Are you tired earn small amounts of
interest on your savings? Are you ready to break out of your rut and start
Now is a great time to learn. As
stock prices have fallen with the changes in the economy, more people can jump
into investing, buying investments they otherwise may not have been able to
afford. Riding the market’s waves, you can be a part of the upswing when things
Even if you’ve never invested a dime
before, it’s easy to get started with these simple steps.
Create an investment plan
Just like you must create a budget –
you must create an investment plan.
First, ask yourself, do you know how
much you have to invest? Have you stocked up your emergency fund? Any money you
invest should be money you ‘don’t need.’ It should be money that if you lose,
you can still pay your bills and your standard daily living costs.
Your emergency fund should have 3 –
6 months of expenses in it. If your emergency fund is stocked, then you can
navigate some of your money to investments, potentially growing your savings
Choosing the right plan
Next, figure out why you’re
Is it to save for retirement or just
If you’re saving for retirement,
you’ll want to open a retirement account. The most common are the IRA or Roth
IRA. Both have tax advantages but in different ways.
A standard IRA provides you with a
tax deduction during the year that you contribute up to a specific amount. In
2020, you may contribute up to $6,000, which means you can deduct $6,000 from
your taxes. But you pay taxes on your earnings when you withdraw during
retirement. Since most people are in a lower tax bracket when they retire, they
A Roth IRA doesn’t offer a tax
deduction now, but your earnings grow tax-free. When you withdraw the funds
during retirement, you don’t owe taxes since you already paid taxes when you
contributed the funds.
If you’re investing to reach a
shorter-term goal, choose a standard investment account. These accounts don’t
have tax benefits, but also don’t charge penalties if you withdraw funds before
retirement. You are free to withdraw your earnings at any time.
Choose your platform
There are many different ways to
invest. Do you want help or are you a DIY investor? Also, think about what you
want to or can afford to pay as that will play a role.
broker – Sites like E*TRADE and TD Ameritrade offer low commissions and simple
platforms many can manage on their own. They do offer quality customer service
options if you need help too.
Standard broker – If you’re not the DIY type and need some hand-holding, a standard broker can help you through the process. You’ll pay higher commissions, but get assistance and advice when making trades.
If you prefer a completely hands-off approach to investing, robo-advisors offer
the best of both worlds. You’ll pay low commissions and have automated
investing. Once you determine your risk tolerance, the robo-advisor does the
rest, handling your investments for you and even rebalancing your portfolio as necessary.
Choosing your investments
Once you choose a plan, it’s time to
choose your investments. This is the fun (and scary) step. The key is to
diversify your investments. In other words, don’t put all of your eggs in one
basket. If you invest in stocks, for example, invest in a variety of stocks in
different industries, but also include investments in other more stable
investments, such as bonds, CDS, or mutual funds.
Stocks – You buy shares of a company or ownership in the company. You exchange the shares on the stock market, such as the New York Stock Exchange, through a broker or online broker. The goal is to buy low and sell high, but of course, it doesn’t always work out that way.
Mutual funds – This mixture of funds is like a professionally compiled mixture of stocks and bonds. Mutual funds carry less risk than individual stocks since they are diversified and most follow a specific index, such as the S&P 500.
ETFs – Exchange-traded funds are like mutual funds, but they trade on the stock market. ETFs are great investments for first-timers since they have low minimum investment requirements and yet provide ample diversification.
Bonds – With
the lowest risk out of any other investment, bonds also have the lowest yield.
They are a great investment to include in your portfolio to diversify your
risk, but don’t rely on them solely for a return or you may be disappointed.
Each investment account has
different requirements. As you shop for the right platform or broker, think
about how much you have to invest.
Ask yourself how much you can open
an account with as many have opening balance requirements. Narrow your choices
down to the brokers that you can afford. Next, determine what investments they
offer, as not each broker trades every investment.
For example, if you have your heart set on trading ETFs for their diversification and low price points, you’ll need a broker that offers a wide selection. This allows you to choose the ETFs that you want to invest in and that aligns with your beliefs.
Also, know the account balance minimums. Some brokers charge service fees if your balance falls below their threshold. Other brokers have minimum balances you must meet before you can invest.
If you’re ready to start investing,
do your research. Know what you can handle and what you want out of your
investments. Then compare your options. Today there are hundreds of discount
brokers available online, but that doesn’t mean they are all created equal.
Know your risk tolerance, how much
help you want, and what you’re willing to pay in commissions. Beginners often
do well with robo-advisors and online discount brokers, but even within these
options you have a myriad of choices.
We explain how you can make money, save money and grow money.
Please note that under no circumstances should any information from this blog be used as replacement for professional financial advice.