Building Wealth in 2024: Five Essential Tips for New Investors
Optimism is a hallmark of a new year, and we anticipate that 2024 is the start of something great for investors. This is the opportunity to set new financial goals and embark on a journey to financial prosperity as we leave 2023 behind.
Our comprehensive guide, with its five essential investment tips tailored for new investors, is designed to build wealth, foster confidence, and lay the groundwork for building a successful investment portfolio in 2024.
How do I start investing?
When you’re new to investing and growing your money, it’s easy to get bogged down in the available mountain of information. You understand that investing is vital to building wealth and reaching your financial goals. But where to start?
First, don’t get too distracted by determining the perfect time for investing. Markets change - that’s their nature. Second, growing your money is more a marathon than a sprint, and so is learning how to build an investment portfolio while making thoughtful decisions. Even the most experienced investor is still learning.
What is the best time to start investing? Right now.
How to review your financial plan
Remember the old saying, “You must learn to walk before you run.” The message is about taking first things first and building on a foundation. If you’re learning how to start investing, your first step must be reviewing your financial plan.
Your financial plan is an ever-evolving document and should never be allowed to stagnate. Savvy investors make an annual review of their financial plan a priority. Frequent reviews aid investors in assessing assets, reviewing goals, and making potential course corrections.
Have a clear picture of what your financial health looks like. Some questions to ask yourself are:
- Am I working within a defined budget?
- What are my expenses?
- Am I using helpful tools like a monthly expense sheet?
- How much debt am I carrying, and what does that debt involve?
- Do I have a defined plan on how to reduce my debt?
- What are my assets?
- Do I have adequate insurance coverage?
Investing for beginners involves a systematic approach. Indeed, the same strategy holds for seasoned investors. Taking the time to review now will pay off in dividends later.
How to determine financial goals
Now that you have reviewed your financial plan, it’s time for some goal-setting. Sometimes, crafting goals can be challenging, and we’ve found that it’s helpful to pause and consider what’s important to you.
Will you have a family, or do you have one now? Does early retirement sound good? Do you want to save for college? Is travel in your future plans? Will you be buying a house? Write down all the goals that you can think of. You can’t reach goals if you don’t know what they are!
Once you have a list, decide which goals are the top ones. The use of the acronym SMART is a handy tool:
- S - Specific: Your goals should be detailed and precise.
- M - Measurable: Measurable goals are easy to track.
- A - Achievable: Set goals that you can achieve.
- R - Realistic: Avoid the far-fetched goals.
- T - Time-based: Define when you expect to reach your goals.
The goal-setting process also involves determining short, medium, and long-term goals. This makes it easier to choose investments that give the best returns in each period. Short-term goals are those that you are most likely to reach within two years. Vehicle down payments, vacations, and weddings are examples of short-term goals.
Medium-term financial goals focus on life events that require more money and average two to five years to attain. House down payments, business launches, and less debt are great examples.
The most common long-term goal is retirement, but other examples include paying off a large debt, increasing earning potential, or planning for long-term care. Long-term goals take more than five years to achieve.
How to automate your investments
Life comes at us fast, and it’s easy to become so wrapped up in the responsibilities of the here and now that investing gets put off. But one of the most straightforward answers to how to become an investor is to automate your investing. Automation requires a little initial work, but once everything is in place, you will build wealth automatically and on a regular schedule. Let’s take a look at how it can be accomplished.
Employer-Sponsored Retirement Account
A work-related retirement account remains one of the most accessible automated investment options. If your company offers a 401(k) matching contribution program, take full advantage of that. If you max out your 401(k), open an IRA (traditional or Roth).
Investment Account Consolidation
It’s not uncommon for people to change jobs every few years; unfortunately, many forget to take their 401(k) with them. When moving onto a new career prospect, roll your old 401(k) into an IRA - this makes managing your investments much more straightforward.
Invest in Other Automated Retirement Accounts
As an investor, you’re not limited to just 401(k)s. Set up a monthly transfer to an IRA, and if you max that out, you can look at automated deposits to brokerage accounts, 529 plans, or an HSA (Health Savings Account).
Automatic Investment Plans
There will come a point in your investment journey when your money regularly flows into retirement plans and other investment accounts. Consider a brokerage account that allows you to set up an automatic investment plan to keep cash from piling up. A low-cost index fund can track a stock market index like the S&P 500 and invest your automatic transfers.
If you’re receiving dividends from individual stocks, consider reinvesting them. Most brokerages allow investors to automate reinvestment of dividends back into the same stock or fund.
How to develop an investment strategy based on your financial goals
Successful investing doesn’t happen by magic. Anyone who wonders how to make money investing should understand that success hinges on having a defined strategy. Look at investments that insulate your portfolio, keep it stable, and provide a hedge against inflation. Understand the risk and be confident in how much of that risk you are or aren’t willing to assume. Never risk more than you can afford to lose.
A key to investment for beginners is having a firm grasp on risk tolerance - understand what you’re getting into. If it isn’t clear, ask questions. Are you comfortable with the size and length of the investment?
And when deciding how to grow your money, will you be an active or passive investor? Passive investors own assets like mutual funds or ETFs, which tend to charge low fees, whereas active investors lean towards individual investments like stocks or mutual funds that aim to outperform the market. A shining example of passive investing is real estate debt investing. Over time, passive investing outperforms active investing.
When developing your investment strategy, be sure to ask yourself if you’re going to shoulder the responsibility of investing on your own or rely on the assistance of seasoned investors.
How can I stay up to date with financial news?
Whether you’re handling all of the investing on your own or you’ve hired someone to help build your wealth, you must stay informed about the ever-changing financial landscape. You can use many resources to keep up with various markets and how changes affect your bottom line.
With the internet offering a world of information, staying on top of the news is easy. Websites like CNN, BBC, The New York Times, and Reuters provide information 24/7; the most important stories are listed first. News aggregators like Google News and AP News gather financial data from all over the web and organize it for you. They can help investors discover sites and blogs they may not have been aware of.
Some news sites will let investors download a ticker that will run at the bottom of a computer screen to stay on top of trending headlines. Podcasts are another excellent way to remain financially informed - particularly about long-term investments and opportunities. They are a great way to use the time on your daily commute!
Social media is another good tool for investors. However, a word of caution. Remember that while we have a world of information at our fingertips, we also live in times of significant misinformation. Don’t automatically believe everything you read on social media sites like X, Facebook, TikTok, or Instagram.
The strength of successful investing lies in understanding your current financial health, defining specific and measurable goals, automating investments where possible, and diversifying your portfolio.
Connect Invest offers passive real estate investing opportunities through short notes that fund a range of residential and commercial real estate developments. Setting up an account is easy, and there are no fees. Investors earn passive income with higher-than-average yields from carefully vetted projects backed by collateral. Contact us here if you’d like to include real estate investing in your plan to build wealth and expand your portfolio.