I’m a Financial Planning Expert: Why You Should Start With These 4 Investments

Starting to invest might be an intimidating, confusing and even scary prospect for many beginners, especially against the current economic backdrop. Inflation, soaring rates and an uncertain landscape make for difficult financial times for many Americans. In turn, being cautious as to where to start investing is even more crucial.

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Several experts talked to us to clear the way and offer their expertise on which investments make sense for beginners in 2023.

A Solid Foundation: Emergency Fund

As SaveBetter president Ben McLaughlin explained, there’s no use putting money into stocks if you are one paycheck away from personal financial catastrophe.

“Making sure you have at least six months’ worth of expenses saved up in case of an emergency will give you peace of mind and a solid place to start investing from,” he said, adding that people often overlook their emergency fund as an avenue to invest.

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“If you’re keeping your nest egg under your mattress or in a checking account, you are probably losing money to inflation,” he said, noting that there’s a powerful opportunity to begin investing while building financial stability by parking your cash in a high-yield savings account.

“That way,” he said, “you have access to your money if you really need it, your money is protected by FDIC insurance — as long as you follow federal guidelines — and you’re earning interest on top of it all.”

Exchange-Traded Funds

ETFs can be attractive options for retail investors, particularly those who are new to investing. They are traded on exchanges like stocks, making them easily accessible for investors around the world, explained Pedro Palandrani, director of research at Global X.

In addition, ETFs can provide diversification benefits, low-cost solutions, generally high liquidity and transparency for investors to access sectors and themes. They also can be used to complement — or replace — traditional mutual funds or individual stocks, added Palandrani.

“Thematic ETFs, in particular, can offer investors exposure to a particular theme or specific trends that create permanent structural change to society, are high growth and long term for at least three years, and drive impact across several sectors,” he said, adding that these themes may not be readily accessible through conventional investment vehicles but can help diversify an investment portfolio.

What’s more, investors also can align their portfolios with areas of personal interest, capturing themes like robotics and artificial intelligence (AI), cloud computing or clean energy, to name a few.

Certificates of Deposit

Certificates of Deposit are another great vehicle for beginning investors to take advantage of, as they’re a good fit for people prioritizing safe and stable earnings, SaveBetter’s McLaughlin said.

While the gains may be smaller than the long-term potential of investing in stocks, you won’t have to worry about losing your life savings. As long as you are banking with a federally insured institution and follow the guidelines, your money is safe and your accrued interest is guaranteed, he added.

“CDs are a safe and stable part of a savings portfolio,” he said. “The younger someone is and the more anticipated years they have remaining in the workforce, they can be a little more daring with their investments. The closer savers are to retirement, investments with guaranteed returns should make up a larger portion of their portfolio.”

McLaughlin warned, however, that beginning investors always should read the fine print on any banking product and pay careful attention to how long the fixed terms are; they should understand how long their money will be tied up with the product they choose and what the rate of return will be.

“They should also decide whether a fixed-term CD with slightly higher interest or a no-penalty CD with slightly lower rates fits their needs,” he added. “If liquidity is more important, a no-penalty CD where savers can withdraw their money before the end date might be a better fit.”

McLoughlin added that shopping around is the best favor beginning investors can do for themselves.

“The institution you normally bank with might not have the best possible rates,” he said. “Twenty minutes of due diligence now can mean thousands of dollars more interest a few years down the road.”

Real Estate Investment Trusts

While inflation is starting to cool down, it might be sticky for a bit longer. In that context of an entrenched inflation, it can be valuable to purchase assets that help hedge against rising prices, said Travis Forman, portfolio manager at Harbourfront Wealth Management.

“One of the assets that fit this criterion is real estate ranging from direct ownership, publicly traded products such as real estate investment trusts (REITs) and/or private real estate,” he said.

Michael Collins, CFA, adjunct professor at Endicott College and founder of WinCap, agreed, saying that REITs allow for easy access to a diverse portfolio of real estate investments, with an attractive yield and tax advantages.

He added, “They also typically require less capital to invest in than individual properties.”

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This article originally appeared on GOBankingRates.com: I’m a Financial Planning Expert: Why You Should Start With These 4 Investments

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