Investing is regularly touted as one of the most reliable ways to grow your wealth, prepare for the future and reach the $1 million retirement savings goal recommended by experts.
Although picking stocks can be risky, there are plenty of low-risk ways to get into the market, including funding a 401(k), Roth IRA or other retirement account, or investing in index funds, which Warren Buffett recommends.
But many people overlook a critical component of investing, says Nick Holeman, a certified financial planner at Betterment. He says that it’s important to keep in mind that no matter how well you plan your investments, they can’t do everything for you.
“Investing in the stock market, historically, has been the best way to build wealth for every investor out there,” he tells CNBC Make It. “But the thing that people don’t remember all the time is that just because you pick the right investments, if you don’t save enough into those investments, it’s not going to matter.”
If you want to make your money work for you, you need to focus on actually funding those accounts. That means starting as early as you can and making regular contributions. “It’s up to you to find good investments,” Holeman says, “but also to save as much as you can for as long as you can.”
After all, investments can only garner returns if there’s money in them to begin with.
“The investments themselves might be amazing, but you still have to do the work and save,” Holeman says. “A 10 percent return on a dollar is still only 10 cents.”
“YOU COULD HAVE WARREN BUFFETT MANAGING YOUR PORTFOLIO FOR YOU, BUT IF YOU ONLY SAVE $10 A YEAR, YOU’RE NOT GOING TO RETIRE A MILLIONAIRE.”
Make things easy for yourself by automating your investments and having a certain amount of money transferred over each month. If you never see the money, you won’t be tempted to spend it instead.
Before investing, it’s always smart to make sure that you’re doing your homework. Read up on diversification and how to choose the right account for you and your lifestyle. You can also consider working with a financial professional (as long as they’re a fiduciary) to craft an investment plan that makes the most sense for you.
Take it from Holeman: “You could have Warren Buffett managing your portfolio for you, but if you only save $10 a year, you’re not going to retire a millionaire.”