Investing is an important ingredient to overall financial health. The realities of inflation mean that the money you save today isn’t worth as much tomorrow. By investing, you can help to ensure that your finances get steadily stronger as the years go on. At the same time, investing comes with risk—so if you’re new to the world of investment, here are a few investment strategies to consider.
Max Out Your 401(k)
A 401(k) is a workplace retirement account that enables employees to contribute a portion of their wages and let that investment grow in a tax-advantaged way. If you’re in a position to contribute above the minimum, this is a good way to invest for the future while receiving added tax benefits. Many employers also offer matching contributions, which means that the more an employee investments, the more their workplace will add to their 401(k) account. While putting more money into your 401(k) means less cash today, it’s an excellent way to let your place of work do the investing for you. Check with your employer if you’re not sure what 401(k) benefits are available!
Start an IRA
Investing in an employer-sponsored retirement account isn’t the only way to save for the future: you can also open an Individual Retirement Account, or IRA. An IRA isn’t linked to your workplace, so anyone can open an account and start investing. Like the 401(k), IRAs come with tax advantages. You can choose to enjoy tax-deferred contributions by opening a traditional IRA, or opt for tax-deferred withdrawals by opening a Roth IRA. Keep in mind that all IRAs have yearly contributions limits, which in 2023 are $6,500 for people under 50, and $7,500 for people 50 or older.
Understand Your Options
With a retirement account, or indeed an investment account of any kind, there are many options for how you want to invest your money. Bonds offer a fixed interest rate over a certain period of time, while stocks give investors a share of the company’s success. Mutual funds bring a number of stocks and other assets together for a more diversified investing strategy, and Exchange-Traded Funds (EFTs) are like mutual funds that also get traded throughout the day. These days, index funds are another popular option. Index funds track the performance of various financial markets, without investing in a specific company. Then there’s alternative investments to consider—from real estate, to art, to collectibles and more.
Active or Passive?
It can be overwhelming to consider the number of investment options available, so a good place to start building your investment strategy is simply to decide if you want the strategy to be active or passive. Active investing is hands-on and involves more frequent buying and selling of financial assets, depending on wider market trends. Passive investing is a “hold and wait” strategy that prioritizes steady, long-term growth. Your choice of an active or passive strategy depends on your appetite for risk and goals, but experts generally note that passive strategies perform better over the long run, especially for investors not working with a professional fund manager.
Developing an investment strategy can be as simple as opening an IRA and investing in a target-date mutual fund, or as complicated as doing daily market research and tweaking your investment portfolio to try and predict future market conditions. Either way: it’s a good idea to start by seeking expertise. If you work with a professional financial advisor, ensure that they are a fiduciary, which means they are legally obligated to make investment choices based on your best interests rather than their own potential for profit. On the other hand, you might speak with a financial counselor can offer general advice, especially if you’re managing debt while also strategizing about investment. HUECU members get free access to financial counselling through GreenPath Financial Wellness.