Cleaning behind the fridge, calling your aunt back, organizing your photos… There are a lot of things you know you should do, but don’t because it seems too overwhelming. You could be losing out on money by keeping investing on that list.
I’ve been meaning to start investing.
The longer your money’s invested, the more time it has to multiply, thanks to compounding returns. That’s when the money you earn on your investments makes money. Translation: start investing ASAP – right after saving for emergencies and paying off high-interest debt.
And you don’t need a lot of money to get going. Check your budget to decide how much you can afford to set aside every month.
Walk me through what’s next. And go slow.
Follow these steps.
Step #1: Decide what you’re investing for and pick the right account.
Pro tip: start with retirement. Even if it’s decades away, going permanently OOO is probably your most expensive goal. So you’ll want as much time as possible to bank enough money. (Psst...here’s how to calculate how much you’ll need.)
See if you have access to a retirement plan like a 401(k) or 403(b) at work. Bonus if your company matches some of your contributions. If your job doesn’t offer a retirement plan – or you’re going for extra credit – you can open an IRA. Since the gov is in favor of you being able to afford your post-work life, all three of these accounts come with tax breaks.
If you’re investing for education expenses instead of retirement, look into a 529. For everything else, there’s a regular brokerage account.
Step #2: Open your account.
If you plan to invest in an employer-sponsored account, ask HR how to get started. If not, decide where you want to do biz. Most large financial institutions – banks, credit unions, mutual fund companies, and brokerage firms – offer investment accounts. Here are two popular ways to go, depending on your style of investing:
If you want to be in the driver’s seat...look at brokers (think: TD Ameritrade, Vanguard, Charles Schwab, Fidelity, etc.) with an easy-to-use online platform. Pay attention to any account fees and/or minimum requirements. (You can also pay to work with one of their advisors to create an investing plan tailored to your needs.)
If you’d rather be hands-off...look at robo-advisors that manage your investments for you. Think: Ellevest, Betterment, Wealthfront. They typically come with low costs, but you may not be able to get someone on the phone if you’ve got a question.
Step #3: Pick your investments.
You’ve heard of stocks and bonds. Investing in the right mix for you is key. Stocks tend to be riskier, but can have a bigger payoff. Experts suggest having more when you’re younger and may be able to afford to live closer to the edge.
There’s an easy rule of thumb for deciding how much of your retirement account should be invested in stocks: subtract your age from 110. So if you're 30, 80% should be stocks and 20% should be bonds. The closer you get to retirement (or accomplishing whatever goal you’re investing for), the more bonds you’ll want because they’re considered safer bets. Same goes if your tolerance for risk is low.
Good news: you don’t have to do all the picking yourself. Investing in exchange-traded funds (ETFs) and mutual funds is an easy way to buy a bunch of assets at once. And diversify. In theory, spreading your money out across a lot of different types of investments means that when some aren’t making you money, others still should be.
Step #4: Don’t stare at your balance.
Checking in too often could stress you out or encourage you to make rash decisions. The market is unpredictable, and stock prices move around all the time. While investing involves some risk, it’s usually best to leave your investments alone when things get bumpy. If you’re in it for the long run (read: years, not months) and have a diversified portfolio, staying the course can give your money a chance to recover over time.
Helpful reminder: the US stock market has survived every recession in history...and come back stronger.
Anything can seem scary when you don’t understand how it works. But investing isn’t something you should sleep on. Take it step-by-step at a speed that works for you.
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