1 in 3 Americans say that when it comes to investing, they don’t know where to start.  Here is a quick guide

1 in 3 Americans say that when it comes to investing, they don’t know where to start. Here is a quick guide

Investing money has proven to be an effective tool for growing wealth over time. But if you consider yourself quite ignorant about investing, then you might feel too intimidated to get started.

Recent data from Webster Bank revealed that 36% of Americans “just don’t know where to start” when it comes to investing. If you feel the same way, here are some quick tips to get you on the right track.

1. Select the appropriate account

Maybe your goal is to invest for the next 10 years and see how it goes. If you are in your 20s or 30s, in this case, you may decide to stay in a regular, taxable brokerage account. This way, your money will not be limited in any way.

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Alternatively, your goal may be to start investing for retirement. If so, then maintaining an IRA or 401(k) plan through your employer (if one is available to you) makes a lot of sense.

With a traditional IRA or 401(k), you get a tax break on your contributions up to an annual IRS limit, which can change from year to year. This year, IRAs top out at $7,000 for savers under 50, while 401(k)s top out at $23,000 for savers in the same age group. For those 50 and older, the IRA limit is $8,000 and is $30,500 for 401(k)s.

So let’s say you know you want to invest specifically for retirement. If you put $5,000 into a brokerage account, you will reap no tax benefit. But if you put that same $5,000 into an IRA, you won’t pay taxes on $5,000 of your earnings. If you fall into the 22% tax bracket, that translates to $1,110 in tax savings this year.

Now that said, with an IRA or 401(k), you risk a 10% early withdrawal penalty if you withdraw funds from your account before age 59 1/2. So if you think you’re likely to need your money at a younger age, a regular brokerage account is probably your best bet despite the lack of tax benefits.

2. Consider your investment horizon

It’s important to not only consider what you’re investing for, but also how much time you have from now and when you want to reach that goal. That way, you know how much risk you should take on.

If your investment horizon is five years or less, you may want to go a little lighter on stocks because of the potential for market volatility. If you’re investing for a milestone like retirement that happens to be 30 years away, putting most of your assets in stocks can be a smart move, as you have time to ride out market swings that work against you . You can also benefit from the strong returns that stocks have historically been known to generate.

3. Diversify

Whether you’re investing for a shorter or longer period, it’s important to have a diversified portfolio. Owning a wide range of stocks can help you minimize losses during periods of market volatility. And it can also lead to stronger returns.

You can go for diversification in several ways. First, you can research a whole bunch of different stocks and build a portfolio that consists of stocks in a variety of industries. Or, load up your portfolio with broad market ETFs or exchange traded funds. The great thing here is that you basically get instant diversification without having to research a whole bunch of different stocks, which can be time-consuming.

If you’re new to investing and not sure how to get started, you’re not alone. These tips should help you get the ball rolling. But there are plenty of more in-depth investment guides available online that won’t cost you a dime. Read them to familiarize yourself with different concepts and terms so you can feel more confident in building your portfolio.

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