I know I should invest my money, but it worries me

Photo-Illustration: The Cut: Photo: Getty Images

I’ve been saving money little by little since my 20s, and now I have about $40,000 in cash (I’m 32). I keep reading about how I should invest it for retirement, but I’m too scared to do so. I know nothing about investing, and it mostly sounds like gambling to me. (Also, my parents lost a bunch of money in bad investments when I was a kid. They let my uncle invest his money, which was probably the main problem, but it was bad. They still retired Couldn’t happen.)

I know that inflation has already reduced the value of my savings, and I could have avoided it if I had put my money in the market. Or maybe not? I keep hearing that the market is more turbulent right now, so maybe I should wait a little longer. I don’t even know how and where to start. What is the safest way for me to do this? Any other tips for nervous first-timers?

I am impressed by your self-awareness. Many people are terrified of investing their money but can’t explain exactly what it is – usually because they don’t understand how the process works. And who can blame them? I’m not here to make you or anyone feel bad about this. The stock market is complex and full of unknowns. It worries people for a good reason: It’s out of their control. Keeping your money in your bank account where you can see it may seem less risky.

But in reality, the opposite is true. There is only one thing that is certain about maintaining your long-term savings. out The downside of the market is that its value will decrease over time. In 30 years, you’ll be worth $40,000 less than half of its current purchasing power, even though inflation remains at a modest 3 per cent (it is currently at 9 per cent). This is a huge risk to take with your money! But if you invest it in the right way, Its growth will outpace inflation A far less risky decision, objectively – by even the most pessimistic estimates.

To determine your next steps, I spoke to two certified financial planners who have experience with clients in your position. We’ll get to his advice in a minute. First, I’d like to address your parent’s history with investing, which made you understand.

Everyone’s relationship with money is determined by their childhood experiences, good or bad. (My dad bought a new TV when I was 8 and was worried we couldn’t afford it – these moments affect us deeply.) Let your parents know about their savings. It was a big event to see getting lost in a bad investment. Clearly influenced your outlook on money in adulthood. In your shoes, I would be too afraid to invest. But that fear is actively harming your future financial security.

Three things can help you process it: education, exposure, and professional support. By learning more about investing (and trying to do it yourself), you’ll feel more confident about avoiding your parents’ mistakes. you can also consider Meeting with a Certified Financial Planner who specializes in clients with difficult financial histories and/or concerns about money. (Planners who are trained to manage the psychological aspects of personal finance are often referred to as “integrated financial planners” and you XY Planning Network,

Now for more specific advice on your $40,000. Your first step is to determine who you should hire your emergency fundSays Manisha Thakor, a certified financial planner and founder of MoneyGen. Ideally, you want about four to six months of living expenses to be deposited into a high-yield savings account. This is for worst case scenarios such as losing your job, being in an accidental accident, etc. Put that aside, and know that it’s there to keep you safe.

Next, you’ll want to figure out how much to invest. “I always ask my clients, how much money do you have that you won’t need to spend in the next five years?” Thakur says. “That’s the money you’re going to put into the market.” It’s okay if that number is small to begin with. The longer your timeline, the more your investment will grow. It also gives you a discount if the market goes down. You always want to be in a position where you can exit turbulent periods without withdrawing cash and incurring losses. (Your emergency fund also ensures you have enough cash on hand when you need it.)

now you have to decide How You are going to invest it. Assuming your annual income is less than $144,000, you Qualify to Open a Roth IRA, which is a specific type of retirement account for money you’ve already paid taxes on (that is, money you’ve saved from your paycheck). This is a great place for you to start. The maximum amount you can put into a Roth IRA this year is, According to the IRS, is $6,000. Go for the max – you can afford it! Unless you’re ready to take it out, ideally in retirement (according to IRS rules, you have to leave it in the account for at least five years, but you already plan to do so). , for reasons we covered).

There are several ways to open a Roth IRA. But for the sake of simplicity, Stephanie Jenkin, a certified financial advisor and owner of My Financial Planner, recommends doing so at Vanguard, a low-fee investment-management company with a very user-friendly website. (Thakor is also a fan of Vanguard; full disclosure, I keep my IRA there, too.)

From there, Thakore recommends investing in a target-date fund, a broad mix of thousands of different stocks and bonds, designed to “mature” closer to your retirement age. Simply put, its content is selected to prioritize growth when you’re young and then evolve to prioritize sustainability as you get older. This ensures that when you are ready to retire and start taking distributions from the account, the market downturn will not have a major impact on your funds. A good option for you would probably be a target date of 2050 or 2055. Once you set this up, you have to contribute every year, ideally the maximum amount annually. Congratulations.

Another important consideration: Is your employer Offer a 401(k) or similar retirement benefit, If so, you’ll want to start contributing directly from your paycheck, at least 10 percent of your salary, to it, especially if there’s an employer match (free cash!). -The occasional panic will help prevent yourself from second guessing (this is done automatically so you don’t have to think about it). You can select a target-date fund for that as well.

Lastly, you mentioned that you are nervous about the current market volatility. I agree that there is a lot of terrible noise about this. The thing is, no one ever hits the market perfectly. Thakor puts it this way: “There is a classic saying that ‘time’ In matters more than the market Time market,'” she says. “You don’t have to sit there worrying about what the market is doing. What matters most is that your money is on its best days in the market. And this is the way to do it.” That it be put in and left there.”

Finally, some people will tell you that you’re behind on your retirement savings because you haven’t started investing yet, and you need to “catch up.” You can ignore them. The important thing is that you are starting out, and you will be persistent. Once you are more comfortable, you can invest more of your savings and watch it grow.

The Cut’s financial advice columnist Charlotte Cowles answers readers’ personal questions about personal finance. Email your money puzzle mytwocents@nymag.com

Leave a Reply

Your email address will not be published.