Money Management

There’s one investment you might make in the new year that could set you up for long-term success. Read on to find out what it is. 

You might have different financial goals in mind for 2024. Maybe you’d like to boost your savings account balance so you’re better equipped to deal with unplanned expenses. And maybe you’d like to invest more of your money so you’re better positioned to meet long-term goals, like a comfortable retirement.

You’ll often hear that when it comes to investing, it’s important to maintain a diversified portfolio. And also, you don’t want to take on too much risk in your portfolio, so it’s often best to favor larger companies over smaller ones with less of a proven track record.

To be clear, it’s more than possible to do well by investing in smaller companies that trade publicly. And choosing a larger company does not by any means guarantee that you’re going to make money, and not lose money, over time.

But generally speaking, companies that are larger and have a proven track record are a less risky investment choice to consider. And so if you’re looking for a great investment in 2024, there’s one option that really gives the best of both worlds.

Buy shares of an S&P 500 ETF

ETFs, or exchange-traded funds, are funds that are composed of different investments. An S&P 500 ETF is an ETF that invests in the S&P 500 index — an index of the 500 largest publicly traded companies.

The beauty of investing in an S&P 500 ETF is that you get instant diversification, because you’re effectively investing in 500 different businesses without having to go out and purchase shares of 500 different stocks. Also, for a stock to be a part of the S&P 500, the company behind it has to be pretty large in nature. And again, while investing in large companies doesn’t guarantee great results, larger companies are generally considered to be less risky than smaller ones.

Now you should know that when analysts talk about the stock market’s performance, often, what they’re referring to is the performance of the S&P 500 index. And that index has, over the past 50 years, delivered an average annual return of 10%.

So, let’s say you invest $1,000 in an S&P 500 ETF in 2024. If your investment delivers that same return and you hold it for 40 years, you’re looking at turning that $1,000 into over $45,000.

Should you buy shares of individual companies instead?

One thing you should know about investing in S&P 500 ETFs is that doing so won’t help you beat the broad market — namely because you’re investing in the broad market. A number of individual companies have, over time, outperformed the S&P 500 index. And many are likely to continue doing so.

If your goal is to beat the market, then hand-picking individual stocks is a better way to get there than by putting money into S&P 500 ETFs. But if you’re happy with the idea of a 10% return over time, then taking the easier way out and sticking with S&P 500 ETFs may be the way to go. That way, you don’t have to do nearly the same amount of legwork, and you might, to some degree, help to minimize the risk you’re taking on.

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It’s easy to set goals — but not always easy to turn a dream into reality. Keep reading for a few pitfalls around setting financial resolutions for 2024. 

It’s that time of year again — when I look at the calendar and muse aloud, “Where did this year go?!” It’s time to wrap up work tasks before the end-of-year slowdown, put the finishing touches on your holiday gift list, and really dig into any New Year’s resolutions you might be considering.

Making resolutions around money is common — two-thirds of those surveyed by The Ascent about New Year’s financial resolutions for 2024 intend to set one. But just because you start the new year with a goal doesn’t mean you’re guaranteed to achieve it. Here are a few reasons you might fall short of your New Year’s financial resolutions.

1. You aimed too high

Far be it from me to tell people to moderate their New Year’s resolutions — but there is such a thing as being too ambitious. After all, your resolutions should be possible if you hope to actually achieve them. My resolution for 2023 was to save $50,000 toward the purchase of a house, and for many people, this would be an absolutely bonkers goal.

But I knew that it was possible for me (especially because I was able to start saving before 2022 was over, and I knew that if I needed extra time to reach the target at the beginning of 2024, that would also be OK). I ran the numbers, and I knew what I’d need to do to make that $50,000 goal happen.

If you have an ambitious goal for your finances in 2024, I’m not trying to dissuade you. But it is worth taking the time to do the math and see if your target is SMART — Specific, Measurable, Achievable, Relevant, and Time-Bound. This is a great approach to setting (and achieving) goals. Let’s say you’re hoping to pay off $20,000 in credit card debt in 2024. Assess your income, your bills, and your commitment to decide whether this goal is possible — or whether you’re aiming too high.

2. You didn’t build the necessary habits

No great thing is achieved without changing your habits in some way. If you want to pay off $20,000 in credit card debt, you need to build some habits. These could include getting better about checking your accounts to see how much you have left to pay, leaning on other payment methods to avoid increasing your credit card tab, and making credit card payments a higher priority for your personal finances. You might even need to get in the habit of working more hours or focusing on a new side hustle if you need to increase your income to meet your goal.

If instead of building these habits, you kept on as before, didn’t know what your balances looked like, and made no special effort to add more money to your checking account to pay off debt, you’re likely to find yourself missing the mark on your resolution. Being unable to change habits to meet a goal was the third most common reason survey respondents couldn’t keep last year’s financial resolution, according to The Ascent’s research findings. Building new habits (and cutting old ones you hope to shed) is hard. Be kind to yourself — and be realistic about your capacity to completely change some aspect of your life to achieve a goal.

3. Your resolution didn’t actually matter to you personally

I think far, far too many of us are more concerned about how others view us, versus worrying only about our own opinion of ourselves as people. And I am definitely guilty of this, too. This mindset can also extend to your financial resolutions.

Let’s say you have parents who are dying for you to stop renting and buy a house in 2024, regardless of your own financial readiness or even desire to become a homeowner. Having once bought a home in part because I had well-meaning family encouragement (and financial help), I’ve been in your shoes. Ultimately, going forward with that home purchase was perhaps the biggest financial mistake of my life. In your case, if you resolve to buy a house in 2024 despite not being ready or actually wanting to, failing at that resolution is a blessing in disguise.

So buying a home isn’t what you want in 2024 — totally understandable! That’s my resolution, but I actually do want it this time, and my finances are ready for it. Maybe you would rather focus on increasing your income next year. That’s an excellent goal, and 11% of The Ascent’s survey respondents share it. Earning a higher income opens all kinds of doors.

You can make it happen by adding to your marketable skills, changing jobs or even careers, or taking on a side hustle. Don’t try to please other people with your financial resolutions for 2024 — look to please yourself and make yourself proud, because you’ll be more likely to achieve your goal that way. Besides, it’s your money.

The end of the year is a good time to look back and see how far you’ve come — and decide how far you want to go in the new year. Keep these tips in mind to set the kind of financial resolutions you’ll be excited to work on and able to achieve.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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It’s hard to buy a home today due to elevated prices and mortgage rates. Learn how teaming up with other family members to buy might be a good idea. 

These days, buying a home is no easy feat. Not only are property values still elevated, but mortgages remain expensive to sign. While mortgage lenders might lower their rates in 2024 as inflation cools and the Federal Reserve moves forward with interest rate cuts, that’s not guaranteed to happen.

If you’re interested in owning a home but don’t think you can afford to buy one on your own, then you may want to consider teaming up with other members of your family in a multigenerational setup.

The National Association of Realtors reports that 14% of all home buyers are purchasing multigenerational homes, so it’s an arrangement worth looking at if you have other family members who are on board. However, you’ll need to weigh the pros against the cons and set certain ground rules from the start.

The upside of multigenerational living

If you can’t swing a home purchase on your own based on today’s home prices and mortgage rates, then finding a co-buyer could be your ticket to homeownership. It pays to consider making that co-buyer a member of your family.

Multigenerational living offers a lot of benefits. First, it gives you an opportunity to have your children grow up alongside older family members for an even bigger support network. It might also mean having access to child care and other help when you’re trying to juggle a career with things like after-school activities and play dates.

Also, in a multigenerational setup, you have people to share in the work of maintaining a home and household. This doesn’t just mean you can split maintenance tasks like staining the deck every season and pressure-washing the patio. It also means that on a day-to-day basis, you can share the load of cooking, cleaning, and keeping things running smoothly.

The downside of multigenerational living

Of course, one major drawback to a multigenerational housing setup is a lack of privacy. Let’s say you, your spouse, and your two children decide to buy a home with your parents. That means they’ll be there all the time. You and your spouse might, at some point, come to bemoan the lack of personal space that ensues.

Also, things could get complicated if someone decides they want to sell their stake in the house, or that they can no longer afford the home in question. Granted, a good way to work around this is to set up a legal document at the time of your home purchase detailing what would happen under such circumstances.

But still, it’s one thing to have to enforce a contract when you’re buying a home jointly with an acquaintance. It’s another thing to have to enforce a legal document on your own parents.

Set ground rules from the start

From a logistical, emotional, and financial standpoint, there’s much to be gained from a multigenerational housing arrangement. If you’ve been struggling to buy on your own, this is an option worth considering.

But if you’re going to go this route, set ground rules from the start. In addition to creating a clear legal contract, talk to the people you’ll be buying with about expectations in terms of things like upkeep, housework, and even matters of privacy.

Also, try your best to find a home that’s conducive to multigenerational living. An optimal arrangement may be one where you can all share a roof but maintain some degree of private living, such as if a home has a finished basement you can convert to a separate apartment.

Of course, some people manage to pull off multigenerational living just fine in smaller quarters. But if you’re able to find a home that gives you more room to spread out, you may end up a lot happier for it.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
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Different retirement plans offer different benefits. Read on to see which is optimal for you. 

If you don’t need your entire paycheck in 2024 to cover your living expenses, then it pays to put some of that money aside for your retirement. And while you could save in a 401(k), if you don’t have access to one through an employer, then a good bet is to look to fund an IRA.

For salaried workers, IRAs come in two main varieties — traditional and Roth. If you’re self-employed, there may be other IRA types you can access.

Whether you’re saving in a traditional IRA versus a Roth, in 2024, the contribution limits are the same. If you’re under 50, you can sock away up to $7,000. If you’re 50 or older, you get a $1,000 catch-up contribution that raises your limit to $8,000.

And just so there’s no confusion, you don’t need to be lacking in retirement savings to take advantage of catch-up contributions in an IRA. All you need to do is be 50 or older. And if you’re not yet 50 at the start of 2024, you can still contribute up to $8,000 as long as you’ll turn 50 at some point next year.

You may be torn between funding a traditional IRA and a Roth IRA. And you should know that there are income limits associated with Roth IRAs.

For the purpose of this discussion, we’ll assume you don’t earn too much to contribute money to a Roth. With that in mind, here are some questions to ask yourself to determine where your savings should go.

1. Do I need the upfront tax break?

With a traditional IRA, the money you contribute goes in tax free, thereby shielding some of your income from taxes. With a Roth IRA, you don’t get a tax break on contributions. Instead, you get tax-free withdrawals in retirement, whereas with a traditional IRA, withdrawals are taxed.

Also, traditional IRAs give you the benefit of tax-deferred investment gains. But in a Roth IRA, those gains are tax free.

This means that if you contribute $50,000 to your Roth IRA over time and your balance grows to $150,000, you walk away with $100,000 in gains without having to pay a portion to the IRS. If that happens in a traditional IRA, you pay taxes on that $100,000 in gains, but it will be paid incrementally as you take withdrawals.

If you need the upfront tax break to be able to part with some of your earnings, then a traditional IRA might be best for you in 2024. But if you can swing retirement plan contributions without that tax break, then you may want to learn toward a Roth IRA. That way, you’ll give yourself more financial freedom later in life by virtue of not having to pay taxes on at least some of your senior income.

2. Is my tax burden higher now, or will it be higher later?

If you contribute to a Roth IRA in 2024, you’ll be paying taxes on your contributions at your current tax rate, which is based on the tax bracket you fall into. If you think your tax rate will be higher in 2024 than it is in retirement, then a traditional IRA could make sense. But if you think your tax rate in retirement will be higher, then a Roth IRA makes more sense.

Basically, what you want to do is snag your tax break at the time when it’s likely to result in the most savings. So let’s say you’re single earning $40,000 a year in 2024. That puts you in the 12% tax bracket.

If you expect to have more income in retirement between savings, part-time work, and Social Security, then it’s conceivable that you’d end up in a higher tax bracket later in life. So in that case, what you’d want to do is fund a Roth IRA in 2024 and pay taxes on your contributions to the tune of 12%. Chances are, you’ll be looking at a higher tax rate in retirement between an uptick in personal income and the potential for tax rates to generally rise across the board over time.

All told, saving in any type of retirement plan is a great thing to do for your retirement. And if you’re not sure which type to choose, you could always split your contributions between a traditional IRA and a Roth. That way, you can enjoy some immediate tax savings while also setting yourself up for tax-free withdrawals down the line.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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