KEY POINTS:
- Many people are able to accomplish their most important goals through investing in the market.
- Your choice of asset allocation will be greatly influenced by your time horizon for investing.
- According to research, investors that continuously invest and save their money are the ones who benefit the most.
Many people are able to reach their most important objectives through market investment, including buying a home, funding a child's education, and retiring comfortably.
Douglas Boneparth, a licensed financial planner, cautions that some people invest in stocks before they are ready.
According to Boneparth, you must first complete these three steps in order to reap the rewards of long-term investing.
In order to invest your money and take on risk, you need to be able to perform all of the things listed above, according to Boneparth, president of Bone Fide Wealth in New York and a member of CNBC's Advisor Council.
1. Establish goals
According to Boneparth, it's critical to describe your goals before investing any money in the market.
The fundamental reason for this is that various objectives have various time horizons. For instance, you might wish to purchase a home long before you want to retire.
Your choice of asset allocation will be greatly influenced by your time horizon for investing.
"You can take more risk when time is on your side," Boneparth added.
For instance, although some people may want to divide their savings equally between stocks and bonds in order to buy a home in seven years, others may feel comfortable investing 80% or more of their money in equities for retirement.
"Cash is going to be what I'm looking at there," Boneparth remarked in reference to whatever objectives you intend to accomplish in less than four years. Money should not be in the market for short-term objectives.
He said: "Usually, it's not worth the chance of losing that money you're going to need in a hurry.
Naturally, knowing why you are investing can also help you determine how much money you need to save. For instance, going back to school will probably cost less than retiring.
2. Understand your budget and behavior
According to research, investors who continuously invest and save their money are the ones who benefit the most.
You'll need to have a firm grasp on your earnings, outgoing costs, and spending, according to Boneparth, in order to be able to accomplish this.
You'll be able to determine how much you can actually afford to invest regularly that way, he advised.
Even if you want to be able to contribute for a long time, Boneparth said it's only normal if you make mistakes along the way and need to temporarily suspend or reduce donations.
He said, "Life is fickle; things change all the time. "Be kind to yourself."
"Work on these things for a year."
3. Build an emergency fund
If you invest before you have a sizeable emergency fund, you run the danger of having your investments disrupted if you have a job loss or other unforeseen expense, according to Boneparth.
The majority of experts concur that you should save up to three to six months' worth of spending, while Boneparth prefers to have a larger buffer.
"I'm a traumatized, geriatric millennial," he declared. I prefer between six and nine months.
