A Beginner's Guide to Getting Started with Investing
So you’ve realized the importance of investing and are ready to make the jump.
But how do you actually get started?
Let's walk you through the steps to get started on your investment journey.
Step 1: Pick a stock brokerage to use
A stock brokerage facilitates the buying and selling of shares of ownership in businesses.
There are numerous options to choose from, so select one that aligns with your preferences and offers the resources you need. Some factors to consider when choosing a stock brokerage include:
Customer Service
Investor Resources
User Interface
Account Types Offered
Reliability
Some of my personal favorite stock brokerage accounts include Fidelity, TD Ameritrade, Vanguard, and Robinhood.
Step 2: Decide what type of stock brokerage account to open
Brokerage accounts vary based on their tax implications. Regardless of the account type, you'll need to choose stocks or funds to invest in once it's set up.
Some common account types are:
Taxable Brokerage Account (Standard): This is the most common type of account. There are no restrictions with this account but also no tax benefits.
Roth IRA or Traditional IRA (Retirement): Designed for retirement investing, these accounts offer tax advantages but come with restrictions and guidelines to follow.
529 Plans or Custodial Accounts (For kids): These accounts are designed to help invest for children's education expenses or invest on your kid's behalf.
Step 3: Figure out what your investment goals are
Before you start investing, it's important to know your goals.
Take your time to ask yourself these questions:
Why are you investing? (e.g., for retirement, to buy a house, to fund education)
How long do you plan to invest? (I don’t recommend investing in the stock market if it’s less than 5 years due to the nature of the stock market volatility)
What dollar amount do you need to reach your goals? You can use my financial freedom calculator by tapping here to figure this out.
Step 4: Figure out what to invest in
When it comes to investing, one of the most important decisions you'll make is choosing what to invest in. There are several different options. And it can get overwhelming trying to decide. If you’re unsure where to start, consider starting with Index Funds and testing out other options later with a smaller portion of your portfolio.
Some advantages of investing in index funds include:
Diversification: Index funds provide exposure to a wide range of companies and industries, reducing the risk associated with individual stock investments.
Low-cost: Index funds typically have lower fees than actively managed funds or individual stock trading.
Passive management: Since these funds simply track an index, there's no need to research individual stocks or make buy/sell decisions, making them an easy and low-maintenance investment choice.
Individual Stocks (more risky):
Investing in individual stocks can be more rewarding but also comes with higher risks. When you buy individual stocks, you're betting on the success of specific companies, which can be unpredictable.
Some advantages of investing in individual stocks include:
Higher potential returns: If you choose the right stocks, you could potentially earn higher returns than index funds.
Personal satisfaction: Picking individual stocks allows you to invest in companies you believe in, which can be rewarding on a personal level.
Control: When you invest in individual stocks, you have more control over your portfolio, allowing you to tailor it to your specific goals and risk tolerance.
Choosing between index funds and individual stocks depends on your preferences, goals, and risk appetite.
Index funds like $VOO or $VT are ideal for a low-maintenance approach. Conversely, if you're open to more risk and active management, individual stocks may offer higher potential returns.
If you want to learn more about how to craft a long-term portfolio, tap here to grab my investing guides!
Step 5: Make investing a habit and play the long-term game
Investing every time you get paid is one of the best habits you can develop. The big money is made over the long run when it comes to the stock market.
One thing to note is that the best time to buy stocks is during bear markets. But it's also the time when most people are scared to buy stocks.
Stock market crashes aren’t as scary to deal with when you invest money you don’t need right away, have an emergency fund, and haven’t overextended your current lifestyle with debt.
Unless you are a few years away from retirement, any stock market drop should be seen as a gift.
Long-term investing is stupidly easy: Buy great assets and hold them for long periods of time. The hard part is not panic selling when fear inevitably takes over the markets.
Final Thoughts: Getting Started With Investing
Getting started with investing doesn't have to be overwhelming or intimidating. By choosing the right stock brokerage, determining the appropriate account type, establishing clear investment goals, selecting suitable investment options, and committing to a long-term investing mindset, you'll set yourself up for financial success.
Remember, the key is to be consistent and patient, allowing your investments to grow over time. As you gain experience and confidence, you'll be better equipped to navigate the world of investing and build a secure financial future for yourself and your loved ones.
By the way: Sign up for my email list to be the first to know when I publish a new blog post!
Want to keep learning? Check out some of my other blog posts:
As Always: Buy things that pay you to own them.
-Josh
Blog Post: #089
