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I help lead one of the largest robo-advisers, and these are my 3 best tips for smart investing

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Always make a plan before you start (author is not pictured).

It may feel intimidating to invest during a pandemic, but there’s no bad time to start if you’re doing it right.Make sure to establish your goals first — know what you’re investing for and understand your risk tolerance.If choosing investments or rebalancing your portfolio sounds overwhelming, consider using a robo-adviser or professional adviser for guidance.This article is a contributed piece as part of a series focused on millennial financial empowerment called Master your Money.

An interesting silver lining to the pandemic is that many people have been motivated by this time of uncertainty to lay the groundwork for a more secure financial future. 

I’ve seen it firsthand — the first quarter of 2020 set an all-time record for new brokerage accounts at Schwab. It might feel like an intimidating time to start investing, but the truth is there’s never a bad time to begin, and guidance is more accessible than ever.

Getting invested early can have a big impact on your returns down the line. As we like to say at Schwab, “Time in the market beats timing the market.”

If you’re ready to start investing, here are a few key principles to keep in mind. 

1. Invest with a plan  

Before jumping in, establish your goals — a vacation, home down payment, or retirement, for example — and sketch out the associated time horizons and savings targets.

Knowing what you’re investing toward enables you to figure out the “how” and gives you the motivation to see your plan through. Creating a plan can be a DIY project, or you can tap a professional adviser or a digital advice offering to do the heavy lifting for you.

2. Diversify your portfolio  

A diversified portfolio is made up of a blend of investments across asset classes — stocks, bonds, cash investments, etc. Each asset class plays a role in your portfolio, like offering the potential for growth, income, or downside protection. How much of your portfolio is devoted to each asset class will depend on your goals and tolerance for potential losses (more on that later). 

To maintain a diversified portfolio, remember to rebalance. As markets rise and fall, target allocations within a portfolio can shift off course. Rebalancing is crucial to ensure you remain diversified and don’t end up taking on more risk than you’re comfortable with during periods of volatility. 

If this sounds overwhelming, there are tools that can help. Robo-advisers are one low-cost option for building a diversified portfolio that automates the rebalancing, aiming to keep you on course in any market environment. 

3. Consider your risk tolerance

Finally, it is important to know your risk tolerance. How much uncertainty can you stomach? In theory, younger investors can wait out market fluctuations, so they have the option of being more aggressive. But if volatility will make you run for the hills, you may need to take a more conservative approach in the interest of staying invested. 

Whether your tolerance for risk is high or low, try not to obsess over daily market moves. Consider automating your investing activity to help you stay focused on the big picture.

In many ways there has never been a better time to start investing — numerous high-quality, low-cost brokerage and digital advice offerings are on the market, financial advice is more accessible than ever, and educational resources and digital tools are readily available to help investors make informed decisions.

And remember – tried and true investing principles like planning, saving, and diversifying your portfolio are a great place for investors at any level to get started.

Cynthia Loh is vice president of Digital Advice and Innovation at Charles Schwab and a member of BI’s Money Council.

Read the original article on Business Insider

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