What percentage of your income should you devote to investing each month? If you start investing today, when can you retire? How much of your portfolio should be allocated to stocks?
When saving for retirement and other financial goals, such as buying a home, it can feel like the list of questions is never-ending. But you don't have to come up with the answers on your own. Keep reading to learn how MarketBeat’s calculators can help you create a personalized investing plan with your unique goals.
Assess Your Current Finances
Before you determine how much you need to invest to achieve your financial goals, it's important to determine how much you can afford to invest. Crafting a realistic investing plan improves the likelihood of sticking to it, ensuring the growth of your emergency and retirement funds over time. By evaluating your current finances, you can create a sustainable strategy that aligns with your income, debts, and savings, setting a solid foundation for your financial future.
What Is Your Income?
Your current income is the most important factor in dictating what you should invest each month.Everyday living expenses like rent, health insurance premiums, and debt repayments make up a large percentage of most Americans’ monthly take-home pay. After meeting these expenses, you will have a better idea of what amount is left to invest.
MarketBeat's Annual Income Calculator can help you figure out your income by determining your net annual income based on your hourly rate, how many hours you work, and your tax rate. Make sure to include any overtime hours worked. Not sure of your tax rate? Use our Federal Income Tax Calculator. You can even determine how a future pay raise would affect your annual income.
Having consistent, reliable income doesn’t only increase the dollar amount that you’re able to invest in stocks each month — it also plays a major role in your risk tolerance. If you have more disposable income, you can afford to take more ongoing risks with your investments without incurring excessive losses. If you’re well-established in your career and have an employer-matched 401(k) account, you may also be able to take on additional risk without jeopardizing major goals like retirement.
How Much Debt Do You Have?
Existing debts will also majorly impact your ability to invest each month. Generally, it’s a good idea to pay off high-interest debts like credit cards and car loans before devoting excess income to investments. This is because the interest that accrues on these debts usually outweighs the potential benefits you could see from investing.
For example, the average interest rate on a credit card in the United States is 27.7%, meaning that interest accumulates at a rate of 27.7% of your outstanding balance per year. When compared to the 10.5% annual average return of the S&P 500, it’s easy to see how investing before repaying debt can result in a net loss.
Do You Have Emergency Savings?
Whether or not you have household emergency savings also factors into your investing capabilities. If you don’t have an emergency fund of at least $1,000, prioritize saving up for this goal in a liquid cash account — this will help you avoid taking on expensive debt in the event of a sudden, unexpected expense. After reaching $1,000 in savings, you’ll want to continue saving until you have three to six months’ worth of living expenses in cash. Leaving yourself with a cash safety cushion helps you take more responsible risks when investing in individual stocks.
Decide on Your Investing Goals
After determining how much you can invest per month based on your income and immediate debt needs, you can begin setting both short-term and long-term financial goals. Your savings goal and timeline will affect the best assets to invest in.
Create Short-Term Goals
Short-term goals (like buying a car or saving up for a down payment) usually have a time frame of up to five years. For these goals, it's important to prioritize capital preservation over high returns. Therefore, the amount you invest should be conservative, focusing on low-risk, highly liquid assets.
For example, if you’re saving for a car, you may want to hold funds in a high-yield savings account rather than shares of stock. MarketBeat's APY Calculator can help provide clarity on your potential investment returns. The primary goal of short-term investing is to ensure that the money is available when needed and not subject to significant value fluctuations.
Determine Long-Term Goals
Long-term goals (like saving for retirement or a child’s college education) usually have savings plans of at least five years. This longer timeline allows you to take advantage of compound interest and dividends, which helps your initial investment grow over time. For these investments, growth-oriented stocks and exchange-traded funds (ETFs) are often recommended.
The ideal investment allocation for your financial portfolio will also vary depending on the number of years that you have left until retirement. Investing early and often gives you the opportunity to see higher overall long-term returns.Use our Retirement Calculator to help you see where you are in relation to your goal and what adjustments you may need to make.
Beginner Tips for Investing
Knowledge is power, especially when it comes to investing. Use these basic tips to start investing.
- Set Clear Goals: Creating a plan before you begin investing sets you on a reliable path to accomplish all of your goals. If you don’t already have a household budget, sit down with your finances to determine how much discretionary income you have at the end of each month. If you aren’t sure exactly how much money you earn per year, use Markebeat’s income calculator to do the math. Even if it’s just $5 per month, you could see significant returns with the power of compound interest.
- Start with Market Leaders: As you learn about investing, it’s better to start with major companies that feature market dominance and high market capitalizations if you decide to buy individual shares. Blue-chip companies are leaders in their respective industries and are usually better investment choices for beginners thanks to their comparatively lower volatility.
- Consider an ETF: Another popular investment option for beginners, ETFs allow you to gain a position in multiple companies at once. These investments feature a “basket” of stock investments rather than shares of a single company, spreading your risk between multiple leaders within a stock sector.
- Invest regularly: After you’ve chosen assets to add to your portfolio, invest consistently over time. Choose a set amount of money you can afford to invest each period and stick to your goal. This strategy allows you to take advantage of dollar cost averaging, which produces statistically better returns over time when compared to trying to time the market.
The MarketBeat Investment Calculator
If you’re like most Americans, you have multiple financial goals for the future. Whether you’re beginning to save for retirement or determining how much you’ll have to spend each month in your golden years, the MarketBeat investment calculator is a great place to begin.
The MarketBeat investment calculator shows you the projected growth of an investment that you make today based on a set annual interest rate. By accounting for annual contributions and the power of compound interest, our investment calculator helps you visualize a path toward financial success. Use the investment calculator to determine:
- How much an initial investment will grow over time
- How much you’ll need to invest now to retire
- The amount you should contribute to retirement each year, even if you’re starting to invest later in life
- How much to invest per month to reach a future financial goal
Simply enter your information, like the number of years you’ll be in the market, your initial investment amount and how much you plan to invest each month or year. You’ll then learn how much a current investment will be worth years from now, how much to invest by age range depending on your goal, or when you’re set to reach your next financial milestone.
Assisted Investing for Beginners
There is no set amount of money that you “should” invest each month or year — the ideal percentage of your income to allocate to investments will vary depending on your own financial situation. If you have high-interest debt, focus on using any discretionary income available to pay it down before focusing on investing. You’ll also want to save an emergency fund sufficient to cover household expenses for at least three months.
After meeting these basic goals, you can confidently devote a larger percentage of your disposable income to investing for the future. If you aren’t sure where to begin when setting goals, use Marketbeat’s investing calculator to get started. See how much an investment will grow over time — or the reverse, how much you’ll have to invest now to retire on schedule.
Use MarketBeat for Informed Investing
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