3 lessons for new investors from a financial advisor

Individuals need to be in control of their money, and while the pandemic has upended the personal finances of many Americans, it has made many people realize the need to save. Today, there are more options than ever to manage money on your own. Fintech applications have risen in popularity, and have brought new investors to the market. But many Americans still struggle with the basic aspects of financial planning.

The education system does not start early enough with financial literacy courses. They are not federally mandated to teach in public schools. currently, Only 21 states require a certain level of financial literacy content in the course To be taught in a high school semester. There is a growing push for students to get personal finance education, US Education Secretary Miguel Cardona told CNBC’s Sharon Epperson in an interview, and he believes the coronavirus pandemic has given schools an opportunity to rethink how they When they started teaching financial literacy.

“When I talk to students now, they are talking about the need to learn financial literacy in a practical sense — how to look at debt and how to plan for a financially secure future,” Cardona said. But he added, “We can’t wait for a personal finance course in high school,” he said. “We need to instill it more naturally so that there is a better understanding of it by the time they reach high school.”

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In fact, pressing questions about personal finance remain for many who have not received a financial education at a young age, or are still young and first learning about money. Luis Barajas, COO and Partner at MGO Wealth Advisors, Certified Financial Planner and Member of CNBC Advisory Board, answered questions during a recent CNBC Invest IN You conference with Education Secretary Cardona.

Here are some basic lessons for novice investors.

1. Don’t let fintech apps turn into gambling

Fintech companies have seen an increase in the number of new users over the past year. Many first time investors are pouring money and giving plenty of time to download popular stock trading apps. Barajas described financial technology as a double-edged sword. He noted that his clients, from wealthy and disadvantaged communities alike, had access to financial planning and investing in the palm of their hands, but that many new users “began to use it almost like a gambling app.”

Barajas said people need to be careful when using these apps. “We need to take a step back and really think about how we use these apps. And whether we spend the time educating ourselves and still learning the basics of investing.”

2. Understanding your habits is a good first step

High school student Gabriella Guido wanted to identify the most important aspect of financial literacy. Barajas said that understanding one’s financial mindset and spending habits was the most important first step.

Ultimately, financial planning is all about investing, budgeting, taxation, and insurance. “It’s all about that stuff,” Barajas said.

But it becomes much simpler once someone is in control of their spending to do the most important things for their financial future.

“The first thing is to save, and then also learn about investing in the long run,” he said.

3. A ‘Big Resignation’ May Require Retirement Savings Procedure

Many have dubbed the past few months the “Big Resignation” as millions of Americans leave their jobs. Crystal Goris recently made a career change and wanted to know how to transfer her retirement account.

There is no one answer, Barajas said, and it depends on what type of account a retirement saver currently has, and how much the account is invested in.

If you have money in an employer-sponsored 401(k), for example, or a 403(b) plan designed for public and nonprofit employees, the financial planner said the individual can often leave the money in the plan as long as the account balance meets the minimum requirements, Which in most cases is no less than $5,000. It is important to check with the employer about their policy and ensure that they do not eventually withdraw a participant from the plan as a result of inaction.

Holding the money in the current account of compound interest will allow the investment plan to grow over time. But individuals also have the option of transferring their money to a new plan or individual retirement account where they can start making new contributions.

The most important thing to remember, Barajas said, is what not to do: While you can transfer money into similar retirement savings cars, don’t withdraw money from a retirement account. The IRS will charge anyone under the age of 59 ½ a 10% penalty for early withdrawal.

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