Investing in the New Year: How to Build Your Portfolio

Here’s how you can get your money in shipshape for 2021.

Jan. 4, 2021

This article was written by the Money editor at Benzinga. Benzinga is a content ecosystem that makes information easier to consume.

Well, this year was a doozy, to put it mildly. 

Whether you experienced job loss, needed to fold up your business because the income wasn’t there, or just plain spent your time worrying, you may have experienced clarity in one area: You need to get your financial house in order.

Here’s how you can get your money in shipshape for 2021.

Why Invest in the New Year? 

Well, why not invest in the new year? Even if you’re 56 years old, haven’t saved a single penny since you started your first job in 1983, and aren’t sure how to even get started, now’s the time. 

After the horrendous year that 2020 was, it probably shed some light on a few things:

  1. Anything can happen. 
  2. You need some emergency savings to fall back on. 
  3. You must be forward thinking, including updating your beneficiaries, thinking about retirement and organizing your future. 

Ask yourself if you’re doing everything you can to set yourself up for financial freedom later in life. And know that it’s never too late to get started.

What 2020 Taught Us 

What did we learn from last year? A few things: 

  1. How to carefully conserve every last toilet paper square in the house.
  2. That whole economies can become undone by a virus (albeit, a particularly nasty one).
  3. That you need to invest, because the future is unpredictable and uncertain.

Are you ready to invest in the new year?

Lesson 1: You need to save and invest.

There’s a difference between saving and investing — though they’re often both used interchangeably. Saving money typically means it’s available when you need it and you sometimes give it a timeline. For example, maybe you’re saving for a new boat. Let’s say you want to target $6,000 to save by the end of the year. You can organize your money in increments of saving each month so you save that $6,000 by the end of the year. 

On the other hand, investing involves putting money away with a growth mindset. There are plenty of ways to invest — in stocks, bonds, mutual funds, ETFs, bitcoin and more.

It’s great to do both — so you have emergency savings built up if the unthinkable occurs (job loss, car accident and more). Getting prepared for those rainy days is so important.

Lesson 2: You may need to track your spending. 

Do you know where your money goes each month? Once you know how you spend, you can create a budget that includes your fixed expenses: 

  • Rent or mortgage
  • Cell phone
  • Groceries 
  • Savings
  • Car payments
  • Insurance payments
  • Cable bill
  • Other expenses you can think of

Next, you can see how much money you have left over for flexible expenses like restaurants, entertainment and other non-necessary items.

When you craft your budget, you want to take a look at how much money you can afford to spend each month so you’re not constantly overspending. 

Let’s say you figure out that you have $400 left at the end of the month. You may want to use that money to invest. Or you may need to divvy it up further, for entertainment and random purchases. Regardless of how you decide to divide the money, budgeting helps give you specific parameters for how you spend your money. 

Lesson 3: You may need to check your debt levels.

How much credit card debt or other debt do you currently have and what’s the best way to pay off debt during a pandemic? It’s a really good idea to start with your credit card accounts when you’re ready to begin paying down your debt. This debt is likely the most expensive due to its stratospheric interest rates. Carrying large balances on your cards also wreaks devastation on your credit scores.

What debt has the highest interest rate? A lagging personal loan? A HELOC? Whatever that debt is, tackle it first, because you’ll pay more in interest over the long run if you have a higher interest rate on a particular debt. 

Finally, credit counseling organizations can help you manage your debts, encourage you to develop a budget and provide educational workshops. Certified counselors discuss your entire financial situation with you. Make sure you work with a reputable credit counseling agency. If a firm doesn’t send you free information and wants you to pay up front for services, it’s probably a scam.

How to Invest in the New Year 

Here’s how to start investing in the new year.  

Step 1: Don’t beat yourself up over your slip-ups or mistakes.

Was Doordash your best friend as you spent your time insulated in your home this spring, summer, uh… fall… and… ah… Don’t beat yourself up. Just move on. 

And don’t worry if you should have started investing 10, 15 or 20 years ago, either. Just start today. Brighter tomorrows are ahead.

Step 2: Choose your investing style. 

Whether you want to get your feet wet by passively investing in index funds through a robo advisor or go whole hog and get started on forex investing, there are generally three types of investing styles.

  • DIY investing means you do it yourself. You keep track of your investments, which can be time-consuming but you have total control over your portfolio. Open a brokerage account that offers low fees and excellent service. Once you have an account open, you can begin buying and selling individual stocks on your own or invest in an index fund, which tracks a stock index like the S&P 500.
  • Passive investing is a set-it-and-forget it strategy. It’s a great option if you don’t have the time or interest to invest on your own. You can invest in mutual funds or exchange-traded funds (ETFs) through a robo advisor and keep your funds there. If you want to invest in, say, a SPY ETF and keep it there for the long haul, that’s a good strategy.
  • Get a stock advisor. A stock advisor or stock-picking service is a good way to invest with someone at your side. Never far from an expert, you leave all the research to other people and let them help you. However, you’ll pay more for someone to help you because they’re an intermediary between you and your investments.

Step 3: Understand your risk tolerance.

Once you have an account set up, either with a brokerage or a robo advisor, you can start investing! Choose the right investing options for you that also depend on your risk tolerance — how willing you are to lose your money in exchange for a higher return. The more risky an investment, the higher the return. 

If you’re more risk averse, you may want to stay away from riskier individual stocks (like stocks for five dollars) and invest in a variety of different asset classes.  

By the way, an “asset class” is a group of similar kinds of investments. Here are a few quick facts about asset classes: 

  • You can invest in one asset class or many. 
  • A mix of asset classes automatically gives you access to a portfolio that can weather the variations in the stock market. (Like this year!)
  • Owning individual stocks across a number of sectors like technology, health care and real estate gives you access to a diversified portfolio.

Look Beyond 2021 

It’s really important to look forward to the future — way into the future. It’s easy to look at what’s right in front of you and say, “Ah, retirement’s 20 years away.” 

Step 1: First, daydream a little about your future.

What do you want your retirement to look like? The more you can clearly articulate what you want to see when you retire, the better off you’ll be financially, because your financial goals will more closely align with what you’re planning to achieve.

Sit around and daydream for a half an hour or more and write down absolutely everything that comes to your mind. What do you want your money to do for you? Do you want to make it an absolute goal to never overdraw your checking account? Go to Florida for the whole winter (now that everyone works remotely, what’s stopping you)? 

At the very least, write down the biggest, baddest financial goals you’ve ever had. Make it a show-stopping bucket list!

Step 2: Use a calculator (or financial advisor) to determine where you are and how much further you have to go.

Don’t see this as a negative, though it’s normal to get nervous when you don’t have a whole lot of money set aside for retirement. This is great news no matter what you learn because you can really take action. Whether you really need to boost your cash in your account or find out you’ll hit your targets, learning more about where you stand can help you get to your goals.

Step 3: Take action.

Skip the inaction, folks. Take 100% action toward your goals. And make sure they make sense!

Understanding different investment vehicles, what they are for, how to use them, then implementing that strategy is a really good success plan. Use specific vehicles that allow for specific growth in your investments. For example, if your kids have more than 15 years before they go to college (and before you have to come up with ways to get college paid for), you can invest for that specifically using an education savings account (ESA) or a 529 plan. 

Start 2021 Off Right

This is your year to shine. No more looking backward — any good advisor will tell you to look forward. Don’t beat yourself about what you should’ve been doing 20 years ago. 

Take a look at your goals, move forward on them and take the next step, whatever it may be. 
Finally, have fun doing it. There’s literally nothing more exciting than realizing you’ll be able to sail off into the sunset, lounge by a pool or work in your garden — whatever you want to do! — because you’ve started making your money work for you.

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