We consider investment strategies, specifically, the difference between short and long-term goals, then look at some apps that can get you headed in the right financial direction.
The goal of investing is to put your money to work in the hopes that — like a seed carefully planted — it will grow over time. Though many are intimidated by the concept, it’s an important wealth building tool, not something to avoid or be afraid of. Though investing can be as low-risk as opening a savings account or as high-risk as trading commodities, there are a variety of ways to do it.
Before you start investing, whether it be short or long-term, you should have clear goals in mind. Think of short-term as something like saving for a vacation or buying holiday gifts. Longer term goals might include purchasing a car or a home (which is, in and of itself, a kind of investment). And always remember the importance of investing in your future by making and funding your retirement plan.
Short-term vs. Long-term
The main difference between short and long-term investing is that long-term goals generally take more than five years to fulfill.
The most important long-term goal is saving for retirement. Long gone are the days where you stay with one company until retirement and then live off the company’s pension plan. Start saving for your retirement first, then use the leftover money to save toward other goals.
Some simple tips:
- Reach long-term goals by being a disciplined saver and a savvy, engaged investor.
- Consider the time value of money. Starting to invest when you’re in your 20s will produce a larger nest egg than if you start saving at age 30 or later (as the interest you accrue will eventually start accruing its own interest) but it’s never too late to start.
- Review your portfolio quarterly. Adjust your investments only when needed. If your goals change, revise your financial plan.
- Determine how much risk you feel comfortable with and adjust it depending on your goals.
Technology has made it easier than ever to invest in the stock market. Most banks will allow you to set up an investment account. These are usually for more experienced investors, will require minimum investment amounts and can involve fees. How high those fees are may vary, depending on where you bank.
For beginners (or even people who don’t have large funds but want to invest in something other than cash), there are many different investing apps that you can setup in minutes on your phone. Some of my favorite, most used apps are Acorns, Digit and Stash:
- Acorns allows users to “invest the change” by linking their credit or debit cards to the app, which rounds up regular purchases and invests the difference into a diversified portfolio of index funds chosen by Nobel Prize-winning economist Harry Markowitz. Acorns charges a monthly service fee, which is a small percentage of your account balance. So, if you leave a small lump sum of money in your account over a long period of time, the fee could eat up your balance, even if the market is performing well, so your balance either needs to be large or constantly growing. Otherwise, this is a convenient “set it and forget it” type of savings plan.
- Digit is not technically an investment app, but makes saving money from your checking or savings account easy. To do this, Digit analyzes your income and spending patterns, and then automatically dips into your checking account and puts a few dollars into a savings account (typically $2-$17 every 2-3 days). You can also choose whether you want to raise or lower this amount in the app’s settings, and all saved money goes into a FDIC insured account. Digit doesn’t charge any fees. Use this type of savings for shorter-term investment goals.
- Stash makes choosing investments simple and arranges them into ETFs (read: different topics that you might care about). They’re named by Stash to reflect the kind of investing you’d be doing by putting your money there. The service has a $5 minimum account balance and charges $1 a month for account balances under $5,000 ($2 per month for retirement accounts under $5,000) and a 0.25% annual fee for accounts with $5,000 or more. Stash waives its fee on retirement accounts for anyone under age 25.
- Investing in your future is important. Even if you are most interested in short-term goals, set aside a portion of your money for long-term investments. Use the tools like those above to plan your future and you should be able to afford to not only see Celine in Vegas, but save up for the down payment on the home of your dreams and be secure when it comes time to retire. That said, this is all practical advice for informational purposes and the best advice of all is to make a plan for your financial well being with a licensed financial or tax advisor.
Last modified: September 10, 2018