Investing is often highlighted as a crucial tool for wealth building, but it may seem daunting to bridge the gap between investing a small amount per paycheck and achieving financial security in the distant future. Does investing really work, and how can you begin? In my journey, it’s akin to following a skincare routine in anticipation of waking up with flawless skin. While I’m still waiting for that skincare magic, I can confirm that investing is indeed transformative and yields results over time.
My investment journey began at 20 when I received a small government grant due to a chronic illness. The grant required me to invest the sum until retirement to retain it, essentially enforcing my initial foray into investing. Despite having theoretical knowledge, I had never practiced investing. I dived into books, researched exchange-traded funds (ETFs), and took the plunge. Nearly a decade later, that initial amount has grown into a six-figure portfolio without any significant windfalls. Here’s how I achieved it, and you can too!
1. Choose the Suitable Account
Upon arriving at my bank, I was tasked with selecting the account type. Options included tax-advantaged accounts like 401k and Roth IRA with yearly contribution limits, and non-tax-sheltered accounts allowing unlimited investment but taxing gains. Opting for a tax-sheltered account suited my situation, ensuring no tax burdens on investments in the near future. Consider where to invest too; transitioning to an online platform with lower fees bolstered my investment growth over time.
2. Select Appropriate Investments
After setting up my account and funding it, the next step was choosing investments. Initially gravitating towards managed mutual funds, I eventually switched to self-managed ETFs for low fees and diversification benefits. Supplementing ETFs with a managed platform offered through my job allowed for a balanced portfolio tailored to my risk tolerance.
3. Consistent Contributions Are Key
I adopted the principle of consistent investing, committing a portion of every income stream regardless of the amount. This strategy, irrespective of fluctuations in income, proved pivotal in nurturing compound interest and portfolio growth. Automating the process and maintaining a net worth tracker aided in visualizing progress.
4. Regularly Monitor Accounts
Contrary to advice advocating for a hands-off approach, actively monitoring my investments facilitated portfolio growth. Tracking investments regularly not only kept me engaged but also enabled reinvestment of dividends and scrutiny of fees. While market fluctuations can be unsettling, periodic check-ins allowed for timely corrections.
5. Seek Expert Guidance When Necessary
Engaging a fee-only financial advisor after a few years of investing provided invaluable insights. Adjustments to contributions, diversification beyond tech and retail ETFs, and personalized advice led to doubling of returns and attainment of the six-figure milestone.
6. Utilize Government and Employer Resources
Maximizing free investment avenues, like government grants and employer-matched 401k programs, significantly bolstered my portfolio. Regularly tapping into available resources, even if requiring effort, was instrumental in capitalizing on compound interest opportunities.
7. Remain Committed to Your Plan
Consistent adherence to the investment strategy, even during challenging periods, proved fundamental to portfolio growth. By staying resolute in the face of market uncertainties and staying committed to regular contributions, I witnessed my portfolio rebound post-pandemic and surpass the six-figure threshold.
