How To Get Started Investing
If you’re just starting out as an investor, the biggest obstacles often are personal, not financial. For instance, you might think you don’t make enough money to invest.
Believe it or not, you probably do. In a lot of cases, you can start a mutual fund investment for as little as $250, then a small $50 minimum every time you invest after that. The amount you save initially isn’t important. The fact that you are saving is what matters.
A caveat: If you don’t have much in the bank, don’t worry about investing just yet. Make sure you have ample emergency savings first. Start by setting small goals, perhaps building that savings to $1,000. Work your way up from there.
Once you have your emergency cash squared away, get started investing with a well-diversified choice, such as an index fund. This will give you a broad investment into many areas of the market. Just be sure to keep your time horizon and your investment goals in mind.
The next problem can be fear. For instance, your friends might tell you that stock investing is crazy. Well, compared to an insured savings account at the bank, they’re right.
Being successful in anything involves taking some risk and the stock market is no different. Remember, though, that most companies in the stock market are led by good, decent people trying to do the right thing.
Namely, they are trying to produce a product that they can sell for a profit at a fair price to people who want to buy it. That in turn benefits all of us as shareholders of that company.
Invest in what you know
Another potential obstacle is feeling inadequate. You might feel that it’s too easy to make a mistake. Trust me, your investor friends felt the same way when they first started. And don’t worry about making mistakes — because you will. The point, as with any mistake, is to learn from it.
If you choose to own individual stocks, start with a company that you know, one whose products you use. For example, if you can’t get through a day without a Diet Mountain Dew (like me), then get started investing through shares of Pepsi-Cola (NYSE: PEP). Coffee drinker? Starbucks (NASDAQ: SBUX) is a stock as well. (Note: These are examples, not recommendations.)
Maybe you find investing so boring you can’t even think about it. The good thing is you don’t necessarily have to! Investing in a target-date fund, for instance, will simplify things as much as possible.
If you choose a target-date fund, professional managers will make the decisions for you based on what year you feel you might retire.
Your only big mistake
The farther away that is, the more risk you’ll take on, meaning the target-date fund will own more in stocks and less in conservative investments such as bonds. Getting closer to retirement? The target-date fund will change automatically to become more conservative over time.
One easy get-started strategy: If your employer matches contributions into your retirement plan, start by putting in at least that amount from your paycheck into your 401(k) plan. Pick an amount you want withheld and it goes straight to your retirement.
The only mistake, really, is to put off investing. Some people say, “Well, I’ll do it later, when I’m older.” Something you can never, ever get back is time. That’s especially important due to a concept known as the time value of money.
Simply put, the longer you stay invested, generally the larger the investment will grow. Remember when you learned about compound interest in middle-school math class? It’s the same idea.
The adage here is “time in the market is better than trying to time the market.” Start small, be consistent and focus on the long term — but get started investing.