From far away, the road to financial wellness might look steep, winding, or cluttered with roadblocks. But the truth is, it doesn’t have to be as bumpy a ride as it first appears.

In fact, the key to taking control of the financial steering wheel is in your hands — you just have to grab it. How? Invest your money.

Investing is a crucial strategy to conquer your financial future. But for many, getting in the car — or entering the market — is the toughest step.

But you don’t need to be the next Warren Buffett or have a degree in finance to be successful in the world of investing. When you begin to build a foundation of knowledge of basic investment concepts, you can gain the confidence to enter the market — and be on your way to achieving your financial goals.

Six Figure by Your 60s

Do you fantasize about saying goodbye to your desk job? Dream of exchanging your work badge for a boarding pass (to anywhere except your office)? If so, now’s the time to start making your money work for you.

When you invest your money into the market, you give yourself the opportunity to grow it significantly more. And while retirement may seem way, way, way off in the distance, 10 extra years of investing your money can mean more than hundreds of thousands of dollars.

Consider this: If starting at age 22, you invest an average of $2,000 per year and earn an average of 8%, you’ll have about $560,000 by age 62. Start 10 years later at age 32 and that number will drop to around $250,000 or less by 62. Wait another decade and you’ll accrue about $101,000.  (This calculation is based on the same investment each year, with the same average return and assumes you do not withdraw funds.)

Line graphs comparing the effects of compound interest on your investments and savings by age. If you begin investing $2,000 a year with an average 8% annual return: at age 22, you'll have $561,665.70; at age 32, you'll have $246,737.05; at age 42, you'll have $100,864.15. If you put away $2,000 a year in a savings account with 1.6% APY starting at age 22, you'll have $114,658.16.

One reason investing provides so much potential for growth is the concept of compounding returns. That’s when, assuming the market continues to grow, you make interest on your initial principal (or cash you invested) as well as the earnings you’ve accrued, which creates a money snowball effect.

Investment Intelligence, Full Speed Ahead

When you first begin to explore the market, you might feel like you’re constantly Google searching term after term — it’s enough to make anyone want to pull their hair out. But as you learn more about investing and become confident speaking about the topic, the more empowered you’ll feel in your financial pursuits.

These essential terms will bolster your investing vocabulary (not to mention your confidence):

  • Stocks: An investment that represents buying a fraction of a publicly traded company
  • Bonds: A loan given to the government or a corporation in exchange for repayment plus interest
  • Securities: Another word for stocks and bonds
  • Mutual funds: A fund that pools money of numerous investors to invest in a variety of securities picked by a portfolio manager
  • Exchange-traded funds (ETFs): Similar to mutual funds, ETFs hold a number of securities typically related by an index or industry
  • Dividend: A payment made to shareholders of a stock-issuing company’s profits, typically annually or quarterly
  • Risk tolerance: You level of willingness to withstand the ups and downs and potential losses as the market fluctuates
  • Diversification: The combination of different types of investments that helps to reduce risk in your portfolio

Spread Your Wealth, Lower Your Risk

Depending on how much of a risk taker you are, financial freedom might look like days spent mountain climbing, reading in your favorite bookshop, or spontaneously moving to a foreign country. But no matter your IRL risk appetite, a balanced approach to investing — through diversification — is the best way to boost your returns.

Diversification of your investment portfolio is one of the most critical factors of any investment strategy. It’s achieved by ensuring you have investments across a range of asset classes (meaning types of investments, industries, and geographies), and it helps lower your risk.

When you have a diversified portfolio, it means you aren’t as dependent on any one investment. So even if one company you own stock in goes bankrupt, or a certain industry you’ve invested in isn’t doing well, you have other investments to fall back on. (Remember the proverbial saying of not putting your eggs in one basket? Yeah, that’s what we’re talking about here.)

Whether you take a more aggressive or conservative approach to investing, you can diversify your portfolio by investing in a mix of stocks and bonds. Your risk appetite will likely affect how much of your portfolio you allocate to different types of securities, as certain investments are inherently more or less risky than others. For example, bonds are known as a typically a less risky security.

Investments like ETFs can also be a great vehicle for adding diversification, since they hold hundreds of securities within one fund. When you invest with an Ally Invest Managed Portfolio, your portfolio will consist of a range of ETFs that are hand-selected to help you reach your goals.

Make your dreams your investing #inspo.

Investing gives you an opportunity to reach your financial dreams. But if you enter the market blindly without identifying what you want to achieve, finding success might be more difficult.

Whether it’s a comfortable retirement, a down payment on a home, a vacation abroad, or even something smaller (like upgrading your washing machine or landscaping your front yard), defining what you’re working toward is a must. Outline your goals (yes, you can have multiple) to help you identify your time horizon (how long you keep your money invested) and your risk tolerance — both which can then help you pick which securities to invest in.

Would you rather invest in an account you know is working toward helping you become financially independent and retire early or an account with no defined purpose? Knowing why you’re investing your money and visualizing your end goals (hang a picture on your fridge representing them to keep you motivated!) can help provide the inspiration to start and continue investing.

Believe you can and you’re halfway there.

While past performance does not guarantee future growth, historically, the stock market has trended upwards. Should the trend continue, your investments would grow over time, like a snowball increasing in size as you roll it. That means the earlier you can start, the better.

Line graph depicting the gradual increase of the S&P 500 over the last decade, from about 1,100 in 2010 to about 3,400 in 2019.

The good news is you don’t need to be a millionaire or a Wall Street guru to begin investing. A range of investment options exist for both beginners, experts, and those in between, whether you want to take a do-it-yourself approach or prefer guidance when building your portfolio.

For DIY-ers, a Self-Directed Trading account might be the best fit for your style. That’s because you’re in charge of your portfolio, selecting and managing which investments you own and when you buy and sell them. Plus, you won’t rack up any trading fees. But if you’re more interested in guided investing, an Ally Invest Managed Portfolio could be your ideal starting point — you can even start trading with as little as $100.

No matter the investment route you choose, it’s important to find a platform and strategy you’re comfortable with so you can start driving your investments toward your goals. Now with your financial future in sight, it’s time to put the investing pedal to the metal.

Ready to take control of your wealth?

Explore a Managed Portfolio with Ally Invest today.