Don't Start Investing in 2024 Until You've Done These Things

Investing money is a great way to grow a lot of wealth over time. And if you're new to investing, you may be eager to get started this year. But before you begin to invest, here are three essential moves to make first.

1. Make sure you're all set with emergency savings

Recent SecureSave data finds that 63% of Americans are not equipped to handle a $500 financial emergency. You really do not want to land in a similar position. So before you start to invest, make sure your emergency fund is all set.

At a minimum, you should generally aim for enough money in savings to cover three full months of essential expenses, like rent, food, and transportation. If you want to pad that sum to include extra money for home and car repairs, that's not a bad idea. But at a minimum, make sure you leave yourself with enough money to pay your bills for about 90 days in case you end up out of work unexpectedly.

Of course, you could always tap an investment portfolio to drum up cash in the event of a financial emergency. But then, you run the risk of having to liquidate investments at a time when their value is down. That's not what you want, because then you lock in a permanent loss -- whereas an emergency fund can give you access to cash so you're able to ride out market downturns.

2. Figure out what type of investment account to open

The purpose behind your desire to invest can help you determine which account to put your money into. If you're investing for retirement specifically, then it could pay to choose an IRA. This way, you may enjoy some tax breaks, like tax-free contributions and tax-deferred gains.

If you want more flexibility with your money and aren't necessarily investing solely for retirement, then a taxable brokerage account may be a better home for your funds. You'll forgo some tax breaks, but your money won't be restricted in any way. With an IRA, in exchange for the tax breaks you get, there can be costly penalties for removing funds before age 59 1/2.

3. Come up with a strategy

Buying stocks at random is generally not a great approach to building a successful portfolio. Instead, you should aim for a broad mix of stocks, but also, focus on stocks that offer some specific benefit.

Some people like to load their portfolios with growth stocks, which, as the name suggests, are stocks that are poised to take off. Other investors like value stocks, which are stocks whose current value seems lower than what it should be.

There's nothing wrong with employing a combination of both. Either way, it's a good idea to go in with a plan.

Of course, your strategy as an investor should also hinge on your personal tolerance for risk. You may decide that you don't want to go too heavy on stocks because you won't be able to sleep at night knowing how volatile the market is. In that case, a combination of stocks and more stable assets, like bonds, could be a smarter move.

If you're feeling overwhelmed by the process of developing an investment strategy, it could be a good idea to sit down with a financial advisor. They may be able to help you assemble a portfolio that reflects your risk tolerance and is conducive to meeting your financial goals.

Starting to invest this year could leave you a lot wealthier 10, 20, or 30 years down the line. But check off these tasks before you start pumping money into different assets.