A common question I hear is: “Ok Amanda, I’m ready to start investing, but how do I invest?!” It sounds hard and confusing only because it’s new to you, but there are really only a handful of steps you need to take to invest your money and start reaping the benefits of the eighth wonder of the world ✨ compound interest ✨.
If you’re ready to invest, start building wealth and achieve financial freedom, I’ve broken down the process into five easy steps to help you get started TODAY!
How to Invest in 5 Easy Steps
Step 1: Choose a Brokerage Firm
The first step is to choose a brokerage firm - aka a company - to use as your platform for investing. Just like you chose a bank to hold your cash savings, you need one for your investments. This step is usually the one that feels the most overwhelming since it’s the first decision in the process—but it’s not as critical as it may feel. Seriously, don’t spend more than 10 minutes on this decision. Set a timer if you are the person who gets analysis paralysis.
There are a bunch of companies out there—Vanguard, Charles Schwab, Fidelity, and the list goes on. They all have different bells and whistles, but at the end of the day, they all serve the same purpose—keeping your money safe and helping it grow.
So, don't spend forever agonizing over this step. Instead, focus on a few key factors: low fees, user-friendly interface, a decent track record. What do I use? My all-time favorite is Fidelity because it’s extremely user-friendly, no investing minimums (you can start investing with literally just $1) and has low fees (we love that). I think the interface makes it the easiest to navigate too.
Ultimately, for this step, you want to pick the one that you can easily use so you don’t feel overwhelmed or intimidated every time you login to invest money and check in on your investments.
If you already have money in an account with a brokerage company (like your employee sponsored retirement account), it probably makes sense to use that company to open new investment accounts so that all of your money is in one place making it easy to manage and not forget about when it comes time to retire.
Remember, the goal is to start investing and take advantage of compound interest, not become a professional stock day trader (no one has time for that), so choose one that feels right for you, sign up, and get your money working for you!
Step 2: Select Your Investment Accounts
Now that you’ve picked a brokerage firm, you want to decide what to invest in and select your investment accounts. While this requires a bit more careful consideration than step 1, it can also be pretty simple.
I’ve written about the different types of investment accounts and the order in which you should invest in them to maximize the growth of your money in this post, but here’s the TL;DR on account types (but seriously, you should save that post and come back to it because investing in a certain order will really help you out when it comes to tax savings).
Workplace Retirement Plans: You probably know of workplace retirement plans by their more common names like 401k, 403b, 457, etc. If your employer provides a workplace retirement plan, don’t pass up this opportunity. These plans allow you to contribute a portion of your pre-tax salary, reducing your taxable income. Most employers even match a percentage of your contributions - now remember: this is part of your compensation! Your employer factors 401k matching into your comp when they hire you, so you are literally leaving your money on the table when you don’t take advantage of this.
Take advantage of these plans to maximize your retirement savings and enjoy tax benefits along the way.
Individual Retirement Account (IRA): I love the IRA, specifically the Roth IRA. Like dogs, they are (wo)man’s best friend, and everyone should have one (s/o Zekey boy 🐶).
With traditional IRAs, contributions are tax-deductible, for some people, and your investments grow tax-deferred until you withdraw them in retirement. You can read more here about who’s eligible for a tax deduction.
Roth IRAs, on the other hand, offer tax-free withdrawals in retirement, but don't provide immediate tax benefits for contributions.
My personal fave is the Roth IRA, but you can choose the one that aligns with your tax strategy and future retirement goals.
Taxable Brokerage Account: A taxable brokerage account is like a utility belt for investing. It offers flexibility, accessibility, and a wide range of investment options such as stocks, bonds, mutual funds, and more.
Unlike other investment accounts like the 401k and the Roth IRA, with a brokerage account, you can buy, sell, hold, and withdraw as often as you want. However, watch out for Capital Gains Taxes. If you buy and sell your investments in less than 365 days, you will be subject to Short Term Capital Gains Taxes. That means any money you make will be taxed at the federal income tax levels.
How can you avoid this? By being a LONG TERM INVESTOR! If you buy and hold your investments for at least 366 days, the government rewards you and you pay Long Term Capital Gains Taxes (these are significantly lower which means you keep more of the money you make!). Check out the rates here in a recent instagram post I made about Capital Gains Taxes.
Step 3: Setup Regular Bank Transfers
This step is all about automating your investments through regular bank transfers. Instead of relying on sporadic contributions or relying on your memory to make manual transfers, setting up regular bank transfers ensures a consistent and disciplined approach to investing. By automating your investments, you'll eliminate the temptation to use that extra cash for impulse purchases or temporary indulgences (we all know how convincing those online shopping carts can be).
Take a moment to assess your budget and determine an amount that you can comfortably contribute on a regular basis. It doesn't have to be a massive amount—remember, it's the consistency that counts. Start small if you need to and gradually increase your contributions as you feel comfortable.
Remember, investing is a marathon, not a sprint. The key in this step is to stay disciplined and remain consistent with your contributions.
Step 4: Buy SOMETHING and AUTOMATE!
This is the most important step. You cannot forget to do this one!
One common mistake I see people make is opening an account, sending money to it every week or month, but never actually picking anything to invest that money in. When this happens, you are essentially using it as a savings account rather than an investment account. No bueno.
Once you’ve sent money to your investment accounts, you must choose something to invest in whether it’s a stock, index fund, ETF or what have you.
So how do you do that? There’s no one blanket answer to cover everyone’s individual circumstances. However, there are some important things to keep in mind as you’re choosing:
Just starting it? Try a low-cost index fund that covers a broad market like the S&P 500. These offer greater diversification and have lower fees and other expenses, so you won't be paying a fortune to fund managers who claim they can outsmart the market (spoiler alert: they usually can't).
Consider your overall goals: How much money are you looking to have in your investment portfolio? How long do you have to be investing before you need to hit your goal?
Consider your risk tolerance. Are you easily able to stomach the downturns of the market? Do you prefer a “sure thing?” Regardless of your risk tolerance, remember that investing isn’t a casino — you’re playing the long game rather than trying to hit big in one investment, but you should still take into consideration the level of risk you’re able to tolerate in order to remain consistent in your investments.
Don’t put all of your eggs in one basket. You want to diversify your portfolio so that it's able to more easily withstand the ebbs and flows of the market.
Avoid the temptation to chase short-term performance or engage in market timing strategies. Stick to your long-term plan and let the power of compounding work its magic!
DON’T FORGET: you know how we talked about setting up automatic bank transfers? Here’s a pro tip - set up automatic investments! Yes, you can go into your investment account and not only automate bank transfers but also automate investment purchases at the same time. That way, you never have to worry about leaving money uninvested.
Step 5: Wait
Step 5 is arguably the coolest and most boring step. At this point, we wait.
And wait some more.
The waiting requires some patience we’re not used to having to have. In our Amazon Prime-DoorDash-Netflix binge society, we’re very accustomed to instant gratification.
Investing isn’t that.
You can check your account balances occasionally, but I prefer a “set it and forget it” mentality. We don’t need that money until retirement so let compound interest do its thing! Don't become a neurotic, day-trading maniac. Remember, compound interest is your secret weapon that grows your investments over time.
Tips for Investing
There are many tips out there for investing. The volume of information about how and when to invest is part of what makes investing feel intimidating in the first place, so here are just a handful of extra tips to help you get started investing.
👉🏼 Don’t forget to actually invest in something! Your account isn't there to just hold your money. You have to pick something to invest in to get that compound interest magic.
👉🏼 Make sure you select that you want to reinvest your dividends. This can have a huge impact on your overall portfolio as the amounts increase, so you don’t want to miss out on that!
👉🏼 Don’t overcomplicate any of these steps! Low maintenance=sustainable. The easier you make it, the more consistent you’ll be and the more $$$ you’ll stack up!
👉🏼 Remember to be patient. We’re long-term investors, not day traders. It will take some time to see our money grow, but it will happen. There’ll be dips in the market along the journey, but it’s a marathon, not a sprint, and if we’re patient, all will work out in the end!
Free Investing Class
Ready to go deeper with investing? I invite you to join my free investing class party! I’ll go over why investing is so important, show you how to navigate a brokerage firm’s website, and even show you the process of investing $1 (yes, you can get started investing with just $1!) from start to finish. By the end of the party, you can have invested your own dollar(s) just by following along and having fun!
