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New Year, New Savings Plan: 5 Smart Tips for Beginning Investors

Hedge against inflation and secure your future with a solid investment plan based on expert advice.

Marcos Cabello
Marcos Cabello
Marcos Cabello
Based in Boston, Marcos Cabello has been a personal finance reporter for NextAdvisor and CNET. Marcos has covered cryptocurrency, investing, banking, and the US economy, among other personal finance subjects. If you don't find Marcos behind his computer screen, you'll probably find him behind another screen, playing the newest Nintendo Switch title, streaming the latest TV show or reading a book on his Kindle.
Marcos Cabello
7 min read
coins in a line like a graph, depicting the stock market tumbling
Sarah Tew/CNET

It's not an easy time to be an investor. While the Federal Reserve's rate hikes have helped interest on high-yield savings accounts to rise considerably, the stock market has struggled -- the S&P 500 index dropped about 20% in 2022. 

Economic uncertainty requires a cautious investment approach. For beginners, expert investing advice is an absolute must. 

CNET 12 Days of Tips logo

However, now that anyone can broadcast investment tips from a smartphone, it's harder to identify trustworthy advice: Following the wrong TikTok financial guru or Twitter crypto bro could lead to a major financial mistake.

How can beginning investors navigate today's economic landscape? Building your wealth and saving for retirement requires careful planning and a long-term strategy. To help you make smart money decisions this year, CNET spoke with investment experts who explained methods to balance tried-and-true strategies with newer opportunities to support your investment goals

Here are the best practices -- time-tested and fresh for 2023 -- to help you start investing.

First, decide what you want your money to do

Picking stocks, choosing a mutual fund or buying bitcoin may actually be the easy part. But no particular investment, strategy or philosophy is as important as knowing why you're investing in the first place. In other words, what do you want to do with your money?

James Lee, certified financial planner and president-elect of the Financial Planning Association, always begins working with his clients by going over their life goals, even before talking about investment strategies. 

"I ask them what goals they have that will require financial resources in the future," Lee said. "It's important to understand what your goals are to inform your timeline and build a portfolio that takes on the appropriate risk and return characteristics to meet those goals." 

Though every individual has their own reasons for investing, most of us have common goals: Saving up for retirement, buying a home and perhaps paying down student debt, starting a business or funding your child's college education. Your goals can also evolve, and the larger economic picture should influence your approach. For example, right now you may be concerned about fortifying your nest egg against surging inflation and rising interest rates

Though it can be challenging to articulate your life goals or envision your future, doing so is a critical first step in investing. Establishing clear objectives, and revisiting them annually, will help inform your timing, strategy and appetite for risk.

Your goals may include external and even nonfinancial considerations. Socially conscious investing has become an important touchstone for many, according to Anjali Jariwala, certified financial planner and founder of Fit Advisors. Likewise, given the significance of climate change, a growing number of investors are establishing or reconfiguring their portfolios to support companies that are more environmentally friendly

Automate investing (and always take 'free money')

For most of us, a major investment goal is building a nest egg for retirement. Having the financial independence to retire comfortably is top priority for most people, according to Farnoosh Torabi, CNET Money editor at large. But only 57% of Americans have some form of retirement savings, according to a recent survey published by Personal Capital, an online wealth management platform. 

If you work for a company that offers a 401(k) or employer-sponsored retirement account, there are two good reasons to opt in. First, a percentage of every paycheck will go into that investment, making contributions routine and automatic. Second, your employer may match a part or all of your contribution. 

For example, if you make $4,000 gross a month and your employer matches up to 4% of your salary, you would need to contribute $160 to receive the full employer match. Combining your contribution and your employer's, that would be $320 a month, or $3,840 per year. And you can always contribute more -- in 2022, individuals can put up to $20,500 into a 401(k). As a general rule of thumb, Jariwala suggests you put in at least as much as your employer matches so you don't miss out on the "free" money.

And if you have more money to invest after maxing out your 401(k), you can open an IRA, which is a special class of savings account that offers some protection from taxes. A traditional IRA lets you make pretax contributions during your working years, and your money is taxed as ordinary income when you withdraw it in retirement. 

With a Roth IRA, your money is taxed on the way into the account, paving the way for you to withdraw it 100% tax-free once you're retired. This arrangement makes it ideal for younger workers, who are earlier in their careers, or those in low tax brackets. The caveat is that "there are income limits, and so once you reach a certain income level, you can't contribute any more," Jariwala said. "When you're young, that's a really great time to get as many dollars as you can into that Roth IRA."

Develop an investment strategy focused on your goals

After decades of relative stability, the economic landscape is now shifting. Inflation has hit a 40-year high and we're seeing interest rate hikes as a result. Finding inflation-resistant investment opportunities has become increasingly important. Rising prices can erode your portfolio, since the same $100 dollars will buy less than it did the day before. But some types of assets are more impacted by inflation than others. This is a moment to explore assets that will help insulate your portfolio, including some retirement accounts, real estate and Treasury Inflation-Protected Securities, a type of government bond that counterbalances against inflation. 

Today, "investing" is often associated with actively trading stocks on Robinhood or some other brokerage. That implies frequent buying and selling, based on an analysis of the market. But making a reliable return through active investing is extremely difficult -- even for professionals -- and, for most people, it's not the most practical or effective way to manage money.

Passive modes of investing, such as using index funds and ETFs, are the better choice for most people. In contrast to active investing -- where you (or your portfolio manager or broker) regularly buy and sell individual investments -- passive investing usually means buying and holding assets for the long term. 

As markets ebb and flow, index funds are designed to deliver the average return of the market overall, tracking the performance of a set market benchmark such as the Standard & Poor's 500 or Nasdaq Composite. The rationale is that in the long run, the market usually outperforms any single investment. Research shows that index funds routinely do better than actively managed funds. Passive investing through mutual funds has been particularly productive for generations of young people, who have decades to build wealth early in their careers.

Even Warren Buffet, one of the wealthiest people in the world and chairman and CEO of Berkshire Hathaway, is a fan of index funds. Cited in The Little Book of Common Sense Investing, Buffet said in an interview: "A low-cost index fund is the most sensible equity investment for the great majority of investors. By periodically investing in an index fund, the know-nothing investor can actually outperform most investment professionals."

Better yet, index funds are less risky and typically cost less than other types of investments -- unchecked fees can erode your portfolio over time. Though it's not particularly complicated to buy into an index fund on your own, a robo-advisor can help identify which makes the most sense for you and manage your portfolio. 

Don't invest more than you can afford to lose for high-risk investments

Once you've covered the basics, such as retirement, long-term investments and an emergency fund, you might branch out into riskier ventures -- or those that are less proven. Higher risk investments often come with higher returns... if the investment pans out (and that's a big if).

Cryptocurrency is one alternative to explore. You can invest in crypto by buying tokens, such as bitcoin and ethereum, on an exchange like Coinbase or Binance. But it's important to understand that crypto remains unregulated and highly volatile. It's not right for everyone: You'll need a high risk tolerance and the financial wherewithal to withstand market dips. You'll also need to be sure you can stand to lose money and still pay your bills. 

Lee recommends investing in crypto only if you "have assets that you can afford to speculate with, meaning that the asset can go to zero, and it won't impact the ability to reach your financial goals."

Even if you do decide to dip your toes into crypto waters, it's prudent to start small. For beginners, Jariwala recommends allocating no more than 1% to 3% of your total portfolio. 

Learn the fundamentals, and keep track of the changing financial world

Of course, any single article or piece of advice can only take you so far. That's why it's important to stay proactive when it comes to your financial future. Part of that is following the news of the day -- whether it's the impact of a pandemic on the supply chain or how a war might affect gasoline prices -- and understanding how it impacts your bottom line.  

Finance books like Rich Dad, Poor Dad, The Total Money Makeover or The Little Book of Common Sense Investing can enhance your understanding of the fundamentals. (Maybe start with Blinkist, which provides in-depth summaries of more than 5,000 books.)

You can also get professional assistance, and it may not be as expensive as you think. A certified financial planner can help you craft a portfolio, manage your finances and help with your taxes. You can consult the Financial Planning Association's PlannerSearch to find someone in your area. Bear in mind that advisors usually charge a flat fee or take a percentage of your portfolio in exchange for providing their services. And make sure that your advisor is a fiduciary, meaning they're legally bound to put your financial interests first. 

There's no one-size-fits-all approach to investing. But there have never been more self-service tools and resources to help you get started. 

For more information, check out our guide on how to invest in crypto in 2022 and our list of the best robo-advisors.

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