Even in the best of times, deciding where, when, and how to invest your money can seem a little daunting — where do you even begin? Throw in a pandemic and an economic recession, and things get even more complicated. Not to mention the fact that many have lost their jobs, been forced to take pay cuts, or are too sick to work — it's not the most relaxing situation. However, learning how to smartly invest and manage your money can actually help you de-stress, especially while life feels a bit out of control.
Especially during this time, we've begun to place more weight on practicing self-care. We take care of our mental health with practices like meditation; we take care of our physical health by eating well and working out; and we take the time to pamper ourselves with relaxing face masks or aromatherapy baths. In the same way, financial health is just as important to our well-being — taking small steps to ensure a stronger and more secure financial future is one of the best ways to take back control and practice self-care right now.
Keep reading for four actionable tips you can take to begin carving out a path for the future, financially healthy, you.
Start by Making a Financial Plan
This should be the first step in your money management journey, no matter the state of the markets. Do you have enough saved up to cover an emergency, like losing your job for a few months or more? Think about where you spend your money — rent, groceries, subscriptions, clothing, et cetera — and come up with a clear budget for each category that you can stick to. Kick back with your credit card statement, and see if there are any areas you can cut back on to save or invest instead.
Then, take a look at what you want your long-term plans to look like, meaning, what are you saving and investing for? This could be a car, down payment on a home, retirement, starting a family, and anything in between. This will help clarify how much money you'll need at different points in the future to help you reach your goals.
It's basically like assigning your money different jobs and making it work for you through saving and investing. Some jobs, like saving up for a trip, may need to get done within one year. Others, like paying off your student loans or saving for retirement, may take decades to add up. Whether you’re investing for the first time or have been doing it for years, knowing your savings goals can help guide where you put your money — because investing, for most people, can be critical to building wealth over the long-term.
How Do I Start Investing?
This is where handy mobile apps like Robinhood can be a much-needed tool in your investment life. You can start investing in a company with as little as $1 through fractional shares. While you’re building your portfolio, your uninvested cash earns interest through the Cash Management feature offered in your brokerage account. It's much easier to manage your portfolio when it's all in one place and convenient to access in real time; plus, it can help you feel more in control of exactly what's going on with your funds.
In terms of building your portfolio, begin by thinking about who you are as a person: do you tolerate risk relatively well? Are the ups and downs of the market going to stress you out? Where you allocate your funds will depend on how you answered those questions.
For example, if you feel like you won't get too anxious when the market is down and you can ride it out, you might consider putting a larger portion of your assets in stocks, which are generally more volatile. Stock investments have historically had the potential for greater returns over the long run (compared to bonds), but this is typically true for investors who feel this is appropriate for their situation and are willing to ride out several boom and bust cycles, which can take a long period of time.
If you want to be a little more conservative, you might look into US Treasury bonds or, on the stock side, diversified mutual funds and ETFs that track the overall market.
Keep in mind that there’s a whole range of categories beyond these, so look into your choices and make informed decisions.
Avoid Reacting to the Market, and Stay Consistent
The market is constantly in flux — and just because it's down one day doesn't mean it can't soar right back up the next day, or drop again the next. Even with everything that’s going on, it’s vital to think about the current volatility with a clear head and consider how it might affect your long-term plans. While it can be hard to stay the course since it's unknown how long a recovery will take, it's probably in your best interest to avoid reacting to the market too frequently, and stick to a longer-term plan.
This is why you should consider setting up automatic payments, especially with your investment accounts. Essentially — set it and forget it. That being said, it’s a good idea to continually reassess your strategy, and be willing to adjust how much you’re contributing, and to what, depending on your specific investing goals and risk tolerance. Of course, investing does not guarantee a profit or prevent losses.
Make Sure to Diversify
When you're creating your portfolio of investments, it's best to try and diversify where you're putting your money, so you’re not putting all your financial eggs in one basket. Just like your body needs a balanced and varied diet to be healthy, it's often a good idea to spread out your investments across different asset classes, like stocks, bonds, and so on; you can also diversify within each class, and across sectors, industries, and countries. The more varied and diversified your investments are, the better they're typically able to help you mitigate losses.
At the end of the day, every investment carries some level of risk, but ideally, a properly diversified portfolio would help you manage risks while working toward your investment goals. Remember to keep the bigger picture in mind: the markets have a long history of rising and falling in cycles, but when you zoom out and look at market trends over decades, it often becomes much more steady.
The key to a long-term strategy is to play the long game. That’s why making a financial plan ahead of time is beneficial; when turbulence strikes, a good plan can help you stay levelheaded and focused on the bigger picture of where you want to be.
Once you take the first small step toward financial health, you’ll gain more confidence and a better sense of security as you progress. And isn't that what self-care is all about?