When you are just starting your career, it’s easy to overlook the fact that one day you will reach retirement age. However, planning and looking toward the future is one of the best ways to ensure you are financially stable when that time arrives.
There are several things you can do now that can make your future just a little brighter. Learn five steps you can take to improve your chances of reaching financial freedom below.
How to find the Funds for Investing
The first step in your journey involves learning how much you can invest regularly. As someone just starting a career, this may seem daunting, but there are things you can do.
Start by investigating your monthly expenses and getting a feel for how you spend your money. Knowing where your money goes is the first step in ensuring you can save as much as possible. After you know how much money is going out the door, set a budget you can stick with.
You will also want to look into ways you can use other advantages to raise the funds for investments. For example, take a look at your company’s 401K plan and make sure you are investing enough in the program to receive the full match. Most companies match some of your investment, and this is a brilliant way to get free money to build your investment portfolio.
Paying off loans early to avoid added interest is also a strategy that works well. One option to consider is the debt snowball strategy. After paying off smaller balances, you can then apply your monthly payments to larger loans and get out of debt faster without spending too much on interest.
Another option is to choose the loan with the highest interest and pay it off first instead. This strategy focuses on eliminating as much money you pay in interest as possible, so you wind up with more cash to invest in the long run.
How to Identify a Long-Term Investment Strategy
After you know the amount you can invest each month, the next step to take as a young investor is to identify the best long-term investment strategy for you. Typically, there are five types of strategies to choose from:
Aggressive
Moderately Aggressive
Moderate
Moderately Conservative
Conservative
Before choosing, keep in mind that the investment strategy you choose isn’t set in concrete. Instead, it should grow and change as you age and as your current and future goals change.
For those in the active growth phase of their investment life cycle, such as those who are just starting the journey or who are young, advisors typically suggest an aggressive to moderately aggressive plan.
However, as you climb closer to retirement age and your goals change, it’s best to make the gradual shift to more conservative portfolios. Advisors focus the years leading up to their clients’ retirement and the retirement years around conserving cash and not taking any enormous investment risks.
How to Discover Valuable Investments
After you’ve determined which strategy works best for you, it’s time to learn how to discover valuable investments to add to your portfolio. There are several things you should look at when choosing a company to invest in.
According to Investopedia, start with four concepts in mind: dividend consistency, P/E ratios, fluctuating earnings, and value traps. With each investment you are considering, review these items and how they compare to the rest of the company’s market to get a better understanding of the investment’s future value.
While you are going through this process, diversifying your investments should be at the forefront of your mind. Since there are so many investment options, it’s a wonderful idea to spread out your dollars so you can maximize your return but keep your funds secure if there is a downturn.
Here are a few of the investments you may want to consider:
Stocks
Bonds
Commodities
Mutual Funds
How to Gauge the Market (In the Present and for the Future)
Per Tristan Yates, “There are two prices that are critical for any investor to know: the current price of the investment he or she owns and its future selling price.” Naturally, determining this is challenging, but there are some ways you can get a better idea of how your investments will perform.
For example, you can start by looking at market trends. This strategy involves looking at the stock or the market and looking for patterns. Using these patterns, you can then predict where the stocks might fall.
Another item you will want to consider is your investment’s fair value. To determine this, analysts inspect the assets and liabilities of companies and complete a calculation based on the current index value, dividends, futures contract, and current interest rates.
One challenging thing about gauging markets is you never know when an outside force will affect the market for the positive or the negative. As we’ve seen this year with the COVID-19 pandemic, things not related to the investment itself can affect its success.
How to Keep the Momentum Flowing
Once you have a strategy in place, it’s important to keep your momentum flowing. Spend time regularly reviewing your investments and your strategy to ensure they are still working for you.
It’s also an outstanding idea to continue to look for ways to further diversify your portfolio and track your investments. Doing so will help you better gauge how your current investments will look in the future and what you can do now to grow your nest egg even more while still protecting your investments.
Conclusion
Planning for the future now is one of the best things you can do to ensure your golden years are bright. By starting to find an investment strategy that works, funding your investments, and looking for ways to keep your investments churning, you will be well on your way to building a strong portfolio.
Naturally, these ideas don’t come easy for everyone, so if you ever find yourself uncertain about which path to take, consult a financial advisor to make things clearer.