The best investments for beginners in 2022

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If your goal for the New Year is to start investing for your future but you’re not sure where to start exactly, you’ve come to the right place. Investing doesn’t have to be confusing or complicated. In fact, investing in your future is one of the best long-term decisions you can make, especially if you’re decades away from retirement.

While it is easy to get involved once installed, it is not always easy to know where to start. The amount of investment information available can be staggering, and you could easily find yourself sifting through misguided stock picks, unsolicited advice from family members, and ever-drastic market news.

Starting early and investing often is the secret to a healthy retirement account. Plus, the power of compound interest – which can add a huge boost with a long-term investment horizon – can make your money work for you so that it grows even while you sleep.

“We have to make the headlines,” advises Jill Fopiano, President and CEO of O’Brien Wealth Partners. “It’s easy to find conflicting articles on the same investments. “

You do not know where to start ? We are here to enlighten you. The best investment strategies are often the simplest. Let’s take a look at some popular investment options for beginners.

Overview of the investment strategy for beginners

Before you start investing, it is important to define a few points.

First, consider your budget and emergency savings. Experts recommend setting aside about six months of spending in a savings account before seriously investing in the market. However, if you have an employer sponsored 401 (k), it’s not a bad idea to at least start contributing to it while building your emergency fund. In this way, you can still benefit from the matching of employer contributions. But get your emergency fund moving.

In most cases, it is advisable to pay off the high interest rate debt before you start investing. Those with student loans or mortgages below 5% of the APR may want to slowly reduce their debt while investing in the stock market. However, personal loans and credit card balances with an APR of 10% or more should be considered first, as any gain in the market will likely be overshadowed by the interest on that debt.

Once you’ve set aside enough in a rainy day fund, revise your budget and invest as much as you feel comfortable doing (or as you can). Keep in mind that even $ 5 is enough to invest. Small, constant amounts build up over time, and the most important thing is to be consistent and start ASAP.

Understanding investment vehicles

401 (k) s, Roth IRAs and Traditional IRAs

In order to buy any of the funds mentioned below, you need an investment vehicle to do so. This is where specific retirement accounts like an employee sponsored 401 (k) or Roth or traditional IRA come in. Using a retirement account to buy investments is an effective way to invest for the long term. These accounts offer tax benefits that allow your income to grow tax-free or tax-deferred for years to come.

Taxable brokerage accounts

Unlike a retirement account, which has specific tax advantages since you withdraw it at the appropriate age (59½ is the earliest), a regular investment account where you can be taxed on earnings and withdrawals is called a brokerage account.

With a brokerage account, you can buy securities like stocks, bonds, and index funds. Unlike retirement accounts, there are no rules about how much you can contribute and when you can withdraw. Check out NextAdvisor’s list of the best online stock brokers to see the best options for low fees and good customer service.

1. Target date funds

Now that you’ve read up on investment vehicles, it’s time to learn more about the investments themselves. Experts love target date funds, and for good reason. Target date funds are a mix of stocks and bonds in a single fund that automatically become more conservative over time. Designed to mitigate risk as you approach retirement, target date funds often include a year in their name, such as “2060 target date fund”. Employer-sponsored pension plans typically offer target date funds as investment options because they allow employees to easily set it and forget it, so to speak.

“Target date funds provide an easy way to save for a set date and time, and they provide access to a variety of markets,” says Fopiano. This is an advantage because you don’t have to choose individual stocks or do a lot of research.

Target date funds are a great place to start if you want something easy. You can invest in one through your employee sponsored 401 (k) plan, brokerage account, or through your individual Roth or traditional IRA.

In fact, the millionaire investor and founder of the Personal Finance Club told NextAdvisor that if he could remake his entire portfolio, he would invest in a single target date fund.

2. Index funds

Index funds are investments that follow an index and seek to match it, like the total market, the S&P 500 and many others.

“An index fund is an exciting and relatively safe way to make your first investment because it is diversified, has lower fees and exposes you to a large part of the market in a single trade,” says Melanie Mortimer, President of the Foundation. SIFMA, an industry trade group.

You can also start investing in index funds with small amounts of money. Fidelity, for example, has no minimum investment required to purchase shares of its Fidelity® ZERO Large Cap Index Fund or Fidelity® ZERO Extended Market Index Fund. Most of the large investment managers offer comparable funds that the average consumer can easily open with a low initial investment. NextAdvisor recommends low-cost, broad-market index funds as a great place to start investing.

Like a target date fund, index funds can be purchased through a taxable brokerage account or through tax-advantaged retirement accounts, like your 401 (k), or traditional or Roth IRA.

3. ETF

An ETF is a type of security that tracks a particular index, sector, or commodity that you can buy and sell throughout the day, just like a stock. Compared to mutual funds, which you can only trade once per day when the market closes, ETFs are traded on an exchange (hence the name).

Because of their tax efficiency, ETFs are also a great choice for taxable brokerage accounts.

How to start investing today

If you need help with your investment portfolio, a robot advisor can ask you a few questions about your risk tolerance and investment schedule to determine the best investments for you. Robo-advisers are used by most investors and are reliable. Once you know your risk tolerance, you are ready to open an account. You can stick with a robo-advisor or consider NextAdvisor’s list of best online brokers for a more traditional or self-guided option.

The power of consistency

Try to invest at regular intervals, for example every time you get paid. This strategy is known as cost averaging because by contributing regularly over time you will get into the habit of investing. Just focus on consistency. Some employers may even automatically deposit a portion of your salary into your investment account. When the money is in your account, make sure it doesn’t sit there.

Take the extra step to make sure it’s actually invested. Depending on your account type, it’s not always enough to just transfer money. With many online brokers, you need to take an extra step of buying the stock or fund you want to invest in.

Pro tip

For most investors, we recommend a large, low-cost index fund that tracks the overall stock market or the S&P 500, which are available with most brokers and pension plans.

Finally, check back from time to time. “You don’t want to check it every day,” says Fopiano. “Markets go up and down, but if you take a long view, you can handle bear markets.” It’s best to verify that your accounts are working as expected, that dividends are paid (and reinvested, if that’s what you want), and that your investments match your risk levels and future goals.

With consistency, time in the market, and investments that make you feel good, you’ll be preparing for your future with plenty of money when you’re ready to retire.

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