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Wondering How to Save and Invest Money? 5 Money Goals for the New Year

How to Save and Invest Money
The New Year has begun, and during this season of resolutions and planning for the year ahead, we want to give you practical tips for how to save and invest money.

The ball has dropped, and the health kick is on. If you’re talking crypto, alternative investments, and retirement planning with your new gym buddy, this blog is for you. 

Investing for retirement can be daunting. If you’re wondering how to save and invest money for the long term, here are five New Year money goals you should consider.

1. Picture Your Future Self

No, seriously. Close your eyes and picture yourself in 20 years. 45 years. It’s hard to fathom, right? 

Researchers say there’s a lot of power in “seeing one’s future self” when it comes to investing for the future. In one experiment, subjects who interacted with digitally altered images that made them look older were likely to save more for retirement than those who did not see the age-progressed renderings. 

Remember the FaceApp craze of 2019? Many social media users, including celebrities, joined the bandwagon and downloaded the popular app to see what they might look like when they’re older. Why was everyone so enamored with these images? Perhaps because it feels so distant. People view their future selves as strangers, and it’s much easier to spend money today than invest it for a “stranger” tomorrow. 

When your New Year’s resolution to set aside money for your future has dwindled, and you’re fighting the urge to spend money you know you should be investing for later, close your eyes and think of your future, older self. But maybe don’t download FaceApp again. (We’ve learned a lot about digital privacy since then, haven’t we?)  

2. Write Down Your New Year Investment Goals 

Now that you’ve pictured your future self, what’s the next step? Pretty simple. Priority #1 is to make a plan and WRITE IT DOWN. Putting your goals in writing is easier than ever with tons of handy budgeting apps—but if you’re old school, there’s always the good old pen and paper method. Creating a budget can uncover your spending habits, including where you’re spending too much, so you can better prioritize your finances.

Tracking your income, purchases, bills, and credit card usage gives you a more holistic picture of your financial health. One study demonstrated that those who wrote down their goals were 50 percent more likely to achieve them than those who solely thought about their plans. 

While you’re putting together your budget, allocate the most you can afford to invest for retirement by contributing to an employer 401(k) or using an individual retirement account (IRA). Now, you can even invest a portion of your IRA in the things you’re interested in—like crypto, wine, fine art, private equity, and real estate. Did we mention crypto? (More on this later.) Whatever you choose to invest in, the most important thing (aside from diversifying – see below) is to start early, pay your future self first, and stick with it.

Once you have your goals solidified, it’ll be easier to say no to that twelfth DoorDash order this week. Plus, isn’t learning to cook on your New Year’s resolution list? If it isn’t, it should be.

3. Take Advantage of Tax Advantages

In the 1970s, as fewer and fewer employers offered pensions to their employees, Congress created IRAs to incentivize investing for retirement through tax-deferred contributions. 

Both traditional and Roth IRAs have significant tax advantages as long as you wait to withdraw until six months after your 59th birthday. (Note that in the case of a Roth IRA, you also need to have had your account open for at least five years, too.)

The benefit of a traditional IRA is that for most people, contributions are tax-deductible, often meaning investors can invest more upfront, and all taxes on gains are deferred until withdrawal. A traditional IRA is an excellent option for those who anticipate being in a lower tax bracket when distributions are taken—or who have limited funds and want to invest as much as they can. 

A Roth IRA offers tax-free gains with after-tax investments, which can be an incredible option for those who anticipate being in a higher tax bracket when they withdraw or those who never want to pay taxes on their investments. 

Unfortunately, over half of those with retirement accounts say they have taken an early withdrawal, which is subject to significant tax penalties that can cost 20 to nearly 50 percent of the withdrawal, depending on the individual’s tax bracket, plus a 10 percent penalty in most cases. When you combine early withdrawals with uncertainty around the future of Social Security, public debate regarding the future of retirement outcomes in the U.S. today intensifies. That’s why taking control of your financial future by budgeting, maximizing your long-term investments, and leaving them to grow are all critical to successful retirement. As always, doing your own research while seeking sound personal advice is also important.

Investing in an Alto IRA or a CryptoIRA is one great way to take advantage of tax advantages while building a diversified portfolio of assets you want to invest in. 

4. Start Small, Start Now

Ever heard of compound interest? Compound interest allows your wealth to grow quicker than simple interest because you earn returns on returns at the end of each compounding period, ultimately meaning you don’t have to put away as much to hit your goals (if you start early enough). Reinvesting investment returns over a long period can have the same effect as compounding interest.  

This chart demonstrates the importance of investing early and how, depending on how old you are when you start, you can end up with vastly different amounts when you retire. *Assumption: Investment of $250/month with an eight percent annual return, compounding annually.

  • Start saving at 25: You’ll accumulate $878,570 by age 65
  • Start saving at 35: You’ll accumulate $375,073 by age 65
  • Start saving at 45: You’ll accumulate $148,236 by age 65

Even putting off saving for 10 years will cause you to miss out on valuable compounding that could significantly reduce your retirement outcome. The benefits of investing as early as possible are undeniable. Even if you can’t max out your IRA and 401(k) contributions, investing what you can as early as you can is the best way to set yourself up for the future you want.

5. Diversify Your Investments

While not necessarily a tip for how to get more money to invest, portfolio diversification should be a consideration in how you invest. Since peaking at 7,322 in 1996, the number of publicly traded companies in the U.S. has steadily declined. Of those publicly traded companies, virtually all of the profits can be attributed to fewer than four percent of all stocks. When you add that our lifespans are significantly longer post-retirement than they used to be, doing your research before making significant investments is crucial.

Benefits of Investing in Alternatives in the New Year

Alternative investments are a great way to diversify your portfolio, and they’re quickly gaining popularity due to their potential for high returns and low correlations with public markets, allowing investors to hedge against market volatility. 

So, what are they? Alternative investments are unconventional financial assets that do not conform to traditional investment categories of stocks, bonds, or ETFs. Alternative assets include startups, venture capital, pre-IPO companies, real estate, farmland, music royalties, cannabis, securitized art, shares of fine wines, crypto, and more. 

Ultra-wealthy investors’ portfolios have long included a mix of anywhere from 10 to 50 percent alternatives. Take, for example, the Yale University endowment, which saw a 40.2 percent investment return in FY 2021 thanks in part to its alternative investment allocation. 

Until recently, these opportunities were only available to ultra-wealthy investors, but a self-directed IRA with Alto allows individual investors to make similar investments—often on a much smaller scale and with all the tax advantages traditionally associated with retirement accounts.

Make 2022 the Year You Get Serious About Your Investing Goals

Whether you’re a seasoned investor or new to the scene, investing with Alto is easier than ever, allowing you to select the investments you want while maintaining the tax advantages of your IRA. Alto’s Client Experience team is here to walk you through opening an Alto IRA or CryptoIRA account. 

While we’re not financial advisors, we do know the rules about investing with an IRA inside and out and can work with you as you get started on your New Year’s investment goals. If you have any questions, contact us here.

Cheers to learning how to save and invest money in 2022!