Ja2) "Investing Like a Pro Secrets to Grow Your Money"

 "Investing Like a Pro Secrets to Grow Your Money"

1: Investing: Think big, start small

The best way to turn $100 or $1,000 into, well, more, is to invest it. But too often, people fall into the trap of thinking that you need to have a lot of money to invest. Not true. It’s okay to start small, but you must be methodical about it. Fortunately, it’s getting easier to do that. Begin by following the steps below.

Start with no money down. Most brokers, including Charles Schwab, Fidelity, E*Trade, and Merrill Edge, have stopped requiring a minimum to open a brokerage account. It takes just minutes to open an account online. 

Pay what you can. Set up an automatic transfer to your account — even if it’s $10 every paycheck or once a month if that’s all you can afford — and invest it. Can’t swing $3,000-plus for a share of stock in Chipotle Mexican Grill (CMG)? Thanks to fractional trading, you can buy a portion of a share. Although not every firm offers fractional-share trading, you can buy fractional shares of stocks (and exchange-traded funds, too, in some cases) at Fidelity, Interactive Brokers, Robinhood, Schwab, SoFi, and M1 Finance, to name a few. 

2: Keep an eye on investment costs

Wealthy people are often among the most frugal, and they apply that cost-consciousness to their investments, too. The difference between what you earn in an expensive fund, for example, compared with an inexpensive one can mount to six figures over an investing lifetime. Of course, you’ll pay more in fees for an actively managed fund than for an index-tracker, and for asset classes that require a higher level of research or trading skills — small-company stocks or emerging-market shares, for example, compared with large, easily traded blue chips. 

But when comparing funds in the same category, a lower expense ratio can make a world of difference. The average expense ratio for stock mutual funds in the last report was 1.11% — and 0.55% for stock index funds — according to the Investment Company Institute. For actively managed exchange-traded stock funds, expenses averaged 0.72%; for index-based stock exchange-traded funds, expenses averaged 0.47%.

3: Be a super saver

While “The Secrets of Super Savers” would be a catchy name for a reality TV show, there’s really no mystery to developing good savings habits. Ideally, you need to monitor your spending, start setting aside savings early, put your savings on autopilot, and take advantage of all the tax breaks and other incentives available to you. In a 2022 survey of investors’ savings habits, Principal Financial Group identified super savers as those who set aside 15% or more of their salary in retirement accounts or make 90% of the maximum contribution allowed by the IRS. 

A common characteristic among the super savers is consistency. Most started saving in their teens or early twenties and consider it part of their identity. They drive older vehicles and own modest homes, which they fix up and clean themselves. In addition to contributing to 401(k) plans or other employer-sponsored accounts, they take advantage of other vehicles such as brokerage accounts, health savings accounts, and 529 college savings plans. “They’re continually looking for as many ways as possible that they can save,” says Heather Winston, director of individual investor products and solutions for Principal. 

4: Cut your tax bill

Taxes, according to the late Supreme Court Justice Oliver Wendell Holmes Jr., are what we pay for a civilized society. But that doesn’t mean you should pay more than you’re legally required to remit to federal and state tax authorities. Unfortunately, the tax code has become more complex, increasing the risk that you’ll overlook money-saving tax breaks. 

Start by reviewing how much tax was withheld from your paychecks in 2023. If you received a big tax refund, adjust your withholding so that less of your paycheck goes to the IRS. Use the extra money to bulk up your emergency savings, pay off high-interest debt, and/or increase contributions to your retirement plans. 

5: Pay off debt

If you have high-interest-rate debt, paying it off should be high on your priority list because it drags down on your ability to create wealth. Credit card debt is particularly burdensome because rates tend to run high, and they’re variable, moving upward when the Federal Reserve boosts short-term rates. Average rates for currently held credit cards rose from 16.17% in March 2022 to 24.59% in February 2024. 

Start by reviewing your credit card statement to find out the amount you owe, how much you’re paying in interest, and your minimum monthly payment amount. Then consider transferring your outstanding balance to a less costly account. Several card issuers are offering 0% interest rates on balance transfers for anywhere from 12 to 21 months. There may be a transfer fee — typically 3% to 5% of the transfer amount — but during the 0% period, your balance won’t accrue any interest, and those savings could easily outweigh the cost of to transfer. Make a plan to pay off the balance during the 0% interest period; after it closes, the interest rate will jump up, usually to the credit card’s standard rate. 

6: Build a healthy credit history

A strong credit profile is an important tool as you build wealth. A high credit score can help you nab a lower interest rate on a mortgage and other loans, and it can even affect your auto insurance premium. 

Paying all of your bills on time is the most impactful move you can make to boost your credit score. To ensure that payments arrive by the date they’re due, you can set up automatic transfers from your bank account. If you already have overdue bills, pay them off as soon as possible. 

7: Buy a home (or not)

Homeownership has long been a pillar of building wealth, particularly in recent years. Property appreciation over the past decade has provided most homeowners with more than $100,000 in equity, according to a 2023 analysis by the National Association of Realtors. The largest wealth gains occurred in high-cost metropolitan areas, the NAR said. In the San Jose metro area, for example, low-income earners accumulated nearly $630,000 in equity over the past 10 years, while middle-income earners gained $643,000. 

But those homeowners benefited from historically low mortgage rates and a sharp rise in home values. Today, rising mortgage rates and a low supply of available homes have made owning a home out of reach for many potential home buyers and raised questions about whether homeownership is still a reliable way to build wealth.

8: Check your insurance coverage

Ensuring that you have adequate insurance coverage is a key part of protecting the wealth you’ve worked to create. Use these general guidelines to check whether your coverage is on track; if you want more help determining your specific needs, enlist a financial adviser or insurance broker to run a review with you.  

Insuring your home. For many people, their home is their most valuable asset, so homeowners insurance is critical. Insurance agents and carriers have tools to help you determine what your policy’s coverage limits should be, factoring in the replacement value of your home and inflation, says Mark Friedlander, corporate communications director for the Insurance Information Institute.

9: Hire an adviser

As you accumulate wealth, you’ll probably have a lot of questions: Traditional IRA or a Roth? What’s the best portfolio allocation for my age and risk tolerance? Can I afford to retire early? 

A financial planner can help you answer these questions and prevent you from making decisions you may later regret. But good advice doesn’t come cheap. Many planners use a model known as assets under management, which bases fees on a percentage of the value of your portfolio. 

For example, if your portfolio is valued at $1 million and the planner charges a 1% AUM fee, you’ll pay $10,000 a year for the advice. In exchange, the planner will manage your investments and provide other services, such as tax planning. Typically, the AUM percentage charged declines as your portfolio grows.

10: Eliminate unnecessary spending

Go through your expenses in detail.  First, stop paying for stuff you don’t use – digital subscriptions, and club memberships.  Then, take a hard look at everything else and decide what really matters to you and your family.  The monthly savings identified in this process should be reallocated to savings.

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