On paper, investing money seems like a no-brainer: You put a portion of money away and let time turn that loose change into a small fortune. Why wouldn't you do it?
Unfortunately, the reality of everyday life means that the majority of women shy away from investing their hard-earned cash. A recent study found that while 92% of women want to learn more about managing their money, almost half admit they aren't comfortable chatting to a professional to get started. We become so preoccupied with our day-to-day spending that we forget about the big picture.
If this is your first-time investing, we've done the hard part for you. We asked the vice president and senior branch manager at Fidelity Investments, Amy Godwin, to explain exactly what you need to know to multiply your money with minimal risk, starting with $500, $5000, or more. Quit making excuses—Here's how to turn your savings into a small fortune, according to a money expert.
Enroll in a Retirement Fund
You don't need thousands of dollars to start investing. In fact, Godwin says $500 to $1000 is all you need to take advantage of your employer's savings account. "The money comes directly out of your paycheck automatically, so little by little, you can invest more over time, without necessarily having to think about it," she says.
"Consider increasing your 401(k) contribution," she recommends, noting that the maximum contribution is $18,000 per year. "If your employer offers a retirement savings account, make sure you're taking advantage of the opportunity to save!" She also recommends looking into a Health Savings Account, which is "basically like a savings account for your health expenses" using pre-tax dollars.
Start a 529 Plan
If you're considering starting a family or already have young children, a 529 plan should be top of mind. "Opening a 529 plan to help save for education costs—whether they're your own or a child's—is a popular way to save," says Godwin. The tax-advantaged college investment account is operated by a state or educational institution and can help you earn a higher interest rate than a standard savings account.
Consider a Roth IRA
"A Roth IRA is a very popular choice for tax-savvy investors—especially younger investors who want to benefit from their tax-free growth potential," Godwin says. The maximum annual contribution is capped at $5500, so this is the ideal way to invest a moderate amount of money.
"With a Roth IRA, you make contributions with money on which you've already paid taxes. So, your money can then potentially grow tax-free, with tax-free withdrawals in retirement," she says. "Those are a few factors that are hard to ignore, especially if you have a long time until retirement."
Give Charitably With a Donor-Advised Fund
You're not the only one who can benefit from investing. "If you're really on the ball with your savings and interested in charitable giving, consider a Donor-Advised Fund (DAF)," she says. "A DAF is an investment account for giving that can grow over time and allows you to distribute funds to any IRS-qualified public charity that you choose to support." It's one of the easiest and most tax-advantageous ways to support a cause you care about.
Open a Target-Date Fund
"When you have a larger dollar amount, investing in stocks and stock mutual funds offers the most growth potential," Godwin says. The issue? 41% of millennials said that they are not investing. "It's important to recognize that investing in stocks and stock mutual funds is important when saving for far-off goals and retirement."
Feeling stock-shy? If you don't know where to start, she recommends a target-date fund. It's designed to be a simple investment solution, "which takes the guesswork out of investing by building and maintaining a diversified portfolio that changes over time based on your anticipated retirement date."
Now that you're on a roll, use this budget guide to take full control of your financial future.
Money Fit Women Study: Executive Summary. Fidelity Investments. 2015.
Half of Millennials Who Aren't Investing Are Waiting Until They Earn More Money, And They Could Be Making a Big Mistake. Business Insider. September 4, 2020.