More than half of U.S. working adults say they’re behind in retirement savings — including 37 percent who feel “significantly behind,” according to a recent Bankrate survey.
I’m a debt-free millionaire, and soon-to-be retiree who teaches financial freedom habits to those who feel behind in their money goals. Unfortunately, I learned that many people try to catch up in their retirement savings by investing into the stock market before they can really afford to.
While the stock market can be a powerful way to build wealth, it’s not guaranteed you will make money, especially if you are not able to invest long term because your foundational finances are not solid.
Here are five essential steps you should take before making your next investment into the stock market. These habits helped me to save and invest more than $1.7 million before age 40, as a first-generation, Filipino-American woman and self-taught money nerd.
Keep One Month’s Worth of Expenses In Your Regular Checking Account
Referred to as your cash flow cushion, I recommend you keep one month’s worth of living expenses in your regular checking account where you typically pay your bills. This guarantees easy access to cash for everyday expenses without needing to dip into your savings or investments, and allows your bills to run automatically.
Not only does this make it easier to focus on learning the new skills required to be a great investor. It allows you to move away from living paycheck to paycheck by always being ahead of your monthly bills.
Build a ‘Stuff Happens’ Fund In A High-Yield Savings Account
In addition to your cash flow cushion, I recommend stashing one more month worth of expenses in a high-yield savings account. Rather than referring to this as an emergency fund, I refer to it as my “stuff happens” fund because accessing this financial safety net doesn’t have to be a life-or-death event.
It’s safe to assume that unexpected things will happen regularly, even if they’re not serious in nature. Ensuring you have a buffer for unexpected expenses not only provides peace of mind. It ensures you can afford to lose money in your investments without jeopardizing your daily necessities.
I specifically recommend a high-yield savings account because many of them are offering around 5% in interest. This is a way to grow your cash without much risk, as long as the bank is FDIC-insured.
Maintain A Monthly Budgeting Routine For At Least 6 Months
If you are not willing to commit to a monthly budgeting routine for at least six months, it’s unlikely you will have the patience or discipline to become a strategic investor. Understanding your spending habits and controlling your finances are essential in identifying areas where you can afford more investing in the future.
I’ve budgeted consistently every month since 2016 using three basic categories. Because of this consistent habit, I was able to identify extra funds that I could risk in the stock market without worrying about whether or not my bills would get paid. Consistent budgeting is the cornerstone of building a strong financial foundation before you can seriously invest in the stock market.
Eliminate All Credit Card Debt
I often get asked the same question: Do I pay off debt or do I invest? If the type of debt is credit cards, focus on paying off all of it before you invest any more into the stock market.
Credit card debt often comes with high-interest rates, ranging from 15% to 25% or more. Even a well-performing stock portfolio might net only an average annual return of around 7% to 10% — and that’s if you know what you’re doing.
This is a matter of simple math: The interest you’re paying on your credit card debt is likely far outpacing the returns you’d earn from your investments, leading to a net loss in your overall financial situation. Especially as a casual investor, it is unlikely you will earn any returns in the 15% to 25% range in the short term. Once the credit card debt is eliminated, you’ll have even more cash flow to put toward future investments.
Open An Individual Retirement Account
Consider opening an Individual Retirement Account to take advantage of the tax benefits that can help your retirement savings grow more efficiently. Investing in an IRA allows your stock market investments to save hefty taxes and the penalties from withdrawing early. This will encourage you to keep those dollars invested for the decades required to make any meaningful returns.
Investing in the stock market is a risk. It’s even riskier if you don’t have a solid financial foundation. By following these five steps, you can invest in the stock market with the confidence you need to make it a long-term habit, instead of a short-term fix.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
