Do you ever get overwhelmed looking at the menu at a fast-food restaurant? There are about 57 different combo options to choose from. Do you get the bacon cheeseburger or the chicken tenders? What side do you get? Fries? Tater tots? And what about drinks? All of the sudden the question “Can I take your order?” seems like it’s going to dictate the rest of your life!
But if you think that’s stressful, trying to figure out how to invest your money can feel even more intimidating. It’s easy to go from pumped at the idea of saving for retirement to panicked trying to decide what to invest in. These are some big decisions. We get it.
The truth is, learning how to invest doesn’t have to be complicated. You can learn how to invest your money in a few simple steps:
- Step 1: Set goals for your investments.
- Step 2: Save 15% of your income for retirement.
- Step 3: Choose good growth stock mutual funds.
- Step 4: Invest with a long-term perspective.
- Step 5: Get help from an investing professional.
We’re going to walk you through how to get started with investing so that you can start working toward your retirement dreams.
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Step 1: Set goals for your investments.
This is important. Take a step back for a second. What does your dream retirement look like? Have you ever really thought about it? No matter what age or stage of life you’re in, it’s never too early or too late to think about what you want to do in retirement someday. And make no mistake, “someday” is coming—and what it looks like depends on what you do today.
It’s not enough to invest just for the sake of investing. You need to have a strong why, something that keeps you going when times get tough and you’re tempted to jump ship. So, to get started, set up a “dream date” with your spouse (or, if you’re single, meet up with a trusted friend) and talk about some of the things you want to do in your golden years. You might be surprised what you both come up with!
It’s not enough to invest just for the sake of investing. You need to have a strong why, something that keeps you going when times get tough.
But it’s not enough to dream. You need a plan to turn that dream into reality. Remember, retirement isn’t an age—it’s a financial number. You need to know exactly how much you’ll need to fund your retirement dream! Our handy investment calculator will help you set a goal that you can start working toward today.
You can do this!
Step 2: Save 15% of your income for retirement.
Okay, let’s dive in. When you’re out of debt and have an emergency fund with three to six months of expenses saved, start investing 15% of your gross income toward retirement.
Why 15%? Because there are some other goals you need to plan for—like paying off your home early or saving for your kid’s college fund. Just remember, when it comes to juggling college savings and your own retirement goals, saving 15% of your income for retirement comes first.
The next step is to decide where to invest your money. Start with your work 401(k) and invest at least enough to receive the full employer match. Then you (and your spouse if you’re married) can invest up to $6,000 a year in a Roth IRA.
When you’re out of debt and have an emergency fund with three to six months of expenses saved, start investing 15% of your gross income toward retirement.
And the sooner you start investing, the more compound growth works to your advantage. Here’s what we mean: Let’s say you start investing $800 a month in good growth stock mutual funds when you’re 35. If your investment grows for 30 years at the historic average annual rate of return, you could have over $2.2 million when you retire. How much of that was money you put in? Less than $300,000. The rest was compound growth!
What if you’re starting late with nothing saved at all? There’s still hope. If you start investing at age 50 and invest $800 each month, you could still end up with close to $700,000 by the time you celebrate your 70th birthday. That’s not bad at all!
Step 3: Choose good growth stock mutual funds.
It’s normal to feel overwhelmed by all the mutual fund options when you’re making your 401(k) selections or talking through your Roth IRA options with a financial advisor. With so many choices, it can be hard to figure out the best way to invest your money.
But choosing the right mutual funds is really simple if you follow this strategy. We recommend keeping your portfolio diversified by spreading your investments evenly across four mutual fund categories:
- Growth and income
- Aggressive growth
Yes, it’s that simple! Keeping your portfolio balanced with these four types of funds can help you minimize your risk and still take advantage of the returns the stock market can offer. If you’re confused about your fund options, talk to a financial advisor or investment professional. They can help you make sense of the details so you feel confident about how your money is invested.
Keeping your portfolio balanced with these four types of funds can help you minimize your risk and still take advantage of the returns the stock market can offer.
Step 4: Invest with a long-term perspective.
When the market spikes or dips, it’s easy to make emotional decisions about your investments. Just remember: Saving for retirement is a marathon, not a sprint!
In our National Study of Millionaires, we found that financial discipline and consistent investing were their keys to building wealth. That means they put money into their 401(k)s and IRAs like clockwork month in and month out for decades, no matter what was happening on Wall Street. You see, millionaires focus on what they can control, not on what’s out of their control.
We found that financial discipline and consistent investing were the keys to building wealth for millionaires. That means they put money into their 401(k)s and IRAs like clockwork month in and month out for decades, no matter what was happening on Wall Street.
And no matter what, don't cash out your 401(k). Don’t steal from your future to fund your new kitchen remodel or dream vacation. Keep your hands off your retirement accounts until you’re ready to retire, and invest consistently year after year—regardless of what the market is doing. That’s a long-term investing strategy you can count on.
Step 5: Get help from an investing professional.
Listen, you don’t need to have all the answers about long-term retirement investing. But you do want to have someone in your corner who can help you along your financial journey.
That’s why we recommend working with an experienced investing pro who can answer your questions and show you how to get your retirement savings started the right way.
Find a financial advisor who’ll stick with you for the long haul and help you stay on track even when times are tough. If you don’t have an advisor, we can put you in touch with an experienced investing pro in your area.