How does one get started investing? Time is your best friend when it comes to investing. Starting as soon as possible is going to give your investments the most time to grow. We have a saying “Time in the market beats timing the market.” This is to say that it is better to invest for the long term and just buy and hold assets.
Before you get started investing you need to take time to educate yourself. Learn about stocks, bonds and funds (both mutual funds and ETFs). They should learn how the market works. How and when dividends are paid and how they are taxed. There are also different types of investment accounts. How different accounts are taxed is also very important to
Start with your 401(k)
One of the first step of my financial planning process is to ask clients if their employer offers a 401(k) with a match. Taking advantage of the match is the easiest place for any investor to start. Taking advantage of the employer match also means you’re not leaving any money on the table. If the plan administrator is doing their job you will have a good selection of mutual funds to invest in. The 401(k) also makes the process of transferring the money into the account easier as it can come directly from your paycheck.
Once you are taking full advantage of your 401(k) match and you have more room in your budget to invest you could continue to contribute to your 401(k) or consider opening an IRA. It also allows you to save money for retirement without having to pay taxes every year. If you are managing your own investment account look for well diversified ETFs or mutual funds when you are just starting out. These give you a large slice of the overall market.
In order to create room in your budget to invest, consider starting a side hustle or picking up extra hours at work. Additionally you could choose to spend a little more frugally if you really want to prioritize saving money to invest.
Automation makes it hard to forget
Once you have established your investment account(s) there are a couple ways you can automate your investment process. 401(k)s have the advantage that the contributions are deducted directly from your paycheck. For IRAs or other individual investment account types you can set up recurring deposits. Many brokerage platforms are also offering recurring investment options. Another great way to automate your investments is what we call dividend reinvestment plans (or DRIPs). This strategy takes dividends paid out by your various investments and re-invest that cash back into the same security. This allows your investments to compound.
Mistakes to avoid when getting started investing
Common mistakes people make when starting out investing include chasing high flying stocks. They buy stocks that have been outperforming the market in an attempt to chase the gains. This can often lead to an investor buying stocks near all time highs just to have the trend reverse leaving them stuck holding the bag.
Also be sure to look at fees you are paying for your Mutual Funds/ ETFs. For any product that you intend to buy-and-hold prioritize a low expense ratio.
Still have questions?
If you have any questions feel free to contact us or schedule a complementary meeting to review your needs and see how we can help you. Also be sure to follow us on social media for more investing education. Thank you for reading!
