A financial planner explains how to minimize investing risk

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Certified financial planner Sophia Bera answers:

I want to invest, but I'm terrified of risk. How can I start easing in? I still have a few decades until I retire.

Investing can be nerve-racking if you don't know where to start.

Many people scare themselves out of investing because they're afraid of picking the wrong investments, but I don't think you need a complicated investment strategy in order to start.

Let's begin with the type of accounts you should be investing in first: retirement accounts.

It's important that you start saving for your future now because you have time on your side and the power of compound interest.

The first place I recommend people start investing is their work retirement plan because they will often receive a company match. If your company offers a match and you're not contributing to your retirement account at work, then you're missing out on free money. There are not many opportunities in life where we can get free money, but this is one of them, so take advantage of it!

Make sure you contribute at least enough to receive the full company match. Talk to your HR department at work to see what your company offers. Sometimes companies match dollar for dollar (you contribute 4% and your company matches 4%) and other times they match a percentage of what you contribute (50% on the first 6% you contribute, therefore 3%).

Pro Tip: Do you like to save money on your taxes? Contributing to pre-tax retirement accounts (401(k)s, 403(b)s, and SEP-IRAs) can help lower your tax bill. If you owed money on your taxes last year — or want a bigger refund this year — now is a great time to bump up your contributions to your retirement accounts. The maximum contribution per year on a 401(k) or 403(b) is $18,000.

Another great place to invest is in a Roth IRA. Now, there are income restrictions on a Roth IRA, so if you make too much money, you don't actually qualify to contribute. If you are eligible, you can contribute up to $5,500 per year. You won't get a tax deduction for the money you put into your Roth IRA because the money grows tax-free and when you withdraw it in retirement, it's still tax free! You can open a Roth IRA at any discount brokerage firm. A few of my favorites are Betterment, Vanguard, Schwab, and Fidelity because of they all have extremely low-cost investment options.

After making a contribution to a retirement account, you'll need to choose what you want to invest in. The percentage of stocks to bonds is called an asset allocation. The higher the percentage of stocks, the riskier your portfolio is. A common asset allocation for someone in their 20s and 30s might be 80% stocks and 20% bonds. A common asset allocation for someone nearing retirement is more moderate, like 60% stocks and 40% bonds. So if you want to minimize your risk, you may want to choose a higher percentage of bonds.

However, this money is earmarked for retirement and you're not going to touch it for a few decades, so I highly encourage you to be more aggressive that you might be comfortable with, knowing that you have decades to ride out the market fluctuations. Your emergency savings should act as a buffer against tapping your retirement savings early. (If you don't have at least three months of emergency savings, make this a priority for 2016.)

Your work retirement plan will provide a list of fund choices available. I can't tell you which investments to choose, but I do recommend that you spend a little time doing some research on the fees associated with the funds.Index funds will have much lower expense ratios than actively managed mutual funds. To find out the expense ratio, you can look up the fund by putting the ticker symbol into Morningstar.

If you really want a simple place to start, you may want to consider a target date fund. This is a mix of stock and bonds with an asset allocation that becomes more conservative the closer you get to retirement. When you are a new investor it's important to remember that asset accumulation is more important than asset allocation. Basically, just keep focusing on contributing money to your investment accounts every month (this is called dollar cost averaging) and know that some months the investments will go up and other months the investments will go down, but it's important to stay the course.

The impact that compound interest can have on investing over the long term is huge. If you have around 35 years until you retire and you just focus on maxing out your Roth IRA every year, or contributing $458 per month to your retirement accounts, you could have over $1,000,000 when you retire! (Starting with $0 and assuming an 8% rate of return).

Some people wait way too long to move from a saver to an investor. Don't make this mistake! If you don't start investing you'll lose your money to another type of risk: inflation. You don't want the value of your money to go down because it's sitting in a savings account and not keeping up with the rate of inflation.

Don't worry about choosing fancy investments. Start by investing your retirement accounts. But more importantly, just start.

This post is part of a continuing series that answers all of your questions related to personal finance. Have your own question? Email yourmoney[at]businessinsider[dot]com.

Sophia Bera, CFP® is the Founder of Gen Y Planning and has been quoted in The New York Times, Forbes, Business Insider, AOL, The Wall Street Journal, and Money Magazine. She tweets, travels, and loves helping millennials manage their money more effectively. Curious? Sign up for the free Gen Y Planning Newsletter.

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