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For beginner investors, it can be hard to know where to start. Investment options can seem endless, whether it’s cryptocurrency, NFTs (non-fungible tokens), real estate, stocks, bonds or mutual funds.
Knowing how to build an investment portfolio can help you achieve your short- and long-term financial goals, such as having enough money to put a down payment on a house in the short term or, in the long term, being able to max out your IRA each year in order to retire comfortably.
Below, Select speaks with Douglas Boneparth, president of Bone Fide Wealth and co-author of The Millennial Money Fix, about how people can get started with investing and successfully build their investment portfolio.
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Back to basics
Regardless of what your financial priorities are, investing is a good way to earn passive income — as long as you’re knowledgeable about the risks and rewards associated with it — since it allows people to earn compound interest. In other words, they’re able to make money on their principal balance as well as the interest they have already earned.
Think about it like this: If you invest $1,000 in year one and earn a 10% annual rate of return on your investments, you’ll end the year with $1,100. In year two, assuming the same rate of return, you’ll end the year with $1,210 (1,100 x 1.1). This example demonstrates why it’s essential to start investing as early as possible if you can. Since interest compounds over time, the difference between waiting a few years to start and doing so now can have a major impact on how much money you earn in the long run.
For example, suppose you started with a $5,000 balance and invested $5,000 each year. If you were to begin doing this at age 22, assuming you earn a 7% rate of return, you would end up with twice the amount of money saved by age 67 compared to what you’d have if you had started investing at age 32.
Before getting started with investing, Boneparth recommends having a solid financial foundation in the form of an emergency fund as well as an idea of what your short- and long-term financial goals are. Short-term goals might be for something fewer than four years into the future, such as a vacation or a down payment on …….