Investing doesn’t have to be hard. In fact, it shouldn’t be hard — it should be rewarding.
Luckily, there are things you can do to become a smarter investor that don’t require you to work harder. Here are three methods you can use to invest smarter, not harder.
1. Set up automatic transfers
One of the best ways to make investing easier is to make it automatic. Having money sent directly to your brokerage or retirement account when you get paid can take some of the legwork out of investing. The only thing you have to do is go to the account you’re investing in and purchase whatever assets you’re interested in; you don’t have to worry about making a transfer anytime you want to invest.
Having an automatic transfer set up for the same time you get paid can also make it easier on you because you get used to not “seeing” the money first, and you can adjust accordingly. For example, if you get paid $3,000 biweekly and plan to invest 10% of your paycheck, having that automatic transfer can quickly get you used to living off the $2,700 without missing the $300 you invest.
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2. Utilize index funds
Researching and investing in individual companies can be challenging and time-consuming. That’s what makes index funds ideal for many investors. An index fund is a type of mutual fund or exchange-traded fund (ETF) put together to mirror a specific market index. For example, the S&P 500 consists of the 500 largest U.S. companies by market cap. An S&P 500 index fund consists of and tracks those 500 companies.
Since index funds follow a set index — whether it’s company size, industry, social mission, etc. — they are passively managed and have low expense ratios. The difference in seemingly small percentages may seem minimal, but it can easily add up to thousands in the long run.
One of the keys to long-term investing success is diversification; you don’t want your portfolio’s success (or downfall) to depend on the success of too few companies. The right index funds can provide instant diversification because you simultaneously invest in multiple companies with one purchase. Utilizing index funds can ensure you’re invested in companies in different sectors, sizes, and even growth potential.
3. Invest in tax-advantaged accounts
One of the primary reasons for investing is making sure you’re financially comfortable in retirement. To help and encourage investing for retirement, the IRS provides opportunities for tax-advantaged accounts, such …….