One of the most important ways to grow your wealth is to invest it. Regardless of your income or current financial situation, the sooner you start investing, the more successful you will be. That being said, with so many investment opportunities available, it can be difficult to know where to start. Here are a few tips you can consider when choosing to make your investments.
Diversify Your Portfolio
Making investments can be risky, no matter the investment type. To minimize that risk, financial professionals recommend you maintain a diversified investment portfolio. Diversifying your portfolio means you are investing in a variety of asset classes, industries, and categories. The strategy is that if you are invested in multiple investment types, you are not as negatively impacted if one performs poorly.
For example, someone with a diversified portfolio might hold shares across a variety of industries, like tech or media, be invested in fixed-income assets like bonds, and invest in real estate or commodities. While there is no way to completely eliminate risk, diversification can help mitigate it and strengthen your investment portfolio.
The Basics
Two of the most common investment types, stocks and bonds, are likely what you think of when talking about investments. When you invest in a company’s stock, you are purchasing a piece of a publicly owned company. As that company’s stock grows, your shares become more valuable and you can sell your stock at a higher value or hold onto your share and let it grow further.
Bonds, on the other hand, are essentially a loan. You lend your money to a company or government organization, and that entity will pay you back after an agreed upon time. You make your money investing in bonds by collecting interest on these loans.
Both stocks and bonds offer benefits and drawbacks. Stocks have the highest growth potential, but the stock market is also unpredictable, so investing in stock means acquiring more risk. In contrast, bonds are less risky and relatively stable, but generally produce lower returns.
Exchange-Traded Funds vs. Mutual Funds
Two types of investments that can boost the diversification of your portfolio are Exchange-Traded Funds (ETFs) and Mutual Funds. Similar types of investments, ETFs and Mutual Funds allow investors to pool their money together into a joint fund that invests in multiple securities, like stocks and bonds. When you invest in ETFs and Mutual Funds, you are not responsible for managing them, saving you time and effort.
Mutual Funds are actively managed by financial professionals, who study market trends and use their expertise to make investment decisions for your fund. This active management, however, may mean you are paying higher fees. ETFs, in contrast, are typically more affordable and are passively managed, meaning they track the performance of a specific index.
Emerj360 offers diversified, low cost portfolios of ETFs—you can learn more by meeting with a with a financial professional today.
Investing in Your Retirement
Everyone who is in the workforce should be investing toward their retirement. There are two main ways that you can do this: through a personal retirement account or an employer sponsored account. Many employers offer either a 401(k) or 403(b) plan that invests a portion of each paycheck—before taxes—and contributes that percentage to a savings account. Many employers offer a percentage of contribution matching as well, giving you free money toward your retirement.
You can also opt to invest into an Individual Retirement Account (IRA), which allows you to invest your money into a savings account, and collect interest. Unlike employer sponsored programs, IRAs offer tax advantages when you withdraw the money you have saved. Both types of retirement accounts give you the freedom to invest as much as you want, and allow you to invest directly toward your future.
Work with the Professionals
It’s important that as you begin to construct your investment portfolio, you are monitoring it and finding new assets to invest in. A great way to do this is by enlisting the help of a financial professional. You can meet with an Emerj360 professional today to start managing your investments. We will help you create and grow your investment portfolio, as you go through all of life’s stages.
