Kate_September 2004 | E+ | Getty Images
Investing may seem very complicated; paralyze Americans choose to do nothing.
But investing, and doing it wisely, doesn't have to be difficult. In fact, financial experts say it's relatively easy to get started.
“You don't have to be a rocket scientist. Investing is not a game where someone with an IQ of 160 beats someone with an IQ of 130,” Warren Buffett, chairman and CEO of Berkshire Hathaway, famously said. . Said.
For many people, investing is what they need to grow their savings and ensure financial security in retirement. Starting early in your career is beneficial for long-term investors. Interest and investment returns are compounded..
Appropriate long-term goals vary from person to person, but one rule of thumb is to save about 1x your salary by age 30, 3x by age 40, and ultimately 10x by age 67 . according to Go to Fidelity Investments.
“A nice and simple solution” for beginners
Financial experts say target-date funds, known as TDFs, are the easiest entry point into long-term investing.
“We think it's a wonderfully simple solution for a novice investor or any investor,” said Christine Benz, Director of Personal Finance and Retirement Planning at Morningstar.
TDF is based on age. Investors choose funds based on the year they aim to retire. For example, a person who is currently 25 years old and expects to retire in about 40 years may choose a 2065 fund.
These mutual funds do much of the heavy lifting for investors, including rebalancing, diversifying across different stocks and bonds, and choosing a relatively appropriate level of risk.
As investors age, asset managers automatically reduce risk by reducing the proportion of equities in TDFs and increasing exposure to bonds and cash.
How to choose a target date fund
Lee Baker, a certified financial planner and founder of Apex Financial Services in Atlanta, said TDFs are a good starting point for “do nothing” investors looking for a hands-off approach.
“For a lot of people, that's the easiest thing to do,” said Baker, a member of CNBC. advisory council.
Investors only need to select a TDF provider, target year, and investment amount.
Benz recommends choosing a TDF that uses an underlying index fund. Index funds, unlike actively managed funds, aim to replicate the broad range of returns found in the stock and bond markets. generally cheap; Index funds (also known as passive funds) tend to outperform actively managed funds over the long term.
“You definitely want a passive TDF,” says Carolyn McClanahan, CFP, founder of Life Planning Partners in Jacksonville, Florida.
Benz also advises investors to look for funds among the largest TDF providers, including Fidelity, Vanguard Group, Charles Schwab, BlackRock and T. Rowe Price.
Other 'solid choices' for novice investors
Experts say there are other, easier options for investors who want to be a little more hands-on than TDF investors.
For example, some people may choose a target allocation fund, Baker said. These funds are similar to TDFs in that the asset manager diversifies between stocks and bonds according to a specific asset allocation (for example, 60% stocks, 40% bonds).
However, this allocation is static. It does not change over time like TDF. That means investors may eventually need to reconsider their choices. Baker says you can determine which funds are a good starting point by filling out an online risk profile questionnaire.
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Alternatively, investors may instead choose a Global Market Index Fund, which is an all-stock portfolio diversified between U.S. and non-U.S. stocks, Benz said. Like target allocation funds, these funds do not become less risky as you age.
“I think novice investors sometimes question the simple elegance of these very solid choices,” Benz said. “People crave more complexity because they think it has to be better. But it's not.”
Ask yourself why you are investing.
McClanahan, a member of CNBC's Council of Advisors, said young, long-term investors should generally ensure their funds have a high allocation of about 90% or more to stocks, whether TDF or not.
Retirement investors under the age of 50 are likely to have some cash reserves for emergencies such as job loss or health problems, and a primarily stock-heavy portfolio would be a good fit, Benz said.
You don't have to be a rocket scientist. Investing is not a game where someone with an IQ of 160 beats someone with an IQ of 130.
warren buffett
Chairman and CEO of Berkshire Hathaway
One caveat: Investors who are saving for short- or medium-term needs (perhaps a house or a car) may be better off moving their allocated funds into safer instruments such as money market accounts or certificates of deposit. McClanahan said there is a good chance that the
For long-term investors, the easiest way to save is through a workplace retirement plan like a 401(k) plan. McClanahan said companies that match with their employers should aim to invest at least enough to achieve a full match.
“Where else can you get 100% of your money?” she said.
Investors who don't have access to a 401(k)-type plan can instead save in an individual retirement account (another type of tax-advantaged retirement account) and set up automatic deposits, McClanahan said.
TDF investors who save in taxable brokerage accounts could be hit with an unexpected tax bill, experts say. Because the TDF rebalances periodically, the following transactions may occur within the fund: trigger capital gains tax Unless held in a tax-advantaged retirement account.
Summarize this content to 100 words Kate_September 2004 | E+ | Getty ImagesInvesting may seem very complicated; paralyze Americans choose to do nothing.But investing, and doing it wisely, doesn't have to be difficult. In fact, financial experts say it's relatively easy to get started.”You don't have to be a rocket scientist. Investing is not a game where someone with an IQ of 160 beats someone with an IQ of 130,” Warren Buffett, chairman and CEO of Berkshire Hathaway, famously said. . Said.For many people, investing is what they need to grow their savings and ensure financial security in retirement. Starting early in your career is beneficial for long-term investors. Interest and investment returns are compounded..Appropriate long-term goals vary from person to person, but one rule of thumb is to save about 1x your salary by age 30, 3x by age 40, and ultimately 10x by age 67 . according to Go to Fidelity Investments.”A nice and simple solution” for beginnersFinancial experts say target-date funds, known as TDFs, are the easiest entry point into long-term investing.”We think it's a wonderfully simple solution for a novice investor or any investor,” said Christine Benz, Director of Personal Finance and Retirement Planning at Morningstar.TDF is based on age. Investors choose funds based on the year they aim to retire. For example, a person who is currently 25 years old and expects to retire in about 40 years may choose a 2065 fund.These mutual funds do much of the heavy lifting for investors, including rebalancing, diversifying across different stocks and bonds, and choosing a relatively appropriate level of risk.As investors age, asset managers automatically reduce risk by reducing the proportion of equities in TDFs and increasing exposure to bonds and cash.How to choose a target date fundLee Baker, a certified financial planner and founder of Apex Financial Services in Atlanta, said TDFs are a good starting point for “do nothing” investors looking for a hands-off approach.”For a lot of people, that's the easiest thing to do,” said Baker, a member of CNBC. advisory council.Investors only need to select a TDF provider, target year, and investment amount.Benz recommends choosing a TDF that uses an underlying index fund. Index funds, unlike actively managed funds, aim to replicate the broad range of returns found in the stock and bond markets. generally cheap; Index funds (also known as passive funds) tend to outperform actively managed funds over the long term.“You definitely want a passive TDF,” says Carolyn McClanahan, CFP, founder of Life Planning Partners in Jacksonville, Florida.Benz also advises investors to look for funds among the largest TDF providers, including Fidelity, Vanguard Group, Charles Schwab, BlackRock and T. Rowe Price.Other 'solid choices' for novice investorsExperts say there are other, easier options for investors who want to be a little more hands-on than TDF investors.For example, some people may choose a target allocation fund, Baker said. These funds are similar to TDFs in that the asset manager diversifies between stocks and bonds according to a specific asset allocation (for example, 60% stocks, 40% bonds).However, this allocation is static. It does not change over time like TDF. That means investors may eventually need to reconsider their choices. Baker says you can determine which funds are a good starting point by filling out an online risk profile questionnaire.Personal Finance Details:Why Social Security COLAs may shrink after 2025'Take emotion out of investing' in an election yearWhy is Social Security so important for women?Alternatively, investors may instead choose a Global Market Index Fund, which is an all-stock portfolio diversified between U.S. and non-U.S. stocks, Benz said. Like target allocation funds, these funds do not become less risky as you age.”I think novice investors sometimes question the simple elegance of these very solid choices,” Benz said. “People crave more complexity because they think it has to be better. But it's not.”Ask yourself why you are investing.McClanahan, a member of CNBC's Council of Advisors, said young, long-term investors should generally ensure their funds have a high allocation of about 90% or more to stocks, whether TDF or not.Retirement investors under the age of 50 are likely to have some cash reserves for emergencies such as job loss or health problems, and a primarily stock-heavy portfolio would be a good fit, Benz said.You don't have to be a rocket scientist. Investing is not a game where someone with an IQ of 160 beats someone with an IQ of 130.warren buffettChairman and CEO of Berkshire HathawayOne caveat: Investors who are saving for short- or medium-term needs (perhaps a house or a car) may be better off moving their allocated funds into safer instruments such as money market accounts or certificates of deposit. McClanahan said there is a good chance that theFor long-term investors, the easiest way to save is through a workplace retirement plan like a 401(k) plan. McClanahan said companies that match with their employers should aim to invest at least enough to achieve a full match.“Where else can you get 100% of your money?” she said.Investors who don't have access to a 401(k)-type plan can instead save in an individual retirement account (another type of tax-advantaged retirement account) and set up automatic deposits, McClanahan said.TDF investors who save in taxable brokerage accounts could be hit with an unexpected tax bill, experts say. Because the TDF rebalances periodically, the following transactions may occur within the fund: trigger capital gains tax Unless held in a tax-advantaged retirement account.Don't miss the next story from CNBC PRO.
https://www.cnbc.com/2024/03/18/this-is-the-easiest-way-for-newbies-to-start-investing-experts-say.html Experts say this is the easiest way for beginners to start investing