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If you are ready to enter the market, experts want you to know a few things.
Investing is a great way to increase wealth, but you have to be smart about it, says certified financial planner Katie Curtis, founder and CEO of Curtis Financial Planning in Auckland, California.
This means you don’t have to follow the latest hot stocks or the latest trades.
“Many young people have a distorted view of how to invest in the markets,” said Curtis, a member of CNBC’s Board of Financial Advisers.
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“They are investing in an IPO [ initial public offerings]businesses they think are cool, ”she added.
“It makes sense for them to buy the things they see as friends using these products, but they don’t necessarily understand if it’s a good investment. »
During the pandemic, the market was flooded with new investors. Some of them have merged under certain names, such as shares of memes, or switched to cryptocurrencies.
While the S&P 500 index exceeded 25% in 2021, this is a completely different story in 2022, with a decline of about 13% per year. Cryptocurrencies have been hit.
This has led to growing skepticism about markets for young investors, said financial adviser Mitch Goldberg, president of ClientFirst Strategy in Melville, New York.
“Every generation has to go through this,” he said.
“This generation is no different from what we experienced during the technological catastrophe of 2000,” Goldberg added. “People thought they understood everything with a new paradigm. »
Steps to perform
If you have a 401 (k) plan, the first thing to do is invest in it, at least in business, Curtis advised.
If this is not possible, open an individual Roth retirement account. (See income limits here.) Money comes in after tax, so it grows tax-free and is not taxed when you withdraw it. You can also withdraw your contributions at any time without penalty.
When choosing an investment, it is best to do it simply. Start by using a diversified fund, such as the S&P 500 index fund, Goldberg said. This will not only help you increase your money in the long run, but will also help you learn more about the markets.
Remember that history shows that the stock market grows over time. Since 2009, the S&P 500 has grown by an average of about 15% per year.
Also, before you start spending, save money to invest in your salary, otherwise you will rely on your willpower, Goldberg said.
“If you save and invest money before spending the rest of your salary, your chances of becoming an investor and accumulating net capital increase dramatically,” he said.
Finally, according to Goldberg, don’t focus on how much you need to retire at the moment. This can be overwhelming and prevent you from getting started.
“You just have to start small,” he said. “It can be 50, 100 dollars a month or a week, just to get used to the idea of having money in another account. »
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Disclosure: NBCUniversal and Comcast Ventures are investors brushes.