When it comes to investing your money, time is your best friend. BFF. The sooner you get going, the better off you will be. I think many are intimidated by the idea of investing and, as a result, do not want to ask the beginner questions like, “how do I even start?” Let’s dive in!
To begin, you simply need to pick a brokerage firm. These days, most of them are pretty good. I personally like to find one with strong customer service, there are some *cough Robinhood cough* that basically do not have a service team (to their credit, I believe they just recently started one).
You might not think this is important, but when you want (or need) to move money and something is wrong, being able to call a human being 24/7 and get it figured out is huge for my mental health and wellbeing. I personally use TD Ameritrade, I have also heard great things about Vanguard, Charles Schwab, and there are many others that are fine too.
An important note – you will need to decide if you want to manage your investments yourself, or if you want to pay either a person or a robot to do it for you. I am of the belief that every person is smart enough to make their own investment decisions, and it is often over-hyped that you need some level of expertise.
You could literally throw all of your money into a index fund or two and probably outperform 80%-90% of people who trade in and out of positions every day.
That is not an exaggeration, this article from MarketWatch (a little old, 2019) says that in the year prior to the writing of that article less than half of actively managed funds (think of those Wall st. guys and gals who spend their entire day researching stocks and make their living trading) beat passively managed funds.
The long game is almost always the best game.
I do not typically like to point people towards financial advisors. Not to hate or anything, I just think we are smarter than we often give ourselves credit for. I do like the idea of low cost robo-advisors in the event that you truly do not want to do it yourself.
I would, however, just suggest that you are 100% aware of every dime in fees that you are paying, and after a little while, see what the robo-advisor has done with your investments and consider taking over the reins yourself!
The best part about all of this is that, so long as you aren’t signing some odd contract with a personal advisor (I don’t think they would often do this but it wouldn’t shock me), all of this can change as you learn and grow!
Sorry for the digression, this is all to say that a few index funds (read more about those here) often do pretty well, even better in some cases than the people who make a living buying and selling stocks.
So you’ve picked out the platform you want to get started with, if you aren’t 100% sure this is where you want to be forever don’t sweat it, it actually isn’t that hard to change brokerages!
You will have to link another account to this one so you can fund it. You can fund your new account by sending a check, but the goal here would be to invest on a regular basis. Thus, linking a checking account that you can pull from regularly is probably a good bet.
Remember when I mentioned the customer service thing? It might come into play here. If you have any issues linking your bank account, all you need to do is call the support team and, though you may have a brief hold (particularly at the end of the year or around tax time) you can get this resolved very quickly.
Once you are all set up here, you can move some money into your account.
Many get hung up here, let me offer some reassurance.
Simply transferring money into a brokerage account, if you manage it yourself, is no different than sending money from one bank account to another. This is different if you are paying an advisor or a robo-advisor, as they probably go ahead and invest based on the risk tolerance and other questions they (hopefully) asked you when you started.
If this account is fully self-managed, your transfer is simply going to sit in your brokerage account as cash. (Note, money market funds may also be used, these are essentially equivalent to cash).
This is both good and bad. The good thing is that you can move the cash in your brokerage account in and out with ease. Just as easy as moving money to and from a checking account. The bad? Cash doesn’t do much good in a brokerage account. While it is always smart to keep a little extra cash, in case an opportunity presents itself, you’ll probably want to go ahead and consider putting that money to work.
In summation, step 2 does not actually result in anything risky. Simply moving money from your checking account to your brokerage account is just moving cash to cash (unless you have an advisor). As hinted at above, it is possible that the money looks like it is invested when you transfer it in, but it may just be sitting there in a money market account.
That is just a technical term that goes beyond the scope of this article and you can still think of those funds as cash. Yet another example where having a strong customer service team comes in handy. Just call them up and ask for an explanation!
Put it to work. Your money will work for you every single day and it will not quit on you.
How do you do it? This depends on a number of factors, but if you just want to get your feet wet, this book does an excellent job at explaining the basics! Click on the image below (or here) to check it out!
Please do not hesitate to reach out to me with any questions, comments, or suggestions!