How to start investing to build wealth
Maybe you just landed your first full-time job. Or maybe you’re finally ready to cross it off your to-do list. Whatever your reason, here’s how to start investing to build wealth.
Investing is an essential part of any financial plan that aims to build your wealth. And if you haven’t begun investing yet, the best time to start exploring it is now.
An investment is a long-term strategy that will compound over time. It can help build your wealth and set you up for life’s major financial moments, such as buying a home or retiring.
Before you get started, it pays to reflect on what you’d like to get out of investing your money. Whatever your goal is, there are investment tools to help you.
Investing brings risks as well as potential rewards, so the first thing to do is check in on your financial situation. If you answer “no” to any of these questions, address them before you start investing.
Investing to build wealth isn’t a one-size-fits-all activity. How you approach investing depends on a variety of factors, including your risk tolerance, your investment goals and even your values. For example, if you’re investing to build a nest egg for retirement, your time horizon will be longer than if you’re investing your money to save for a down payment on a home.
How to determine your risk tolerance
The earlier you start investing, the more time you’ll have to take advantage of the power of compound interest to build wealth. Compound interest means that the return on your investment dollars generates its own return, and you don’t have to lift a finger.
Now let’s review your investment options, each with its own growth, risk and diversification considerations. We’ll also look at the different ways of investing your money, whether that’s mostly on your own or through a financial professional.
Depending on your investment goals, you can choose from a range of investment account types. Diversifying your investment accounts may help reduce the amount of taxes you’ll have to pay over time. (Learn more about this here.)
Depending on your investing strategy, there are several investment vehicles to choose from that can help you build wealth. A portfolio with a diversified asset allocation—one that invests in a range of investment vehicles—helps you spread out and manage overall portfolio risk.
Some commonly used investment vehicles include:
Why your portfolio should have diversified assets—and risks
Finally, how you invest will look different based on your investing aptitude and your comfort level with technology. Of the options listed below, each has different requirements as far as how much you need to invest to get started:
How to start investing now with any amount
In most cases, investing isn’t a set-it-and-forget-it activity. Your portfolio may take some work to maintain, such as if it requires further diversification or if the market changes significantly. Or you may experience a major change in your lifestyle that justifies an adjustment to your portfolio.
You’ve probably seen these words before: Investments can go down as well as up. Market volatility is a fact of life, so keep in mind that you’re in it for the long haul. A financial professional can be a good sounding board in rocky situations. They can give you a clear perspective and help you understand your options.
4 strategies for coping with market volatility
Most people understand that inflation increases the price of their groceries or decreases the value of the dollar in their wallet. But inflation affects all areas of the economy—and over time, it can eat into your investment returns.
The effects of inflation on investments
Even if you prefer to be a hands-off investor, there are times when you’ll need to play an active role in realigning your assets to build wealth. This is known as portfolio rebalancing. It can be triggered by life events such as:
Why and when you may need to rebalance your investment portfolio
Feel ready to begin investing? This quiz, offered by U.S. Bancorp Investments, will give you actionable insights into what type of investing suits your financial goals and preferences.