How to Invest for Beginners

January 19, 2022

It would be nice to clean behind the fridge, to call your aunt back, to organize your photos… Many things that you know you ought to do, but do not because they seem overwhelming. Keeping investing on that list could result in you losing money.

I’ve been meaning to start investing.

Compounding returns mean your money has more time to multiply the longer it’s invested. The money you make on your investments gets compounded over time. Translate: Invest as soon as possible, after paying off all high-interest debts and putting money away for emergencies.

RelatedInvesting Basics: How To Buy Stocks

Starting out doesn’t require a lot of money. Make sure to look at your budget to figure out how much you can afford to set aside each month.

Explain the next steps. Move slowly.

Let’s do this together.

1: Identify Your Investment Goals and Choose the Right Account.

Pro tip: invest first for retirement. It’s probably your most costly goal to go permanently OOO, even if it’s decades away. This is why you should bank enough money as early as possible. This is how you can determine how much you’ll need.

Look into your workplace’s retirement plans, such as a 401(k) or 403(b). Adding to your savings is an added bonus if your employer matches your contributions. For extra credit, or if you don’t have a retirement plan at work, you can open an IRA. Tax breaks are available for all three of these accounts since the government wants you to be able to afford your post-work life.

Consider a 529 plan if you are investing in education expenses rather than retirement. A regular brokerage account can be used for anything else.

2: Open Your Account.

Find out how to get started with an employer-sponsored account by asking HR. Otherwise, choose where you want to do business. Investment accounts are typically offered by several large financial institutions, such as banks, credit unions, mutual fund companies, and brokerage firms. Depending on your investing style, you can choose from two popular methods:

  • If you want to take control of your investments, look for brokers (TD Ameritrade, Vanguard, Charles Schwab, Fidelity, etc.) via an online platform that is easy and intuitive to use. Account fees and minimums should be taken into account. Investing plans customized to your needs can also be created by working with one of their advisors.
  • For those who prefer hands-off management, consider robo-advisors. Think of companies like  Personal Capital, Betterment, Acorns, and Wealthfront. While they are typically low-cost, it is unlikely that you can get someone on the phone if you have any questions.

3: Choose Your Investments.

Stocks and bonds are two popular options. You should choose a mix of both that you are comfortable with. It’s riskier to invest in stocks, but the rewards can be greater. It’s a good idea to have more when you’re young so that you are able to live closer to the edge.

Investing a portion of your retirement account in stocks can be calculated simply by subtracting your age from 110. You should invest 80% of your portfolio in stocks and 20% in bonds when you’re 30 years old. If you’re investing for retirement (or for whatever goal you’re striving to achieve), you’ll want to buy more bonds as they are considered safer investments. This holds true even if you have a low-risk tolerance.

But when it comes to picking investments, you don’t have to do it all yourself. Mutual funds and exchange-traded funds are good ways to buy a bunch of assets simultaneously. As well as be able to diversify. The idea is to spread your money among several types of investments so that when some don’t work out, others will.

Related: How To Save For Retirement – 13 Most Asked Retirement Questions

4: Focus On Your Progress, Not Your Balance.

Don’t check in too often, or you’ll get stressed out and make bad decisions. Stock prices are constantly changing, so you must remain calm. When things get rough, it’s generally best to leave your investments alone, even though investing involves some risk. Keeping the course over the long run (read: years, not months) and investing in a diversified portfolio can give you the best chance of recovering your money.

It’s helpful to remember that the US stock market has survived every recession in history…and came back stronger each time.

The unknown can be frightening. But investing isn’t something you should sleep on. Follow the steps at a pace that suits you.

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