Investing is difficult in a bear market: 5 tips to help new investors get started

This story is part of Make money movementsCNET’s coverage of smart money choices for today’s changing world.

Investing your money in the current economic climate is precarious, especially now stocks stumble and Crypto crashes. Overall, it’s an intimidating time to be a new investor.

Expert advice is crucial for beginners, but social media and the connectivity of the internet mean there are more voices vying for your attention — and money. Now that anyone can broadcast their investment tips from a smartphone, it’s harder to identify trustworthy advice — following the wrong TikTok finance guru or Twitter crypto brother could lead to a major financial blunder.

How can beginners find their way in today’s economic landscape? Build your wealth and Saving for retirement requires careful planning and a long-term strategy. To help you make wise money decisions this year, CNET spoke to investment experts who explained ways to balance proven strategies with newer ways to support you investment goals.

Here are the best practices — both tried and tested and new for 2022 — to help you start investing.

Above all: Decide what you want to do with your money

Pick stocks, choose a mutual fund or buy Bitcoin can actually be the easy part. But no particular investment, strategy or philosophy is as important as knowledge why You invest first and foremost. In other words, what are you going to do with your money?

James Lee, a board-certified financial planner and President-elect of the Financial Planning Association, always begins working with his clients by going through their life goals, even before discussing investment strategies.

“I ask them what goals they have that require financial resources in the future,” Lee said. “It’s important to understand what your goals are, to inform your timeline, and to build a portfolio that has the appropriate risk and return characteristics to meet those goals.”

Although each individual has our own reasons for investing, most of us have common goals: save for retirement, buy a home and maybe pay off student debt, start a business or Financing your child’s college education. Your goals may also evolve, and the larger economic picture should inform your approach. For example, right now you might be worried about strengthening your nest egg against it rising inflation and rising interest rates.

Although it can be difficult to articulate your life goals or envision your future, it is a crucial first step in investing. Setting clear goals and reviewing them annually will help inform your timing, strategy and risk tolerance.

Your objectives can include external and even non-financial considerations. Socially responsible investing has become an important touchstone for many, according to Anjali Jariwala, certified financial planner and founder of Fit Advisors. Likewise given the importance of climate changea growing number of investors are building or reconfiguring their portfolios to support companies that are more environmentally friendly.

Invest automatically and always take “free money”

For most of us, building a nest egg is a key investment goal retirement. According to Farnoosh Torabi, editor at CNET Money, financial independence is a top priority for most people for a comfortable retirement. But only 57% of Americans have any form of retirement savings, according to a recent survey released by Personal Capital, an online wealth management platform.

If you work for a company that offers a 401(k) or employer-funded retirement account, there are two good reasons to choose one. First, a percentage of every paycheck goes into this investment, making contributions routine and automatic. Second, your employer can pay part or all of your contribution.

For example, if you gross $4,000 a month and your employer covers up to 4% of your salary, you would need to contribute $160 to receive the full employer allowance. If you combine your contribution and that of your employer, that would be $320 per month or $3,840 per year. And you can always contribute more—in 2022, individuals can contribute up to $20,500 to a 401(k). As a general rule of thumb, Jariwala suggests that you deposit at least as much as your employer applies so you don’t miss out on the ‘free’ money.

And if you have more money to invest after you’ve hit your 401(k) limit, you can open an IRA, a special class of savings account that offers some tax protection. A traditional IRA you can make pre-tax contributions during your working years, and your money will be taxed as ordinary income when you withdraw it in retirement.

With a Roth IRA, your money is taxed on the way into the account, so you can withdraw it 100% tax-free when you retire. This arrangement makes it ideal for younger workers who are earlier in their careers or those in lower tax brackets. The caveat is that “there are income limits, and once you reach a certain income level you can no longer contribute,” Jariwala said. “When you’re young, this is a really great time to get as many dollars into that Roth IRA as possible.”

Develop an investment strategy that is based on your goals

After decades of relative stability, the economic landscape is now changing. Inflation has hit a 40-year high and we see rate hikes as a result. Find inflation-resistant investment opportunities has become increasingly important. Rising prices can erode your portfolio because you buy less with the same $100 than you did the day before. However, some types of assets are more affected by inflation than others. This is a moment to explore assets that help insulate your portfolio, including some retirement accounts, real estate, and inflation-linked government bonds, a type of government bond that counterbalances inflation.

Today, “investing” is often associated with actively trading stocks at Robinhood or another brokerage firm. This implies frequent buying and selling based on market analysis. But getting a reliable return from active investing is extremely difficult — even for professionals — and for most people, it’s not the most practical or effective way to manage money.

Passive investments like index funds and ETFs are better choices for most people. Unlike active investing — where you (or your portfolio manager or broker) buy and sell individual investments on a regular basis — passive investing typically involves buying and holding assets for the long term.

As markets ebb and flow, index funds are designed to deliver the average return of the market as a whole and to track the performance of a set market benchmark, such as the Standard & Poor’s 500 or the Nasdaq Composite. The reason is that over the long run, the market usually outperforms every single investment. Research shows that index funds routinely outperform actively managed funds. Passive investing through mutual funds has been particularly productive for generations of young people who have had decades to build wealth early in their careers.

Even Warren Buffet, one of the richest people in the world and chairman and CEO of Berkshire Hathaway, is a fan of index funds. Quoted in The Little Book of Common Sense Investing, Buffett said in an interview, “A low-cost index fund is the most sensible stock investment for the vast majority of investors, actually outperforming most investment professionals.”

Better still, index funds are less risky and typically cost less than other types of investments — unaudited fees can eat up your portfolio over time. While buying yourself into an index fund isn’t particularly complicated, a Robo Advisor can help you figure out what makes the most sense for you and manage your portfolio.

At higher risks, do not invest more money than you can afford to lose

Once you’ve covered the basics like retirement, long-term investing, and an emergency fund, you can branch out into riskier ventures — or ones that are less proven. Higher-risk investments often come with higher returns…if the investment pays off (and that’s a big if).

Cryptocurrency is an alternative worth exploring. You can invest in crypto by buying tokens like Bitcoin and Ethereum on an exchange like Coinbase or Binance. But it’s important to understand that Crypto remains unregulated and very volatile. It’s not for everyone: you need a high risk tolerance and the financial resources to weather market downturns. You also need to be sure that you can lose money and still pay your bills.

Lee recommends investing in crypto only when you “have assets that you can afford to speculate on, which means the asset can go to zero and it won’t interfere with your ability to meet your financial goals.” “.

Even if you decide to dip your toes in crypto water, it’s still wise to start small. For beginners, Jariwala recommends allocating no more than 1% to 3% of your total portfolio.

Learn the basics and stay on top of the changing world of finance

Of course, any single article or piece of advice can only get you so far. That’s why it’s important to stay proactive when it comes to your financial future. Part of that is following the news of the day — whether it’s the impact of a pandemic on the supply chain or how a war might affect gas prices — and understanding how it’s affecting your bottom line.

Financial books like Rich Dad, Poor Dad, The Total Money Makeover, or The Little Book of Common Sense Investing can improve your understanding of the basics. (Perhaps start with Blinkest, which has in-depth summaries of more than 5,000 books.)

You can also get professional help, and it may not be as expensive as you think. A certified financial planner can help you create a portfolio, manage your finances, and help with your taxes. You can consult the Financial Planning Association’s PlannerSearch to find someone in your area. Keep in mind that advisors typically charge a flat fee or receive a percentage of your portfolio in return for providing their services. And make sure your advisor is a fiduciary, which means they have a legal obligation to put your financial interests first.

There is no one-size-fits-all approach to investing. But there have never been more self-service tools and resources to help you get started.

For more information, see our guide at how to invest in crypto in 2022 and our list of The best robo advisors.

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