For newcomers, it feels overwhelming to invest when you have no idea what you’re doing. Inflation will always eat away at the true value of the money you have in the bank. Sure, growing a little interest in your savings account (or a lot of interest in a High Yield Savings Accounts) can seem like a reliable alternative to letting your money depreciate over time, but they’re only doing so much. When the Federal Reserve decides that interest rates should be high, your savings account with a variable rate might look pretty great, but the Fed could cut those rates whenever they deem necessary, leaving your savings future a lot less promising.

That’s why you look to invest. Effective investing will reliably protect your money in the long-run from inflation and volatile Fed rates.

Great. But how? Buy some individual companies’ stocks? What’s a mutual fund? An ETF? How do I tell if something is a good or a bad value? These thoughts are very intimidating for investing newcomers (and even those who think they know a thing or two).

The truth is, the average person is not going to know how to safely invest their money in a way that will get them reliable returns and avoid costly tax implications. So who should they turn to?

Target Retirement Year Funds

The first way to invest money after you’ve reached your savings account goal balance is contributing to your employer-sponsored 401k plan, ESPECIALLY if they match some of your contributions. Actually, you should contribute at least the matching threshold before you put your money anywhere else, but increasing your contributions beyond that is a great next step. Contribute as much as you can up to the IRS contribution limit (this value changes every year, see this link to find the current amount).

But your 401k is an investment account, so it’s not just a glorified savings account with the perk of lowering your taxable income. Your money will get invested so it can grow over time, tax-free. So what should your money go toward?

The strategy with less work but more reward is putting your money in a fund that has a targeted risk level to match your investing timeline. Basically, if you’re retiring in 40 years, it is assumed that you’re willing to take on more risk because any downturns in the market are very likely to bounce back. If you’re retiring in 10 years, your allocation will not include as much risk because you are likely to withdraw from your funds in the near future, so you don’t want it all washing away in an unexpected market crash or recession.

By investing in a Target Retirement Year fund, you’re essentially entrusting the management of your investments to professionals who will adjust the risk level over time to align with your changing financial goals and risk tolerance. This approach significantly reduces the administrative burden on the 401k-holder while they rely on the expertise of fund managers to navigate the complex landscape of investment decisions. Moreover, historical data suggests that, on average, these funds have the potential to deliver relatively stable and predictable returns over the long term, providing a sense of security and consistency for investors as they plan for their retirement.

Advisor-led Investing

While it’s true that dedicating significant time and effort to study the ins and outs of the market can potentially lead to successful investments, the most likely outcome is overworking yourself only to get minimal, if any, returns. It’s challenging for individuals, especially those without extensive financial backgrounds, to consistently outperform professional investment experts. These professionals have the knowledge, resources, and networks to stay ahead of market trends and make well-informed decisions, which provides a valuable edge for investors seeking to grow their wealth. So despite their fees, leveraging the expertise of these professionals can significantly benefit your investments, offering peace of mind and the potential for higher returns.

Not all investment companies are created equal. Some have much higher fees compared to the benefit they provide. Most have a wide array of products to offer such as insurance plans and funds for all stages of life. That can feel a bit intimidating to brand new and even somewhat experienced investors.

When considering investment companies, it’s crucial for individuals to conduct thorough research to find the most suitable option for their financial goals. High fees can significantly impact returns over time, so it’s important to seek out companies that offer transparent fee structures and a diverse yet manageable selection of investment products. This can help investors feel more confident in their decision-making process, ultimately leading to a more positive investment experience.

In the end, choosing the right investment company is a personal decision that should align with one’s financial objectives, risk tolerance, and investment preferences. Finding the right investment company may take time, but the effort put into research and comparison can lead to a more secure and rewarding financial future. NerdWallet provides great resources for comparing financial service providers (among other things).

Robo Advisors

Welcome to the future where robots can handle your finances for you at comparable return rates to human advisors.

What are the perks of using a robo advisor?

Lower Fees: Due to the nature of their operations, robo advisors typically have lower fees compared to traditional human advisors. With reduced overhead costs like office spaces and support staff, robo advisors can provide cost savings that are passed on to investors.

Accessibility and Convenience: Investors can access robo advisor services through intuitive online interfaces, simplifying the understanding of their total financial picture and making transactions between accounts easier and quicker.

Automated Portfolio Management: By leveraging algorithms and data-driven strategies, robo advisors automate the process of portfolio management. This approach analyzes market trends and rebalances portfolios as needed, offering a hands-off investment experience for users. They use diversification and risk management techniques to keep investors’ risk tolerance preferences in check. These platforms automatically spread investments across various asset classes, potentially reducing overall risk exposure.

Personalized Recommendations: Many robo advisors provide personalized investment recommendations based on individual financial goals, risk tolerance, and time horizon. This tailored guidance can help investors make informed decisions aligned with their specific objectives.

Overall, robo advisors offer a contemporary, cost-effective, and user-friendly solution for individuals who want to efficiently manage their investments with a hands-off approach. Check out my blog post that goes more in-depth about the differences between robo advisors and human financial advisors.

My Personal Recommendation?

For all the reasons above, I personally recommend Wealthfront as a great resource for new and experienced investors to grow their money with high-yield savings and investing accounts with minimal fees. Use this link to get an extra half a percent APY for 3 months when you open a high-yield savings account!