Laura answers an investing question with seven tips for becoming more confident, regardless of your level of experience.
Laura answers an investing question with seven tips for becoming more confident, regardless of your level of experience.
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Welcome back to Finance Friday, another special edition of Money Girl, where I answer your burning money questions! Today’s topic comes from Paula, who says:
“I’m getting a late start investing and am unsure about where to begin and how much to save. Can you give tips for becoming a more confident, first-time investor?”
Thanks for your question, Paula! I understand that becoming an investor can feel scary, even when you know it’s a good idea. Sometimes, a lack of knowledge can hold you back from investing, but often it’s the fear of losing money.
This post will review how to invest while minimizing risk, no matter your level of experience. I’ll give you seven tips for investing wisely, so you feel comfortable and confident about reaching your financial goals.
Welcome back to episode 953 of Money Girl–I appreciate you downloading the show! I'm Laura Adams, an award-winning author, on-camera spokesperson, female money speaker, and founder of The Money Stack, a Substack newsletter.
You can learn more, ask questions, and sign up for the Money Stack at LauraDAdams.com. Newsletter subscribers automatically receive my Money Success Toolkit with the exact templates I use to manage money.
7 tips for becoming a confident investor
No one is born knowing the perfect way to invest, and there are many different strategies you can use to build wealth. Some people are very conservative, and others feel comfortable taking big risks.
I’ll focus here on seven fundamentals of investing that I believe can help you become more confident, whether you’re just getting started or have been at it for decades.
1. You must distinguish between saving and investing.
One of the most important rules of investing is knowing what money not to invest. Everyone should have non-invested savings for short-term needs or goals, like an emergency or something you want to buy in a year or two.
Keep your savings in an FDIC-insured account, like a high-yield savings, so it stays safe and easy to access. It won’t earn as much compared to investing, but that’s OK. The purpose of savings is to have a cash reserve that’s not subject to market volatility.
With investing, you buy an asset with the expectation that it will pay dividends, appreciate in value, or both. Investing is appropriate for longer-term goals that you want to achieve in at least three to five years, like buying a home and retiring.
There are thousands of potential investments, like real estate, businesses, precious metals, cryptocurrency, commodities, stocks, and bonds. But I’m going to focus on mainstream investments that are typically available in most taxable and tax-advantaged accounts.
Since an asset’s value can fluctuate wildly within short periods, saving is better than investing for short-term goals. However, over long periods, investing is critical for earning enough growth to beat inflation and achieve significant goals, like retiring.
2. You should set savings and investing goals.
To be a confident investor, it’s important to set realistic goals and perhaps start slowly to avoid feeling overwhelmed. As I mentioned, first build some savings. A good target is maintaining a few months’ worth of your living expenses in a high-yield savings account.
For example, if your housing, food, utilities, healthcare, and debt payments total $3,500 a month, make a goal to build up at least that much in savings. It usually takes time to accumulate a healthy cash reserve, so set a specific target and a monthly goal, like saving 5% of your monthly gross income.
Once you have some amount of emergency savings, you might continue adding to it monthly while also investing. A good rule of thumb is to regularly invest at least 10% to 15% of your gross income for retirement annually.
READ ALSO: Am I saving enough for retirement?
3. You should choose tax-advantaged accounts.
If you have a workplace retirement account, such as a 401(k), 403(b), or 457 plan, that’s the best place to begin investing. Those accounts require automatic payroll deductions in amounts you set, may offer employer matching, and give you terrific money-saving tax benefits.
With a traditional retirement account, you make pre-tax contributions, which reduces your taxable income for the year. Your earnings and account growth are tax-deferred until you make withdrawals in retirement.
With a Roth retirement account, you pay tax upfront on contributions but receive tax-deferred account growth and tax-free withdrawals in retirement. I recommend that everyone take advantage of a Roth, especially when it’s available at work, where there are no income limits to qualify.
Even if you don’t receive employer matching, it’s wise to max out a workplace retirement plan. For 2025, you can contribute up to $23,500 or higher amounts if you’re over 50. If you leave your job, it’s easy to roll over your vested balance into an individual retirement account (IRA).
An IRA is available for anyone with earned income, including minors. An IRA is the next best place to invest if your employer doesn’t offer a retirement plan, you’re self-employed, or are unemployed and file a joint tax return.
You can choose a pre-tax, traditional IRA, or an after-tax Roth IRA. However, there is an income limit to qualify for Roth IRA contributions. For 2025, you can contribute up to $7,000 or $8,000 if you’re over 50 to either type of IRA.
In addition, if you’re self-employed, you have more tax-advantaged account options, including a SEP-IRA and solo 401(k). They have much higher annual contribution limits, such as $70,000 or higher, depending on your age and business income.
RELATED: 4 ways to fund a Roth no matter your income
4. You should build a diversified portfolio.
Once you open a retirement plan or a taxable brokerage account, you’ll need to choose from a menu of investment options. I recommend building a simple but diversified portfolio. That simply means owning many investments that react differently to economic events.
For instance, if you only own one company stock, its market share could decline or it could get bad press, causing its value to plummet, exposing you to lots of risk. A better strategy is investing in one or more funds, which are baskets of many securities, like stocks, bonds, and other assets. If some underlying investments in a fund lose value, some will hold steady or increase in value, minimizing your risk.
Here’s a brief overview of the types of funds that make it convenient for investors to get instant diversification.
Funds come with fees, known as an expense ratio. In general, it’s best to choose lower-cost funds to avoid unnecessary costs that lower your returns.
RELATED: How do wealthy people invest money?
5. You should be consistent.
Instead of investing a lump sum when you have extra money, consider the benefits of regularly investing a consistent amount, such as weekly or monthly. It’s a strategy called dollar-cost averaging or DCA. You buy chosen investments regardless of their prices, which are likely to be different each time you make a purchase.
For instance, let's say you want to max out an IRA by contributing $7,000 over a year, or $583 per month. A DCA strategy can make investing less emotional when you stay focused on how much to invest rather than on the price of investments from week to week or month to month.
By sticking to a DCA strategy over the long term, you smooth out how market fluctuations affect your investment portfolio, making you less vulnerable to bad market timing. In other words, if you invest a lump sum when a fund's price is at an all-time high, you'd lose money and never have the chance to recover.
I also like how a DCA strategy allows you to automate investing, keeping you on a predetermined schedule, which can also be easier on your budget. That's a great way to make investing a habit you will likely continue, even when an investment's value drops. Instead, when an investment’s price falls, you see it as a chance to buy more shares.
In general, dollar-cost averaging is best for investors with a long time horizon who don't have a large lump sum to invest or want to worry about timing the market correctly, which is virtually impossible.
You don't need any experience or expertise to implement a DCA investment strategy. In fact, if you’re enrolled in a workplace retirement plan that requires regular contributions from your paychecks, you’re already using a DCA investing strategy.
6. You should ignore what you can’t control.
Short-term volatility in the financial markets is uncontrollable, so staying focused on building long-term wealth is critical for success. What happens in the markets from day to day only matters if you need to liquidate or spend your investments right away. As I previously mentioned, money you need in the short term should never be invested in the first place.
Confident investors tune out media hype, ignore stock tips from friends and family, and never make rash decisions, like selling investments when their value drops. Your goal should be to get investment growth over many years or decades, not month-to-month.
7. You can ask for investment advice.
Most investing platforms and robo-advisors help you choose specific investments by asking questions about your age, timeline, goals, and risk tolerance. They may have an online quiz you complete before they recommend a suitable portfolio. In addition, many investment firms have a human advisor you can use for free, especially for workplace retirement plans.
However, if you have a complicated situation, don’t hesitate to consult with an independent financial advisor. Paying for specific advice or a holistic financial plan from a Certified Financial Planner can give you incredible confidence that you’re on the right path.
To sum up, being a confident investor starts with having enough savings and then investing money earmarked only for long-term goals. You can reduce investment risk and smooth out volatility by choosing diversified funds and regularly investing smaller amounts. And getting help from an online tool or a human advisor can help you choose the right investments and know how much to invest to reach your unique financial goals.
That's all for now. I'll talk to you soon. Until then, here's to living a richer life!
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