Investing 101: 5 Steps to Get Started

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Managing your money is a job in and of itself: paying bills, saving for retirement and putting away extra for emergencies. But you should add another line item to your list: investments. Learning how to start investing is like starting any project — at the beginning. Here’s the best way to start investing and why you should start as soon as you can.

1. Understand the risks and benefits of investing

If you’re unsure about where to start investing, it can seem intimidating. Understanding the stock market, shares, and buying and selling assets can be confusing.

It’s important to note that investing your money always carries some level of risk. Some investments have major risks and some have minor risks — it’s all about what you’re comfortable with. If you’re not up to speed on the best practices of the market, you might not get the same level of reward.

But in general, there are major benefits to learning how to start investing. Putting your money in long-term investments can help you build wealth and save enough for retirement; you can harness the power of compounding interest. Stashing your spare cash in a standard savings account is great for emergency savings, but for money you don’t need in the short-term, you could earn much more through investments than you can from a bank account’s minuscule interest payments.

Don’t shun investing until you know all the different ways your money can earn you even more.

2. Decide what to invest in

Funding your retirement is a major reason to start investing. Many employers offer access to a 401(k) retirement plan, which usually invests your contributions in stocks, bonds and mutual funds, depending on the portfolio your employer chooses for you. This makes it pretty simple to figure out how to start investing.

Individual retirement accounts (IRAs) are retirement accounts that you can get without an employer. There are two types of IRAs:

  • Traditional. If you’re under 50, you can contribute a total of $6,000 to a traditional or Roth IRA in 2019. You might be able to deduct some of your contributions from your taxes. You can make contributions until you’re 70 and a half years old, but you also have to start withdrawing at that age. Any early withdrawals can cost you penalty fees.
  • Roth. If you’re under 50, you can contribute a total of $6,000 to a traditional or Roth IRA in 2019 — but it’s not tax-deductible. You can take money out at any time without facing a penalty. Your income may determine your eligibility.

There are several other ways to invest that aren’t through IRAs or 401(k)s, including:

  • Stocks. Publicly traded companies sell stock shares to investors, which makes you a part owner of that company when you purchase one. Some companies pay dividends (a small percentage of the company’s recent earnings) to shareholders.
  • Bonds.Buying a bond is like giving a company a loan. The company agrees to pay you back within a specified time, plus interest. Unlike stocks, you don’t have any ownership rights through bonds.
  • Funds.Mutual funds, exchange-traded funds, and other similar products represent a shared investment between you and other investors to buy a collection of stocks, bonds and other investment types. These types of investments help diversify your portfolio without buying separate entities.

It’s OK to invest in more than one place. In fact, diversifying your portfolio can help minimize risk. If you’ve invested in multiple areas, you won’t lose all your cash if one investment takes a dive.

3. Open a brokerage account

If you’re starting to invest from scratch, consider which product is best for your needs.

Online investment brokers

If you’re planning to micromanage your investments, an online brokerage may be right for you. You get to pick the investments you’d like, including stocks, bonds and mutual funds. Some may have minimum requirements — although many don’t — so it’s important to review fees and requirements before signing on.

Robo-advisors

If you want to learn how to start investing but don’t have enough time to devote to poring over your portfolio, you may want to look into robo-advisors.Robo-advisors manage your money for you. Once you pick your company, you’ll answer a few questions about your investment preferences, such as how risky or conservative you are.

Fees and minimum requirements vary depending on the company you choose. Some offer a hybrid account where you can mostly leave your investments alone but still have the chance to talk to a human when you have questions.

401(k)s and other retirement plans

If you’re investing in a 401(k) through your job, you already have an investment account, and you may already have an advisor set up to handle your account. If so, take advantage of employer matches. If you have this option, it means your company will match your contributions up to a certain percentage. That’s even more money you can put into your investing — and more money to cash out later on when you retire.

Retirement plans like 401(k)s and IRAs are the easiest to manage since your investments are handled for you. Robo-advisors are also minimalistic. Choose the best method that matches your preferences.

4. Fund your account

You don’t have to sell your car or your soul to get fund your investments. You just need a few bucks.

For instance, Acorns allows you to start your portfolio with $5. This is a great way to throw your spare change into something that can grow over time. There’s a monthly fee of $1 to $3, depending on the level you choose. If you’re in college, you can qualify for the $1 per month level for free.

Robo-advisors such as Betterment and Wealthfront may also offer affordable options. Both companies have an annual fee of 0.25% of whatever you invest. Betterment doesn’t require a minimum amount to invest but for Wealthfront, you’ll need at least $500 to start.

5. Continue growing your investment

While starting out is easy with a few dollars, consider increasing your investment amounts as you’re able.

To make regular contributions easier, you may find it useful to set up automatic contributions to add to your account every month. That way you know your account is always growing, even if it’s in small amounts — a little bit can go a long way. You can also set a calendar reminder, just like you would with any of your other bills or payments.

Regardless of which investment company you select, choose one that’s in line with your needs. If you prefer handing off your investment money to a robo-advisor with minimal fees, that’s great! If you think you may want to talk to a human at some point, maybe try a hybrid advisor. Do whatever is right for you.

Don’t be afraid to change and evolve along with your money and lifestyle. It’s all right to move your investments if you don’t like how a company is working out. It’s your money — it should be doing what you think is best for it.

Fees mentioned are accurate as of the date of publishing.

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Dori Zinn
Dori Zinn |

Dori Zinn is a writer at MagnifyMoney. You can email Dori here

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