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- Target date funds require very little work — you just need to think about when you expect to retire.
- Robo-advisors can automatically put together a portfolio for you, and they’re usually affordable.
- ETFs require more work from you as an investor, but they can be an affordable way to invest how you want.
The most important thing I tell my clients to do when it comes to investing is to start now. The world of investing can be intimidating, especially for a beginner investor seeking to start building wealth or saving for retirement.
To achieve your long-term financial goals, investing must be part of your financial plan. Saving alone will not allow your money to grow and outpace inflation. Do not worry too much about when the perfect time to start investing is. Markets will always fluctuate, so the best time to get started is always now.
Luckily, there are several options to consider for beginner investors. Here are three investment options that can help you get started.
1. Target date funds are simple
The main appeal of target date funds is their simplicity. Investing in a target date fund is a true hands-off investing experience. Target date funds offer investors access to low-cost, well-diversified portfolios of stocks and bonds that correspond to their retirement timeline.
In addition to the low cost, investors do not have to worry about rebalancing their portfolios as they approach retirement. Managers of the fund will handle this task for investors.
The way it works is that you pick a predicted retirement age and the associated year, then choose that fund to invest in. For example, a 30-year-old in 2024 might pick a 2060 target date fund if they expect to retire around age 65. In earlier years, your fund may be more heavily invested in stocks than bonds. However, as you approach retirement your account will rebalance toward more conservative investments (bonds or cash) to decrease your risk exposure.
2. Robo-advisors are easy and low-cost
Another great option for beginner investors is robo-advisor platforms. Most robo-advisor platforms have you start by filling out a questionnaire detailing your financial goals, timeline, investment interests, and risk tolerance. With this information, the platform recommends a customized investment portfolio for you. The platform will manage the portfolio for you, offering services such as rebalancing and tax-loss harvesting.
One selling point of robo-advisors for beginner investors is the low cost. Robo-advisors are typically less expensive than traditional financial advisors. This allows you to keep more money invested in the market, which will pay dividends in the future (literally and figuratively).
Another great benefit is the range of services these platforms offer nowadays. For example, many now offer tax strategies, socially responsible investment options, portfolio rebalancing, access to human advisors, and more. Because of all the services offered, beginner investors are allowed to be hands-off with their investments.
3. Exchange-traded funds are an affordable way to take more control
If you are a little bit savvy with investing but still classify yourself as a beginner, consider investing in diversified, low-cost, global ETFs. This approach will be a little bit more hands-on than the robo-advisor or target date fund option, but it still offers some passiveness. With the other options, you have a manager that handles portfolio rebalancing for you. However, with this option, that’s a task that you have to do as the investor.
An ETF is a basket of securities that can be traded throughout the day like stocks. You do not need a lot of money to get started investing with ETFs, and some platforms even allow you to purchase fractions of a share if you can’t afford a whole share. You can start building a diversified portfolio that will help you reach your long-term financial goals for just a few dollars.
When it comes to investing, it is always important to consider your long-term financial goals, risk tolerance, time horizon, and tax situation. Some investments are riskier than others. If you need to access this money immediately or in the short term, other vehicles like a high-yield savings account may be better.
Do not be afraid to reach out to a financial advisor who can help you identify which option is best for you based on your financial goals. Investing can be scary, but it’s necessary to reach your long-term financial goals.
