Money·5 min read

Ready To Invest? Here's Where To Start

Girl waking up to alarm clock with money on it.
Design: theSkimm | Photo: Getty Images
Dec 5, 2022

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. If investing is on that list, you could be losing out on money. But it can feel overwhelming if you’ve never done it before. Enter: Our full breakdown of how to start investing — even if you aren’t exactly rolling in residual income

I’m new here. What is investing?

It’s when you put your money into an account, fund, or asset — with the goal of making a profit in the future. Whether that’s in a week or 20 years.  And despite what you might think from TV and movies, you don’t have to be rich to invest. Pro tip: Check your budget to see how much you can afford to invest every month. Even $5 is enough to get started.

So how does investing work?

The longer your money’s invested, the more time it has to multiply. Thanks to compounding returns. Which is a fancy way of saying the money you earn on your investments makes money. So it’s a good idea to start investing ASAP — and for as long as you can. It’s also a good idea to consider diversifying your investments. Aka spreading your money out across a lot of different types of investments. That helps because when some aren’t making you money, others still should be. Balance for the win.

Investing basics

Before you choose your investments, there are a few things to keep in mind. Like the risks. Stocks (aka when you buy part ownership of a company) tend to be riskier, because the market is unpredictable. But they 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.

Another thing to keep in mind: Don’t stare at your balance. Checking in too often could stress you out or encourage you to make rash decisions, since 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.

Any tips on how to start investing?

First thing's first: You'll want to figure out your personal money goals — and what you want to cash in your investments for in the future. From there, you'll be able to figure out how to actually make that happen. Three common ways that people start investing are through...

Retirement savings

See if you have access to a retirement plan like a 401(k) or 403(b) through your employer. Bonus if your company matches some or all of your contributions. If your job doesn’t offer a retirement plan — or if they do and you like extra credit — you can open an IRA. Since the gov wants you to live your best post-work life, all three of these accounts come with tax breaks.

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.

If you plan to invest in an employer-sponsored account, ask your HR department how to get started. If not, decide where you want to put your money. Most large financial institutions — banks, credit unions, mutual fund companies, and brokerage firms — offer retirement investment accounts.

Robo-advisors

If you’d rather be hands-off, look into robo-advisors for stocks. Aka AI services through companies that manage your investments for you. Think: Ellevest, Betterment, Wealthfront. They typically come with low service costs. The downside: you may not be able to get someone on the phone if you’ve got a question.

Brokers

This option is for those who want to be in the driver’s seat when it comes to stocks and bonds. Where you can invest through a financial pro or institution (like TD Ameritrade, Vanguard, Charles Schwab, Fidelity, etc.) with an easy-to-use online platform. Read the fine print for any account fees and/or minimum requirements. Or you can pay to work with one of their advisors to come up with investing strategies that fit your needs.

Can you give me some investing strategies?

Sure can. These are some tried-and-true maps used to guide the way you invest. The idea is to minimize risk as much as possible. Here are a few popular investing strategies:

Buy and hold

This is when you buy your investment, and hold on to it for a while before you sell. Usually around three to five years, to help bring in higher profits. And it takes discipline. Because you’ll have to hold your investments even when the market is up. 

Income investing

This is when you buy investments that come with cash payouts. Like dividends. Or payments from a real estate rental. You can reinvest your profits. Or spend them on whatever you want. 

Dollar-cost averaging

Aka investing in intervals. Example: If you’ve figured out that you can afford to invest $500 per month, you’d invest that same amount every month. As opposed to pouring lump sums of money into investments at one time. Less risk, which could mean lower returns. 

theSkimm

Almost anything can seem overwhelming when you don’t understand how it works. But investing isn’t something you should sleep on — especially if you’ve got big financial goals. Take it step-by-step at a speed that works for you.

Updated Dec. 5, 2022 to reflect new information.

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