5 Things To Consider When Determining Your Investing Budget, According to Money Expert Tiffany Aliche

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Historically, investing has proven to be one of the best ways to grow your money over time. 

One of the most notorious stock market investments is the S&P 500. It’s made up of index and mutual funds that represent the 500 largest companies in the U.S. According to SmartAsset, while the stock market’s overall performance can vary from year to year, the S&P 500 annual rate of return has averaged around 10% since its inception in 1957. Not too shabby! 

Meanwhile, if you’re just letting your cash sit in your checking or savings account, your money probably isn’t growing and compounding like it could if it was invested in the stock market. While it might be easier to do this, you’re not helping your financial situation. 

Getting started with investing might seem overwhelming, but it doesn’t have to be. If you’re budgeting, here are five important things to consider before you start investing your money.

Here are five things to consider when determining your investment budget, according to money expert Tiffany Aliche:

1. Evaluate Your Risk Tolerance

Everyone has a different risk tolerance when it comes to investing their money. You might be willing to take bigger risks in hopes of a bigger reward, or you might prefer to air on the side of caution and invest in assets with a proven record of long-term financial success. If you’re younger, it might be okay to make more riskier investments that could potentially yield a higher return. However, if you’re older and you’re approaching retirement age, it’s advisable to stick to more conservative investments. Be sure to carefully consider your risk tolerance before you start dumping your money into the market.

2. Start Investing with Just 5-10% of Your Income

If you’ve never invested money before, starting with a small amount is a great way to stay within your budget and avoid feeling overwhelmed. Putting just 5-10% of your income towards investments will allow you to get your feet wet and test the investment waters before investing more substantial sums of money.

3. Diversify Your Investment Portfolio To Mitigate Risk

Diversification is key to hedge financial risk when investing. A healthy mix of stocks, mutual funds, index funds, and bonds is advisable in order to protect yourself from significant market swings and fluctuations over time. If you have too much money invested in just one or two assets, you could lose it all if the investments lose their value.

4. Create an Investment Plan

Like anything else in life, planning is crucial for success. Once you take care of all your bills and make sure your debts are paid, evaluate how much money you can comfortably allocate to investments. From there, do your research about what types of investments are best for you, based on your risk tolerance, the company’s history and performance, and your long-term financial goals.

5. Choose an Investment Platform

These days, there are so many different self-directed investment platforms and apps available to consumers. Some platforms are more simplified and geared toward beginner investors, while others have more robust features that are best suited for more experienced investors. Similarly to how you choose the right investments for yourself, be sure to spend some time doing research to pick the right investment platform for yourself beforehand.

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