I hope you read Part One in the May issue of Oyster Pointer.
In this, the second of two columns, you can build on the lessons we covered in Part One to now take actionable steps to begin building your own wealth.
Remember, investing is one of the most effective tools available to build your wealth, and you don’t need to be wealthy or a financial expert to do it successfully. Anyone can start investing with small, manageable steps, and the sooner you begin, the more powerful your results.
How to start investing
Before you start investing, you should first check your financial health. Make sure you have an emergency fund set aside for significant unexpected expenses (car repairs, medical bills, etc.) and that you have a manageable debt load. After that, it’s a three-step process.
First, set clear goals. Are you saving for retirement, education or a major purchase? What is your timeframe — two years or 20 years? How much risk are you willing to take? Are you unwilling to lose any money at all? Or are you willing to risk losing 9 percent of your investment if there is a chance you could earn 14 percent, too?
Next, choose the investment platform that best fits your needs. Online brokerages and apps make investing simple, accessible and affordable. There are also financial advisors and investment professionals who can work with you one-on-one to help you set up your portfolio and develop a plan.
Finally, don’t think you need to start investing with thousands of dollars. You can start small and use dollar-cost averaging (investing a fixed amount regularly) to build your investment portfolio. If you invest in your employer’s 401(k), you use dollar cost averaging every paycheck when you contribute funds to your retirement account. This is a best practice and helps reduce risk and build discipline.
Managing risk
Once you start investing, it isn’t a direct path to guaranteed growth of your wealth. Just as important as investing for reward is managing for risk. There are three ways to do that.
First, diversify your investments. As mentioned above, diversification is simply spreading your investments across different asset types, sectors or even companies, so the risk of loss is reduced.
Second, be sure you think long term. Investing returns aren’t guaranteed, especially in just a few months or even a few years. The longer your time horizon is, the less short-term volatility will matter and the greater your chances of success.
Finally, stay calm. Don’t get wrapped up in headlines that may distract you from your long-term goals. It’s a normal part of the market to see prices become volatile and even lose value for a period of time. When that happens, it’s important to avoid emotional decisions during those market swings.
Best practices
As mentioned above, there is rarely a quick route to guaranteed investment returns. That includes meme stocks, trendy stocks or even the hot stock tip you hear from a friend. Investing is a long game that is best played diligently, with a plan, and managing risk. Some other best practices include:
- Make sure you review taxes and fees for your investments. Those reduce your returns and over time could add up to significant amounts.
- Investing works best when you pair it with strong financial habits like saving for an emergency fund, budgeting and taking full advantage of 401(k) plans, IRAs and employer matching.
- Stay informed through articles, books, podcasts and community workshops. Markets and investing can change rapidly; be sure you’re familiar with the latest information from sources you trust.
Finally — and we’ve said it before — you don’t build wealth overnight. Investing is about steady growth and financial security. Start today, even with a small amount. Your future self will thank you.
