About a year ago, we were basking in the recovery of the markets following the exponential slump it experienced with the onset of the COVID19 pandemic. However, halfway into 2022, we are experiencing new struggles with the markets. For new investors, the news of the stock market can be slightly overwhelming and deter
those who wish to start their investment journey. A few key pointers and long-term goals can help you make smart investment choices for 2022.
1. Starting Small
Looking at public investment portfolios like those of Mr. Warren Buffet can often be a daunting start to any investment journey. On a similar note, it would be interesting to know that Mr. Buffet started investing in his teens, and it took years to build his investment portfolio to the numbers we see today. While many of us do not intend (or even have the time) to study the stock market at a micro level, learning the basics and starting with small investments is the best way ahead. Investing just $100 every month can create a habit for routine investments, which over time can encourage you to invest more and larger sums.
2. Diversify Your Portfolio
It is generally a good decision to diversify your investments in two to three different asset classes to offset any slumps your portfolio might take in times of inflation or market downturns. There are so many different forms of investments from index funds, bonds, and gold, along with several new avenues to invest in, such as cryptocurrency. While each one has its benefits and risks, it is always best to understand what your investment preferences are before opting for any one of these. Keeping this in mind, most investments should be considered for long-term duration, especially if you are not a seasoned investor who understands the changes in the market.
3. Understand Your Personal Financial Goals
When anyone starts out on an investment journey, it generally has a preset outcome for their investments. This could be building an emergency fund, mapping out a retirement fund, or possibly saving up to buy a new home. Without a specific goal in mind, it can be relatively difficult to envision an outcome for your investments. For example, an emergency fund is vital for everyone. It is generally the amount you require to sustain yourself for about six months when you do not have regular cash flow coming in. Knowing this as an outcome, you know how much money you will need to save in order to reach this goal. Similarly, all other investment avenues should have had their outcomes tentatively measured so that you can assess whether your investments follow this path.
4. Tackling Your Debt Early
To start with, list out all your debt. These can be student loans, credit card bills, and housing payments. Understand which ones are mounting the most interest. The key to tackling debt is to pay them off as soon as possible. Always pay more than your due amount to reduce your debt term. Failing to pay off credit card bills and other debt affects your overall credit score. This, in turn, can affect your ability to procure loans or buy real estate in the future when required. To manage your debt, you also need to evaluate your spending limits. Avoid taking on more credit cards, especially when you find it difficult to pay off previous debt.
5. Assessing Your Risk Tolerance
Each one of us needs to assess our risk tolerance based on our age and those who are dependent on us for finances, particularly our families. When we are young, we can afford to take more risks with our investments. The only bills that matter are rent and food. This also makes the 20s and early 30s the best time to clear debts such as student loans. As we grow older, get married, and factor in aging parents, our responsibilities evolve, which should make our risk appetite decrease with time. Shifting investments into safer buckets such as bonds or index funds which provide slow but consistent returns, should be considered.
6. Reaping The Benefits of Compounding
The interest accrued on your investments over time also generates interest. This means that you will be earning income on your principal investments and on the interest it has generated over time. This phenomenon is known as compounding. This makes long-term investment plans crucial. There is no way to time markets, and for the average investor, it can take many hours to understand the nitty gritty of the investment markets. Regular investments in something like the S&P 500 index fund
can generate substantial wealth over time, albeit only through regular and consistent investments.
7. Stay Away From Distractors and Conflicting Advice
Today there are several investment apps, as well as abundant information available when it comes to investing. It is easy to get distracted from your initial investment goals. Even friends and family can sneak in advice on what they feel like the best investment strategies for you. The key to building wealth from your investments is to stick to the initial goals you set for yourself. When you deviate from this, you are likely to spread your investments into funnels that will reap you no benefits and can also result in losses over time.
8. Re-evaluate Your Investment Plans Regularly
It is generally not advisable to look into your investments daily, as they are likely to experience daily fluctuations in the market. Additionally, it can also cause frustration and added stress which can negatively affect the investment decisions you
have made. However, analyzing your portfolio every few months can help you assess how your investments are progressing. Additionally, you can make changes as you see fit. It is also advisable to rebalance portfolios yearly based on current market fluctuations and how your goals change with time. There are a lot of factors that influence how markets move. Elections, a pandemic, and wars. How the markets recover and in what ways they get affected cannot be predicted in any scenario. However, when you keep your investments consistent, even through times of struggle, with time, they reap the benefits during the recovery phase. Additionally, regular investments help keep you disciplined toward your financial goals and also help to assess your relationship with money. Regular investing doesn’t only keep you safe for a rainy day but also ensures you are taken care of when you decide to retire.
Author: Gita Bhattarai,
Gita Bhattarai is the founder of Caring Worldwide. She is originally from Nepal and received her Bachelor’s degree ( BSN) from California State University Los Angeles and studied Masters’s ( MS) degree at Western Governors University, U.S.A… She has over 20 years of nursing experience in the health sector – in various roles, including Staff Nurse, Nurse Educator, Team Manager, Director, Supervisor. Currently, she also works part-time at Ally Invest as an investor and manages Universal Health Partners PLLC and Caring Worldwide Health and Wellness Website. She brings her healthcare experience, financial expertise, and caretaker experience to Caring Worldwide to promote wellness globally.