This post is sponsored by M1 Finance.
Investing is a great way to improve wealth and evade inflation. And although investing can be risky, it is an effective way to put your money to work so that you can relish the long-term advantages. If you do thorough research, read a few testimonials, and ask around, you will find the most reliable investments to ensure your money growth. How can you optimize your investing game in 2022?
To optimize your investing in 2022, set short- and long-term money goals. Choose the best and most effective investment option and open an account. The most popular investments include stocks, bonds, mutual funds, and real estate.
Investing is essential, so read on to see our top tips for optimizing your investing in 2022. In partnership with M1 Finance, we'll look at a few simple and vital steps that can assist you in building wealth through investing.
How to Optimize Your Investing in 2022
“If you fail to plan, you are planning to fail!” This quote accurately describes the riskiness of investing if you do not set short- or long-term goals or outline a plan.
Financial growth rarely happens by accident. Ultimately, you are in charge of putting your money to work responsibly. I recommend following these ideal steps to optimize your investments in 2022.
1. Invest Your Money as Early as Possible
Thanks to the power of compound interest, time is generally an investor's best friend. You may not generate profit overnight. But over time, you should be able to establish enough equity to give your investment portfolio the velocity that it needs to attain your objectives.
The stock market doesn't move in a straight line. Over short time periods, it often fluctuates up and down. But it has historically been one of the most reliable ways to build wealth over the long-term. By investing early, you may be able to give your money decades of opportunities to grow.
2. Establish Your Goals for Investing and Open an Account
All investments carry some level of risk. Thus, ensure that you've thoroughly considered how much you're prepared to put on the line. Afterward, establish your short- and long-term investment goals, such as home improvements, emergency funds, and saving for retirement.
A common goal for investing is to save for retirement. For this goal, investing inside a tax-advantaged retirement account like a Traditional IRA, Roth IRA, and 401(k), is usually a smart move. However, a taxable brokerage account is the better choice if you want the ability to withdraw your contributions penalty-free at any time.
If feasible, aim to save at least invest 10% to 15% of your income per year for retirement. And if you set other investment objectives, review the amount you require, and separate the amount into recurring weekly or monthly contributions.
3. Explore and Research Your Investment Options
Diversification is simply the investing equivalent of spreading your eggs into more than one basket. Some of the most well-known investment options include:
Stocks, known as equities, are shared ownerships in companies. Depending on which company you want to put your money in, share prices can range from less than a dollar (often called “penny stocks”) to thousands of dollars.
Investing in penny stocks can be very risky. There's usually a reason why the underlying companies are struggling to gain market share. Penny stocks are also notoriously volatile and are often the target of “pump and dump” schemes.
Established companies with strong financials, on the other hand, often have expensive share prices. Amazon, for instance, is currently trading for nearly $3,000 per share. Those kinds of high share prices can pose a problem for beginning investors. Many may not have that much money to invest at all, much less in a single company.
Thankfully, several stock brokers today support fractional share investing. With M1 Finance, for example, you can invest as little as $1 in fractional shares of a stock.
Mutual Funds and ETFs
Mutual funds and exchange-traded funds (ETFs) are baskets of securities that allow you to optimize your investing without choosing individual stocks and bonds. Fund investing enables instant diversification as mutual funds and ETFs will have holdings in dozens, hundreds, or even thousands of stocks.
With actively-managed mutual funds, the fund's underlying investments are chosen by professionals. Index funds, on the other hand, automatically follow a particular stock market benchmark, like the S&P 500. Since index funds don't require the services of an active management team, they're often able to charge lower fees.
A bond is, in simple terms, a loan to a corporation or government institution that repays you within a certain period (typically years). You'll also receive interest on your principal.
Bonds are generally less risky and volatile than stocks, but have earned lower returns during most historical periods. Keeping a certain percentage of your investment in bonds can be a smart way to optimize your investing as it generally adds stability to your portfolio. And the closer you get to retirement, the more you may want to invest in them.
Some experts recommend subtracting your age from 120 and investing the difference in stocks. Using this formula, a 30-year old would want to have 90% of their portfolio invested in stocks (120-30=90) and 10% in bonds. But a 50-year old would want a more conservative asset allocation of 60% stocks (120-60=60) and 40% bonds.
4. Choose Your Investment Strategy
Here you need to choose carefully. Your investing strategy should be determined by your saving objectives, the amount of money you require, and your time horizon.
If you have a long-term savings goal, investing your money in stocks, funds, and bonds usually makes the most sense. But for short-term objectives, it's safer to put your money into an online savings account or cash management account.
5. Supervise Your Portfolio
Evaluate your investment portfolio regularly to make sure that your mix of investments is staying in line with your target asset allocation. If things get off track, you can manually buy or sell investments to bring your portfolio back into balance.
If you prefer a more hands-off approach, you may want to choose a robo-advisor that will rebalance your portfolio for you automatically. With M1 Finance, for example, your custom portfolio is dynamically rebalanced every time you make a contribution.
6. Evaluate Your Investment Execution Plan
Review the effectiveness of the strategies you used by comparing your portfolio's performance to market index trackers. You may also want to periodically read investment websites and newsletters to find new investing ideas, data points, and performance indicators.
Choosing to optimize your investing when you're young is one of the best ways to ensure financial security as you grow older. Once you've set your objectives, you can open an investment account and review your investment options.
To build the right investing strategy for you, you'll want to consider your goals, risk tolerance, and time horizon. Then choose the portfolio that's the best fit for your needs. With M1 Finance, you can choose from over 60 curated portfolios (they call them Pies) that are designed to meet a variety of investing goals and styles.
After you've created your portfolio, analyze it periodically to see if any tweaks need to be made. Once you're happy with your asset allocation, the last step is to set up a consistent contribution schedule. Get smarter with investment in 2022!