how to start investing
If you have never invested anything before – nothing – what should be your very first investment?
I am not a financial advisor, so take this with a grain of salt – you should consult with someone who knows your unique situation and can provide advice specifically for you. That having been said, here’s a fast and furious guide to investing.
- If you have an emergency fund of at least one month’s salary (and that’s just an approximate amount, ) and put it in a high-yield savings account (ING, HSBC, etc.)
- Once you have an emergency fund, check to see if your company has a matching program for any retirement programs (401k, 403bs, etc.). If so, contribute at least that much to your company’s program. If you are in a low tax bracket now and expect to be in a higher one in the future, put money in a Roth IRA. Unlike your 401(k), you can get the principal out before age 59 1/2, which is nice if you plan on retiring young.
- If you max out your retirement accounts, start building up your emergency fund until you have at least several months’ salary saved up. Personally, I have approximately 6 months – it’s a nice feeling to know that you’re set for that long if you have an emergency.
- Finally, if you’ve saved the maximum in your tax-advantaged accounts, open up a brokerage account with Scottrade or TD Ameritrade or Zecco or Sharebuilder – don’t agonize much over which one, because you’re not going to be doing day trading. Right? Buy index funds or ETFs and then forget about them for the next 20 years (at least). Once you have a balance of $100,000 in various index funds and ETFs, you can think about individual stocks. Before that point, don’t bother. Why $100,000? At most brokerages, that’s the level where you start getting preferential treatment for fees, research, etc. To be honest, if you’ve managed to get to this point, you don’t need any more advice, do you?
There you go! Nothing to it. To summarize:
- Fund an emergency account to a minimal level.
- Contribute fully to your retirement plans.
- Build up your emergency account until you have several months’ salary saved.
- Buy index funds until you have $100,000 or more in savings, then consider other investment routes.
That’s it. Don’t make it complicated. There are a lot of other steps to investing, but when you get right down to it you can keep it very simple until you have a lot more money than you did in the beginning. Too many people try and overanalyze the process, but when you get right down to it, the tough part is coming up with the money to save, not HOW to save it.