August 3, 2020

How to Invest, If you’re new to Investing

Investing is simple, even if its definition may not be;

Invest – To expend money with the expectation of achieving a profit or material result by putting it into financial schemes, shares, or property, or by using it to develop a commercial venture.

In English, investing is essentially making money by storing it away or purchasing something that will return your money plus some profit. The most prominent example of this of course, is the stock market. However, investments come in many forms and can be found in places other than Wall Street. If you own a rental property for example you own an investment, or any property for that matter. Stocks, bonds, gold, silver, and livestock are all examples of investments each with their own pros and cons.

So why do stocks and bonds get so much attention? Well, because generally they’re the simplest to manage and can often provide generous returns. By doing absolutely nothing, these investments can sometimes make money more quickly than you can. This concept is the very foundation of financial independence and early retirement. It’s what allows you to be able to withdraw money at the beginning of the year and end up richer by the end of it.

Alright well how do I get started?

For simplicity sake, I recommend sticking with stocks and bonds for now. If you become more financially savvy and have some extra money to spare then go ahead and look at other investments but for now let’s keep things straight forward. If you’re looking to get started today, follow these steps…

1.    Pick a company/broker: This may sound like it’s a big deal but it’s not. There are many to pick from but until the day I die I will not recommend anyone other than Vanguard. I could go into why but that would require an entire post in itself. They’re simply the best option and charge the lowest fees so that makes this step easy. Even if you do pick someone else the rest of the steps still apply.

2.    Open an account: Go to their website or call them up and they’ll walk you through everything.

3.    Pick your funds: Assuming we’re looking at Vanguard funds, there are over 100 to choose from. So what to pick? Again, keep it simple here. I’d recommend 3-4 depending on what you personally want. You should have a stock fund (i.e. VTSAX), a bond fund (i.e. VBMFX), a 401k (i.e. VFFVX), and a Roth IRA (VFFVX works here too) fund. There are some funds that purchase stocks and bonds together in which case you could just pick one of those and have your 401k and IRA for 3 funds total.

4.    Deposit Money: The majority of these funds require somewhere in the range of $3,000 to be activated. If you can’t do them all at once, do it one at a time. How should you distribute your money amongst them? See my post on that, here. Just a heads up, there is a limit on how much you can contribute to your IRA and 401k each year. The IRA is roughly 5500 and I believe the 401k is at 18,000. Look to fill these accounts first before your stock/bond accounts because the 401k and IRA come with added tax breaks you can’t get anywhere else.

5.    Watch your money grow: Create a set schedule to deposit your savings into these accounts. I do this at the end of every month for example. And that’s it! That’s all you have to do!

I wouldn’t be telling you this stuff if I didn’t do it or believe it.

Please remember though the funds I mentioned in particular are simply recommendations and everyone is different. If you like to take more risk put more money in your stock fund, or bond fund if you’re less risky. As a final note, I’ve said this plenty of times before but, the overall trend of the market has been up over long periods of time. That doesn’t mean that you can’t lose money. Less than a decade ago many people lost a ton of money in the market. But if you leave your investments alone during those periods, they will often bounce back on their own without any assistance needed from you. Just saying.

Hope this helps, any other questions feel free to send my way!

2 thoughts on “How to Invest, If you’re new to Investing

  1. Hey Brian, are you familiar with robo advisor investment accounts such as Betterment and Wealthfront? I was wondering how they differ from Vanguard funds.

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