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Investing is a lot like learning to drive a car. You can't know what it's like until you do it.
Of course, that doesn’t mean you can’t prepare for it. Just like you didn't get behind the wheel without driving lessons, you shouldn't invest your money without knowing some basics first.
Here are a few things you can expect when you start investing.
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From Uncle Sam:
Traditional IRAs and employer-sponsored plans like 401(k)s reduce your taxable income in different ways. Your 401(k) is funded with pre-tax money, which means if you gross $1,000 a week and contribute $100 to your 401(k), you'll only be taxed on $900.
Contributions to a traditional IRA are tax-deductible. Ask your tax advisor if you're eligible.
Investing is full of emotional highs and lows. But you can't let those emotions drive your investing decisions.
Take the Great Recession, for example. Fear ruled investors as they pulled their money out of the stock market when it slid in 2008 and then were too cautious to invest again as the market recovered. On the other hand, in the boom markets of the 1990s, some investors were so enthusiastic they mortgaged their homes to have more cash to invest.
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To build wealth through investing, you must commit to investing consistently during the booms and the busts. And, if you invest the way Dave recommends—by being debt-free with an emergency fund—you won't be as tempted to jump off the investment roller coaster when the market plunges, and you'll really enjoy the ride when it goes up!
From Your Investing Professional:
A good investing professional will take time to explain your investment options and answer all your questions so you can make your own investing decisions. It is not your pro’s job to make your decisions for you.
But, that doesn't mean your investing professional will always agree with you. A recent DALBAR study shows the average investor who bought and sold their mutual funds at the wrong times trailed the S&P 500 by nearly 7% over the last 30 years. That’s the difference between a $1 million nest egg and a $300,000 nest egg in retirement after investing for 30 years! Your investing pro will help you avoid that mistake by reminding you to hold your investments long term.
Ready to invest in your future but don’t know where to start? Try SmartVestor! It’s a free and easy way to find investing pros in your area.