CWA Blog Article - Investing for the First Time

Making your first investment can be intimidating but it’s an important step towards financial freedom. When done wisely, investing gives your money the potential to grow and work for you over time. This guide covers the basics to help first time investors ages 21-35 get started. Though investing comes with risks, the key is educating yourself, creating a plan, and taking a long-term view.

When To Start Investing?

Starting to invest in your 20s gives you an advantage - the power of compound interest and time. The earlier you begin investing, the more time your money has to potentially grow. Say you invest $5,000 at age 25 earning a hypothetical 6% average annual return. By age 65 that could grow to over $49,000. But if you wait until 35 to start, you'd have to invest over $16,000 to end up with the same amount by 65. Time allows your money to do more work for you through compounding returns. Investing early and consistently puts time on your side.

How to Get Started

To begin your investment journey, we encourage you to work with an experienced financial advisor, such as Stephen or Allison at Community Wealth Advisors. A financial advisor can help you by setting clear investment goals which is a crucial step in your successful financial journey; whether you're aiming for retirement, purchasing a house, or another significant milestone, knowing what you want to achieve and the timeframe for these goals will significantly influence your investment strategy. Developing an investing plan tailored to your risk tolerance and timeline is vital. Finally, for personalized investment strategies, consulting with a fiduciary financial advisor can offer guidance tailored to your specific financial situation and goals.

Another practical tip is to adopt the practice of paying yourself first which can dramatically change how you save, challenging the common excuse of waiting to invest due to upcoming bills or the hope for higher future earnings. This proactive saving method entails allocating a portion of your income for savings before handling other financial commitments. By establishing separate savings accounts for various objectives—be it for a holiday or purchasing a new vehicle—you can methodically save towards your goals.

Key Principles for First Time Investors

As you embark on your investing journey, adhering to these core principles can guide you toward success. Begin as soon as possible, recognizing that time is your ally; start with whatever amount you're able to invest. No budget is too small. The key to harnessing the power of compounding is investing regularly, so make it a habit. Diversification is also critical for managing risk effectively. Your financial planner can help you aim to own a varied mix of stocks, bonds, and funds across different sectors and geographies. Adopting a long-term perspective is crucial since, despite short-term fluctuations, the stock market tends to increase over the decades. Resist the urge to panic sell during market downturns; instead, stick to your plan and allow your investments time to recover. Lastly, consider prioritizing saving for retirement by funding an IRA and 401(k) to their maximum limits if possible, as this not only secures your future but also offers tax advantages.

The key for first time investors is starting early, educating yourself on investment options, creating a diversified plan, and letting time do the hard work. Investing is simpler than it seems - you can do it! A Certified Financial Planner (CFP®) professional at Community Wealth Advisors takes into account various considerations while developing a financial plan, focusing on strategies to minimize risk, and ensuring proper asset allocation and diversification among different types of accounts, including taxable, tax-deferred, and tax-free.

If you are looking for help with your budgeting and financial planning, Community Wealth Advisors would love to talk with you. Contact us or stop our offices any time.

Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, and CFP® (with plaque design) in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Diversification does not ensure a profit or protect against a loss. Investments are subject to market risk, including possible loss of principal.