Whether you’re an expert at investing, or someone who’s new to the game, it’s easy to feel overwhelmed by the amount of information out there. You may even find that you don’t know where to begin; what stocks to choose, how to fit everything into your budget, etc. Don’t worry though!
To help you on your journey of investing, I want to give a list of investing materials that have helped me a lot. These are books and blogs that will help beginner and advanced investors alike. Use them as a guide to your financial independence.
Enroll in your employer’s retirement plan
If you’re on a tight budget, even the simple step of enrolling in your 401(k) or other employer retirement plan may seem beyond your reach. But you can begin investing in an employer-sponsored retirement plan with amounts so small you won’t even notice them.
This is one step that everybody should take!
For example, plan to invest just 1% of your salary into the employer plan.
You probably won’t even miss a contribution that small, but what makes it even easier is that the tax deduction that you’ll get for doing so will make the contribution even smaller.
Once you commit to a 1% contribution, you can increase it gradually each year. For example, in year two, you can increase your contribution to 2% of your pay. In year three, you can increase your contribution to 3% of your pay, and so on.
If you time the increases with your annual pay raise, you’ll notice the increased contribution even less. So if you get a 2% increase in pay, it will effectively be splitting the increase between your retirement plan and your checking account. And if your employer provides a matching contribution, that will make the arrangement even better.
Blooom is a great tool for hands-off investment management of your 401(k). They’ll give you a free 401(k) analysis, telling you where and how they can optimize your investments.
Learn more about blooom or read our full review.
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Put your money in low-initial-investment mutual funds
Mutual funds are investment securities that allow you to invest in a portfolio of stocks and bonds with a single transaction, making them perfect for new investors.
Wondering what to do with your investments when the stock market drops?
The trouble is many mutual fund companies require initial minimum investments of between $500 and $5,000. If you’re a first-time investor with little money to invest, those minimums can be out of reach. But some mutual fund companies will waive the account minimums if you agree to automatic monthly investments of between $50 and $100.
Automatic investing is a common feature with mutual fund and ETF IRA accounts. It’s less common with taxable accounts, though its always worth asking if it’s available. Mutual fund companies that have been known to do this include Dreyfus, Transamerica, and T. Rowe Price.
An automatic investing arrangement is particularly convenient if you can do it through payroll savings. You can typically set up an automatic deposit situation through your payroll, in much the same way that you do with an employer-sponsored retirement plan. Just ask your human resources department how to set it up.
Read More: How To Buy A Mutual Fund
Play it safe with Treasury securities
Not many small investors begin their investment journey with US Treasury securities, but you can. You’ll never get rich with these securities, but it is an extremely safe place to park your money—and earn at least some interest—until you are ready to go into higher risk/higher return investments.
Treasury securities, also known as savings bonds, are easy to buy through the US Treasury’s bond portal Treasury Direct. There you can buy fixed-income US government securities with maturities of anywhere from 30 days to 30 years in denominations as low as $100.
You can also use Treasury Direct to buy Treasury Inflation Protected Securities, or TIPS. These not only pay interest, but they also make periodic principal adjustments to account for inflation based on changes in the consumer price index.
And as is the case with mutual funds, you can also arrange to have your Treasury Direct account funded through payroll savings.
Unfortunately, the yields on treasuries have been getting closer and closer to 0% for a while now, and there’s no end in sight to their lackluster performance. This makes treasuries mostly a place to stash cash for safekeeping rather than a way to grow your money.
Risk tolerance is not the same as guts
Emotion informs the risk you can take, sure. But Martin Bamford, managing director of financial planning company Informed Choice, says you should mainly assess your capacity for it. If your portfolio fell by 20 per cent, could you still feed the dogs?
Two words: drip feed
“Pound cost averaging” means if you invest monthly rather than in one go, any money you lose by putting it into a falling market should be made up for by the fact you’re buying the following months at a lower price.
Diversify, but not to the point of dilution
Only a rube would put all their eggs in one basket. Yet there is such a thing as overdoing it. If you have too many investment funds, you might find shares overlap and you aren’t as diversified as you thought. Rule of thumb: 20 funds is the limit.
Stash the cash
However bullish you’re feeling, keep cash savings you can get hold of immediately – three to six months of outgoings ideally. Put it in an easy-access or regular savings account with the best return you can find; the Marcus account by Goldman Sachs is one of the most competitive.
Cash deposits and term deposits
What are they?
- Cash in the bank means you put money into an interest-earning bank account (where you have instant access to the funds) or term deposit (where the money is off-limits for a set period).
- Most banks offer interest-earning bank accounts, but better returns are earned from term deposits. You decide how long you invest for, with anything from 1 month to 5 years being offered.
Difficulty to invest and manage: Easy
Risk: Low
Potential return: Low
Pros & Cons
- Pros: Relatively safe – you get back what you invest, in addition to the interest earned. Also, you’ll have ready access to money – you can withdraw from a bank account at any time (and term deposits are accessible, but you’ll lose interest as a ‘break fee’).
- Cons: Relatively low returns – interest rates are at record lows in New Zealand so you won’t earn more than 1% to 2% per year after tax which is close to the inflation level.
How to start investing in cash and term deposits: Look at interest.co.nz’s interest rate guide to see which bank is offering the highest interest rates. If you’re unsure how long to invest for, start with a three-month or six-month term as interest rates are similar.
Related guides: Best Bank Accounts
Whisky! (Well, for now)
Whisky is emerging as an exciting asset class. The Knight Frank Rare Whisky 100 Index, which tracks UK auction prices, increased 40 per cent in 2018 – a bottle of 1926 Macallan recently sold for more than £1 million.
KiwiSaver
What is it?
- Our view is simple – KiwiSaver is an excellent savings scheme which, with proper planning and a commitment to regular contributions, can make retirement more comfortable and provide more lifestyle options.
- If you’re looking to make a regular contribution to a savings nest egg, KiwiSaver does just that. Best of all, you can’t touch it before you turn 65 (other than for a specific purposes like buying a house) and you can still do your own investing on the side.
- A great feature of Kiwisaver is that if you contribute more than $1,042.86, the government will contribute a maximum of $521.43.
- When you join KiwiSaver, you either pick a fund you want to invest in, or if you can’t decide, the IRD picks one for you. After that, your employer must contribute the value of 3% of your gross salary into your KiwiSaver fund. You will also have to contribute at least 3% of your gross salary too. The only fees you’ll pay are those charged by your fund, which comprises of two annual fees. There is a management fee, usually anything from 0.25% to 2.00% of the value of your fund, plus a membership fee (generally under $50)
Difficulty to invest and manage: Easy
Risk: Low to High (depending on what fund you invest in). If you select a growth fund, it will invest in the sharemarket. As the price of a share can go up and down every day, your investment may fall in value, but over time the KiwiSaver fund is expected to increase in value.
Potential return: Low to Medium (long-term) depending on the fund selected
Pros & Cons
- Pros: KiwiSaver is free to join and your employer is obligated by law to invest 3% of your salary into your fund. Annual membership fees are no higher than around $50 a year, and management fees continue to move downward, meaning higher returns are passed on to investors. There are hundreds of funds to choose from. Most importantly, KiwiSaver is a perfect secondary savings scheme that for most people can’t be accessed until retirement. This means the returns can compound year-on-year to build up the biggest nest egg.
- Cons: Very few – KiwiSaver isn’t a short-term investment and fund-switching isn’t advised by many investment managers.
How to start investing in KiwiSaver: You’ll need to join KiwiSaver first and select a fund. Our KiwiSaver section covers the investment options extensively.
Related guides: Our KiwiSaver section reviews all the schemes currently offered as well as listing must-know facts and useful calculators.
Play the long game
Don’t try to time the market and don’t tinker. As investment company Nutmeg proves (based on UK stock market data since 1969), investing for just one day gives you a 55.2 per cent chance of making gains. Investing for ten years, however, gives you a 99.4 per cent chance.
Conclusion
Investing activities are actually time-consuming and complicated, requiring proper knowledge. A difficult aspect of investing is that you can’t really predict what will happen to your investments in the future. No matter how much research they do, or how hard it tries, expert investors can still not claim with confidence that their investments will increase over time.