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Last Updated on May 9, 2023 by Daniella
When you’re trying to get ahead financially, but the word investing terrifies you. Trust me, I get it. Investing used to make me shake as well.
Investing can seem like a complicated concept, especially when finance gurus tend to throw around specific stocks and bonds they love for their portfolio and you may not be up to speed yet to comprehend what they’re trying to show you.
However, investing is one of the easiest ways you can build wealth and a concept you can totally conquer, even if you don’t want to understand the nitty gritty of it.
Investing is my favorite kind of side hustle – the side hustle that requires none of your labor. It’s also the only way that you can make passive income without any skills or any up front work required.
How to Get Started Investing
If you’re looking to get started investing, there are a few things you need to know.
First, make sure you have an emergency fund saved up of at least 1 – 3 months of living expenses in a high yield savings account. Once you have that secured, you’re ready to start investing.
The first step to investing is to figure out how much money you want to invest, and what you’re hoping to achieve with your investments like saving for retirement. Even if you only have as much as $20 a month to start investing with, you can still get started investing.
Once you’ve decided on those things, you’ll need to choose an investment strategy.
Start with Work Sponsored Plans
The easiest way to start investing is through work sponsored plans. Depending on your work, you might have a 401(k) available to you. 401(k)’s are work sponsored retirement plans. The money that you put in these accounts isn’t taxed until you pull the money out again.
A lot of times your employer will also match a certain percentage of your contributions if they have that benefit available to you. If this is the case, opt for at least the match and increase by 1% every quarter, every time you get a raise, bonus, or whenever you feel comfortable.
Ideally, you want to aim to max out your retirement accounts year over year to make sure you have the max amount of money growing in the stock market for retirement.
If you have a 401(k) available at your employer and they match a certain amount of your contributions, congratulations you’ve just set up multiple income streams. The first income stream is your job income and the second is the free money you’re getting into your 401k from your employer that will grow for years and years, and even after you leave that employer.
Not sure if your work has a 401(k)?
You can always ask your HR person. They’ll have a good idea of what benefits your company offers, and they’ll even be able to get you set up with the resources you need to open an account.
If they don’t, that’s okay there are other options.
Opening an Individual Retirement Account
You should always start investing with your retirement accounts. They are tax advantaged accounts that will help you out financially when you’re old and wrinkly, but only if you fund them now. If your employer doesn’t have a retirement plan available, you can opt to invest in an individual retirement plan (also called an IRA).
You’ll want to go through an investment broker, like M1 Finance which is our broker of choice or Vanguard or Fidelity, and you’ll want to have some information ready to go.
- Your address
- Your social security number
- Your employers name and information
- The routing number and account number for your bank
Follow the prompts to open an account from the brokerage you choose. From there, you’ll be able to fund your account. A good rule of thumb is that you should be saving 10 to 15 percent of your income for retirement into one of these types of accounts. And according to the latest rules, you can invest up to $6,000 into an IRA, and $7,000 if you’re 59½ or older.
Opening a Brokerage Account
If you’re wanting to invest the money for a long term savings goal like a house, something that is at least 5 years away, you’ll want to open a brokerage account. It can feel overwhelming to choose which brokerage accounts, but they all basically do the same thing. And if you already have an IRA with M1, you can open a brokerage account through the same portal. It’s helpful to keep things all in one place.
Another good option are robo-advisors. Apps like Acorns make it super easy to invest money without thinking about it. They gamify the process, so you want to invest more and stay on track with your goals.
If you want a more missional platform, Ellevest is a woman run platform whose mission is to help women build wealth. It allocates funds for you, and you just have to deposit the money. Ellevest does the rest.
Regardless of whether you choose to go with a robo-investment platform, there are plenty to choose from.
Make Sure The Money is Invested
While funding the account is a great first step, you’ll want to ensure that your money is actually being invested. To do this well, you’ll want to have a basic knowledge of the different kinds of investments.
Your portfolio is your collection of stocks, bonds, mutual funds, and ETFs (exchange traded funds). A balanced portfolio has the right mix of stocks, bonds, and ETFs. You’ll occasionally need to rebalance your portfolio to make sure that you’re not becoming too aggressive or too conservative with your investments.
Stocks are small slices of a company. When you purchase a stock, you purchase a small part of a company. Due to this, you share in the company’s growth and when it hits downturns. The more of your portfolio that is in stocks the more aggressive it is. While it’s not advisable to invest in single stocks, it’s important to know what they are since they’re the building blocks of mutual funds and ETFs.
Bonds are loans that you give to businesses and the government, with the promise that they will be paid back with interest. They’re more stable than stocks, but their returns are generally smaller. Sometimes, ETFs and mutual funds will include them. Again, you shouldn’t need to worry about bonds too much. But they’re a tool you can use to balance your portfolio if it’s getting too aggressive.
Mutual Funds and ETFs
Mutual Funds and their cousin, ETFs, are your bread and butter when it comes to investing. Mutual funds and ETFs are collections of stocks and bonds. They can be specialized into different sectors or generalized to include wide swaths of the market. Instead of investing in one stock, which is high risk, you’re buying a slice of a fund that has multiple stocks in it.
Putting It All Together
If you’ve decided to go with a traditional online broker, you’ll want to ensure that you’re buying a good mix of mutual funds, ETFs, and bonds. This gives your portfolio diversity and helps it weather the financial storms better. If you’re not sure what to buy, do some research on the more popular selections using sites like M1 and Morningstar, which put together easy-to-understand reports about how different options are performing on the market.
The Bottom Line
Investing feels scary, especially if you’ve never invested before, but it doesn’t have to be. Setting up an investment account takes 10 minutes, and you can start growing your wealth instantly.
Even if you feel like “your time has passed” or for some reason you can’t catch up to building actual wealth for yourself, think again. The best time to start investing was yesterday and the second best time to start is today.
You got this.
- M1 Finance Review: Transform The Way You Invest
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- What Can I Invest In Besides The Stock Market?
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My favorite money tools that help me save more, earn more, and build wealth:
M1 Finance: This is the brokerage we use and recommend to others looking to open a brokerage account, IRA, and more.
CIT High Yield Savings Account: Earn interest on your money in your savings and checking accounts.
Personal Capital: What I use to track my networth and look at my finances all in one place. Plus, it’s free!
Trim: This app will negotiate your bills for you, so you save money without ever having to do anything.
FlexJobs: A remote job listing site to help you secure a remote job to get more of your time back.
Rover: Get paid to walk dogs, pet sit, house sit and more. Read our review here.
Moriah Chace writes about low-income money and queer culture. Her work has been featured by The Motley Fool and other large media outlets. She has words in Women’s Personal Finance, The Deal Taker, and Live Betr. As a part-time barista and full-time coffee addict, she spends her spare time over-caffeinated fixing up her 1978 Winnebago Itasca and plans to travel around the USA with her dog and two cats after she breathes life into the old soul of an RV.