Experts agree that 2023 is bound to be a rocky year as the global economy heads toward a likely recession. However, it’s still possible to make wise investments that help you build up savings, beat inflation, and plan for retirement. The first step is to find a tax agent who can help you minimize liabilities, maximize deductions, and build a more accurate picture of what you have to invest.
The next four steps are below.
1. Build up an emergency fund
Before investing, make sure you have enough money to cover basic expenses such as rent, groceries, insurance, bills, and credit card debts. After that, then you can focus on building an emergency fund that’s easy to access when you’re in a tight spot. Ideally, that fund is kept in a savings account and covers three to six months of basic expenses. When a surprise medical bill or sudden job loss occurs, you want to have the funds available immediately.
2. Set your investment goals
Investment goals have three main components: reason, time, and risk. First, reflect on why you want to invest. For example, is it to ensure you have enough for a comfortable retirement or help your children pay for college?
Second, you’ll want to decide on a timescale for your investments. Generally, it’s best to break these into short-term (less than five years), mid-term (five-to-ten years), and long-term (more than ten years). Although it’s not always possible to invest long-term, the longer you can leave your investment be, the more time your money has to grow.
Finally, you’ll have to determine your risk tolerance. If you’re nearing retirement, you’ll probably want to reduce your risk because you don’t have time to recover from losses. Conversely, if you’re a few decades away, you have more time to recover and can afford a bit more risk.
3. Create a diverse portfolio
In the world of investing, the equivalent of “don’t put all your eggs in one basket” is “diversify your portfolio.” Instead of putting all your money in one stock, spread it out among various stocks, sectors, and industries. One of the easiest and most efficient ways to do this is by investing in index funds that give you broad exposure to the entire S & P 500, Dow Jones, or other market indexes. That way, if one company fails, you won’t lose everything.
To truly diversify your portfolio, however, you’ll have to branch out into other asset classes. Alongside stocks, consider buying bonds and commodities. Although they may have a lower return, they’ll help balance your overall risk.
4. Start investing
After you’ve created an emergency fund, an investment goal, and a diverse portfolio, the next step is to invest. If you want a simple way to save for retirement, that may mean adding to your company’s 401 (k) – especially if your employer matches your contributions.
For those who want simple, smart, and automated help, that may mean adhering to the financial advice of a robo-advisor. Finally, for those who want a more hands-on approach, that can mean investing in index funds through brokerage accounts.
Although the best time to start investing was yesterday, the next best time is now. It’s true that 2023 is bound to be full of financial challenges, but that doesn’t mean you shouldn’t invest. Instead, aim to invest wisely by keeping the four tips above in mind.