Will 2022 be the year you start investing?

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Investing can make your money grow, but only if you’re ready.

Key points

  • Investing can help your money grow and build wealth.
  • You need to make sure that you are financially ready to invest.
  • Invest with a longer time horizon to increase your chances of success.

If you want to build wealth, investing can be a great way to do it. Once you’ve purchased assets with the goal of getting a return on your investment, your money can work for you and grow without much effort on your part.

But before you start investing, you need to make sure you’re ready. If you want to make 2022 the year you debut, here are some key considerations.

Do you have an emergency fund?

Investing inherently involves risk, although you are responsible for how you do it. Therefore, it is important to have an emergency fund at your disposal before deciding to invest your money.

An emergency fund should be easily accessible and in a risk-free account, such as a high-yield savings account. Otherwise, you may not have money to cover unexpected emergency expenses if you have used your available money to invest and lost some of the money. You also risk having to sell investments at the wrong time when a surprise expense arises.

Your emergency fund should be large enough to cover a few months of living expenses, so prioritize investing your money for this before you start investing with the goal of earning generous returns.

Do you have money that you won’t need for a while?

One of the best ways to reduce investment risk is to be a long-term investor. If you are buying assets that you are sure will perform well over time, you don’t need to try to time the market and buy when the price bottoms out. There is also a good chance that your investments will recover from any temporary losses if you are a long-term investor, as market declines are inevitably followed by recoveries.

Unfortunately, if your investment timeframe is short, you may not be able to wait for prices to drop and you may be forced to sell assets at a loss. Most experts generally recommend avoiding investing money if you will need it in the next two to five years, precisely for this reason.

Do you understand the different types of investment accounts available?

There are different types of investment accounts, including taxable brokerage accounts as well as accounts that offer tax relief, such as traditional or Roth IRAs.

Choosing the wrong type of account could be a big mistake, as you could either be hit with penalties for not following withdrawal rules from your account or miss out on tax breaks. So be sure to research every brokerage account option before you start investing in 2022.

Do you have a solid investment strategy?

Finally, you need to make sure you have a strategy for deciding which assets to buy in order to build a diversified portfolio that is likely to perform well over time. You need to know how to value anything you invest in, whether it’s stocks, ETFs, or cryptocurrencies, and make sure you’re not investing in something you don’t understand.

If you have a strategy, an emergency fund, and money to save that you can invest for several years, then 2022 may be the perfect time to start investing and building wealth.

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