Introduction
Watching the news in 2024 can feel like a wild ride on a sketchy roller coaster at the county fair. The economy? Uncertain. The housing market? Anything but normal. The stock market? Who knows. Amidst all this chaos, you might think it’s a crazy time to start investing. But hear us out: the best time to get control of your finances and start saving for the future is today!
While the where, when, and how of investing can seem like rocket science, it’s actually easier to get in the game than you think. Here’s everything you need to know to get started with investing, step-by-step, to set yourself up for success at the investing starting line. Welcome to Investing 101!
Key Takeaways
- Build a Secure Financial Foundation: Before investing, pay off all your consumer debt and save an emergency fund of 3–6 months of expenses.
- Set Clear Investing Goals: Your goals will guide your choice of investments and investment vehicles.
- Start with Employer-Sponsored Plans: If your employer offers a match, take advantage of it.
- Invest 15% of Your Income: Aim to invest 15% of your gross income for retirement before saving for other goals.
- Step-by-Step Investing Guide:
Step 1: Set Your Investing Goals
Knowing your “why” is crucial. Are you investing to build your retirement fund? To pay for your kids’ or grandkids’ college? To save for a down payment on a house? Clear goals will help you stay motivated and guide your investment choices.
Step 2: Figure Out How Much to Invest
Your savings rate is the most important factor in successfully saving for retirement. We recommend investing 15% of your gross income toward retirement. This amount ensures you can also save for other goals, like paying off your home early or funding your children’s education.
Step 3: Choose Your Investing Accounts
Retirement Accounts
- Employer-Sponsored Plans: If available, start with your 401(k) and invest enough to get the full employer match.
- Roth IRA: After maxing out your 401(k) match, consider a Roth IRA for its tax benefits.
- Self-Employed Options: If you’re self-employed, consider a SIMPLE IRA or SEP IRA.
Education Savings Accounts
- 529 Savings Plan: A tax-advantaged account for educational expenses.
- Education Savings Account (ESA): A trust or custodial account to invest money for education.
Short-Term Investing Accounts
- Index Funds: Great for long-term growth, suitable for saving for a down payment or rental property.
- Money Market Account (MMA): Ideal for low-risk, short-term savings like an emergency fund.
Step 4: Choose Your Investments
Once you’ve decided on your investing account, it’s time to pick your investments. Good growth stock mutual funds are a solid choice for long-term growth. Mutual funds pool money from multiple investors to buy a diversified portfolio of stocks, which can provide consistent growth over time.
Step 5: Pick an Investment Strategy
Diversify your investments to spread risk. Consider choosing a mix of mutual funds in different categories:
- Growth Funds: Focus on companies expected to grow faster than the market.
- Income Funds: Aim to provide steady income through dividends.
- Balanced Funds: A mix of stocks and bonds to balance risk and return.
Step 6: Open an Investing Account
Once you’ve chosen your investments, open an account with a reputable brokerage. Many online brokers offer low fees and user-friendly platforms for managing your investments.
Step 7: Work with a Pro and Keep Learning
Consider working with a financial advisor to fine-tune your investment strategy. Continuous learning is also key. Stay informed about market trends and investment opportunities to make educated decisions.
Conclusion
Starting your investing journey can be intimidating, but it’s crucial for securing your financial future. By following these steps, you’ll be well on your way to building a solid investment portfolio. Remember, the best time to start investing is today. So take control of your finances and start working towards your financial goals now!