Getting started investing doesn’t have to be scary. It can actually be fun.
There is a persistent perception that you need to be rich to be an investor. The reality is that you need to be an investor to become wealthy. According to the Federal Reserve, a record percentage of Americans (58%) own stocks. That means 42% still don’t own any stock. Keep reading as we share tips to start investing in 2024, even if you aren’t wealthy.
Nobody ever got rich by stashing their money under a mattress or in a low-interest bank account. To build wealth, you will need to invest your money over time. The earlier you start investing, the more the magic of compounding interest will help you build wealth. Before you know it, you may even be a 401(k) millionaire.
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Here are four tips to help you start investing in 2024, even if you have a limited amount of money. The tips also work if you already have a substantial net worth.
Yes, You Can Start Investing With Small Amounts Of Money
There has never been an easier time to start investing, even with small amounts of money. Lower fees, smaller account minimums, and easier access to index funds, mutual funds, or ETFs for the average investor make it easier to begin investing.
When I had just graduated college, a good friend sat down with me (and their stockbroker) before I landed a full-time job and suggested that I open a Roth IRA. I took his guidance and set up a monthly recurring contribution for just $25. I then paid a 5.75% upfront sales charge and something like 2.25% in ongoing internal fees for the high-cost mutual fund I was sold. Luckily, most upfront sales charges can be avoided today, and internal mutual fund fees have decreased (on many, but not all funds).
The $25 per month I put into a Roth IRA was less than $1 daily. Anyone reading this post should be able to find a way to come up with $1 per day. No matter how small you start, the most important thing is for you to start investing. Over time, you can always increase the amount you contribute each month. These days, I’m saving way more than $25 per month. However, it took time to grow my savings rate to its current level. I was amazed that I didn’t miss the money, and you will most likely be.
You will regret missing out on employer match for your 401(k) when you are older.
Don’t Make The Mistake Of Missing Out On Your 401(k) Match
Skipping the 401(k) match could be the biggest mistake people make with their 401(k). Your employer’s contributions to your 401(k) are like a raise without doing extra work or paying any taxes now. The 401(k) can often range from 2% to sometimes as high as 15% of your annual salary, depending on your employer’s generosity.
The 401(k) matching contributions come to you pre-tax and could turn into huge sums of money later in life, depending on your age and how you invest. Did I mention that the matching portion is like free money from your employer? You’d have to be crazy not to do everything you can to get every cent of it every year. In addition, you’ll receive a tax deduction for the money you put in, lowering your tax bill!
Skipping your 401(k) match can become a million-dollar-plus mistake over your career. For example, the average person typically misses out on approximately $1,336 annually in employer matches. If that $1,336 were invested in a 401(k) plan each year, from 22 to 67, and assuming an average return of 10% per year, how much would you have at retirement? That missed employer match of $1,336 per year, with an average return of 10%, would grow to more than $960,000 by the time you were 67. That number alone is well beyond what the average person has saved for retirement (combining employee and employer contributions).
Start investing now and you can start building wealth before you know it.
You Need To Invest To Build Wealth
When I give a speech to a large group, I almost always speak with someone scared of investing and the stock market in general. While I know that many people are still shell-shocked from the financial crisis (or the day-to-day news, for that matter), the sad reality is that most people will never achieve financial freedom if they don’t invest their money in some way. I would go as far as to say the biggest stock market risk out there is not investing.
There are other ways to build wealth beyond the stock market. I’m not aware of any that don’t include investing in some way. Some choose to invest in real estate or invest in owning a business. Others do a combination of all three. Even if you are fortunate enough to become wealthy via inheritance or winning the lottery, you will still want to do some investing to make your wealth last.
Compound Interest Makes Getting Rich Easier
The most important investing tip I can give someone is to get started ASAP. The earlier you start, the more compound interest will help you reach financial freedom.
To give you an example, let’s say you were able to save $1,000 per month. If you do this from age 30 to 65, you will accumulate approximately $3.25 million, provided you earn 10% growth per year. Waiting until you’re 40 years old to get started will cause that number to drop to $1,180,000. As you can see, waiting just 10 years can result in losing about 64% of your net worth, all else being equal. The gap gets wider the longer you wait.
The sooner you get started investing, the easier it will be to get on track for your financial goals, whatever they may be. Even if you have to start small, get started. You may not be rich yet, but you will never be if you don’t get started.
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