Fact: 94% of Americans wish they did a better job managing their money.
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That figure is from a recent ING survey. And it shows that whether it’s eating healthier or taking on a new hobby, we all want to better ourselves.
Unfortunately, in financial matters, too many perceived roadblocks hinder success. In that same survey, time constraints, confusion about where to start making financial improvements and general uncertainty about money matters were cited by many Americans as the biggest barriers to better financial management.
Good news: a new year brings motivation for change. And there’s no better way to channel that motivation than by taking control of your financial future, especially your investments.
Whether you’re a novice or seasoned investor, you’ve probably come across — and perhaps bought into — some common investment myths that affected your actions. Let’s debunk four of the most popular myths.
Fiction: Investing is time consuming
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Whether you’re single, married or even retired, chances are you’re busy with your life and don’t have a lot of time to spend on your investment portfolio. In fact, most of us probably spend more time researching what mobile smartphone to buy than what stocks or funds to buy for our retirement portfolio. Of course, the decision about what stocks or funds to buy will most likely have a much bigger impact five or 10 years from now.
Start by simplifying. Set your investment goals: retirement, college savings or a home downpayment. Then determine your risk tolerance for the stock market’s gains and losses. In a matter of minutes, you can get your investments on the right track and have a plan in place.
If you’re a self-starter, identify an online brokerage that is a one-stop-shop for everything you really need to make informed and educated investment choices. You also will want easy access to your account from either that new smartphone or the Internet. A brokerage site that offers comprehensive and comparative data will ensure your weekends are dedicated to doing the things you love as well as helping ensure a sound financial future.
Fiction: Investing is only for the experts
Derivatives. Options trading. Stop loss orders. Mortgage backed securities … Ughhh!
Ever feel as if you needed a finance degree to navigate the maze of investing? Most of these complicated terms were created and used by institutional investors, hedge funds or people who are professionals in the business of selling you investments.
Demystify investing. Cut through the clutter by finding a brokerage that uses uncomplicated language, offers simple, balanced explanations of risk and reward and provides real-time troubleshooting options.
Also, today there are numerous online tools and resources that ensure everyday investors have just as much access to information as the pros on Wall Street. Look for free online tools that help you easily create a diversified portfolio based on your goals and investing lifestyle.
Fiction: Investing is only for the wealthy
Managing your investment portfolio doesn’t require a big bank account. Nor does it require a high tolerance for risk. The math works whether you’re starting with $1,000 or one million dollars.
Don’t be lured into believing that every fund has a minimum balance requirement either. There are practical ways to invest small-dollar amounts cost-effectively, such as purchasing partial shares of stock or investing a few dollars every few weeks rather than a lump sum at one time.
If you are investing with less, you’ll probably be selective about your investment choices. Don’t fall prey to pretty distractions like three-screen trade consoles, heat maps or data-feeds. Complicated tools and interfaces may seem impressive. But before you get drawn in, make sure you first attend to the basics of research.
Fiction: Getting the employer 401(k) match is good enough
Any good financial adviser will tell you that putting money in your employer’s 401(k) plan is a smart way to save for retirement. But few will tell you that putting in just enough money to achieve the employer match is probably not enough to retire comfortably.
Consider this: Today, a 30-year-old making $50,000 a year with $50,000 already in her 401(k) plan, contributing 6% of her salary to her 401(k) and getting another 6% from her employer will have about $1.2 million by the time she’s 65 years old (assuming an 8% annual return). After taxes, that’s just about $40,000 a year to live on for twenty years. You can do this math for yourself — or plug in your own numbers — on the 401(k) savings calculator at Bankrate.com to determine if that’s enough money for the retirement lifestyle you want.
Thinking you need more than $40,000 a year? Consider supplementing your 401(k) with a Roth IRA. Contributions to a Roth are made after taxes, allowing owners to hedge against future tax increases.
This year, take back your money. Put your investments on the right course by eliminating unnecessary complexity and cryptic language. Follow the steps above to separate financial fact from fiction.