How much should we be investing, and what are the best ways to go about doing it? A Seattle financial advisor weighs in.
Investing is a way to build your wealth. It helps you work towards your long-term and short-term goals in life. But it can be tough to know exactly where to begin.
We spoke with a Seattle financial advisor about ways to grow your money.
RESEARCH YOUR OPTIONS
It helps to research your options first. What is the difference between stocks and bonds? Is an ETF, or exchange-traded fund, a better fit for me? What is a CD?
Success in investing won’t happen overnight. When it comes to seeing big returns on stocks, that can take some time and patience.
“We all know stories about somebody who got in on Microsoft or Starbucks or Amazon in early days, you know, and has 10, 50, 100 times the amount that they originally invested,” said Scott Smallman, managing director of Wedbush Securities in Seattle.
“If you can catch an early trend like that you can do really well,” he added.
DON’T INVEST IT ALL
Don’t invest it all, though. Smallman recommends keeping some liquid cash on hand. Three to six months of normal living expenses should be kept where you can access it. A high-yield savings account can be a good example of where to put that money. There, you can earn the highest interest rates on those savings.
KEEP DEBT IN CHECK
Before even investing, experts say you’ll want to get a hold of your debt first. Smallman calls paying off debt critical to successful investing.
“If you have high-cost debt of any kind, whether it be credit cards, student loan, whatever, you certainly want to pay that down before you start to aggressively invest,” Smallman said.
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TAKE ADVANTAGE OF YOUR EMPLOYER MATCH
If your employer provides a match for your retirement savings, experts say you should take advantage of that.
Corporette.com advises people to try to contribute at least as much as their employer will pay.
“If you have an employer that matches on your 401(k), that’s functionally free money. If they match it 3% or 6% or whatever, you’ve got that level of return before you even start thinking about what the investment itself returns,” Smallman said.
Even if you don’t have an employer match, it’s still recommended that you put a little bit away from each paycheck.
HOW MUCH SHOULD YOU INVEST?
So, how much should you be investing? Experts point to the U.S. standard, which has historically been 10% of your paycheck. If you can save 20%, you’re going to be well ahead of the curve.
“If you are making enough money and expenses are low enough that you can put away 20%, you’re going to get to your financial goals that much quicker,” Smallman said.
AUTOMATE YOUR INVESTMENTS
Smallman says the best way to stay on top of how much you’re saving is by setting up an automatic monthly transfer from your bank account. That way your money goes straight to your investment accounts automatically. Then you can just sit back and watch your money grow.