. ETFs trade throughout the day like a stock and are purchased for a share price.
  • Stocks — a stock is a share of ownership in a company. Stocks, or equities, are purchased for a shared price and can be purchased through a mutual fund.
  • Bonds — a bond is a loan to a company or government entity in exchange for interest on your investment. Bonds usually offer lower long-term returns than equities, so they’re typically only a portion of a diversified investment portfolio. 
  1. Understand Your Risk Tolerance
All investments hold some risk. Investments with the highest risk often yield the highest returns, but are also subject to the greatest losses.  Investment diversification plays an important role that helps to spread an investor’s risk through a blending of different types of investments.  Investing is meant to be a long-term strategy and isn’t ideal for short-term financial goals.
  1. Know What Fees You are Paying
Financial advisors and mutual fund companies charge different fees for their professional investment services.  There can be yearly management fees to manage your portfolio, upfront commissions, plus the normal mutual fund internal expense fees.  It is important to know what fees there are, how much they are, and how often they are paid.  This can have a significant impact your overall return and growth of your money over the years.
  1. Educate Yourself on How to Start Investing
There are countless books, webinars and websites that can educate you on investing. Once you are ready to start investing your hard-earned money, seek out a qualified investment professional to help guide you through the maze of investment choices who will help educate you to accomplish your long-term financial goals.
 
One of the biggest things to remember when you begin investing your money is that it’s not an all-or-nothing approach.  The simplest way to begin investing on a systematic basis from every paycheck is through your employer’s retirement plan.  If you never see the money, you won’t miss the money, and the results can be significant for your future.  After you’re comfortable, start to increase the amount that you add consistently with a goal of at least 10% contributions in your 401(k) plan.
 
Taking the first step toward retirement planning and investing your money is simple. But building a strong and productive portfolio of investments is not. First National Bank and Trust has Wealth Management or Investment Services to assist you based on your situation.  They can help you evaluate your entire financial portfolio in a way that allows you to start planning for the future today. Contact our Wealth Management Team or find a location near you.













 

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