Now that you’re Protecting Yourself and have paid off your debt, your Pay Yourself First (PYF) account is locked, loaded and ready to be invested. After all, when your passive income from your investments is greater than your average monthly expenses, you’ll reach Financial Freedom—and that’s the goal. But if you’re new to investing, diving in may feel scary and overwhelming. We’ve got you covered!
Here’s how to start investing in six easy steps:
Step #1: Understand The Basic Terms
To make sure you’re making solid investing decisions, do some work to get your head around the basic concepts. This includes understanding the jargon. Bull market, bear market, asset classes, asset allocation, ETFs, mutual funds, the Dow Jones and Nasdaq sound complex, but there are resources to educate yourself.
Not sure where to start? In our modern day of technology and information, there are plenty of resources at your disposal. Read on up on well-researched articles from reputable investing sites. Or head over to your local library, and check out books on investing basics.
Step #2: Know The Fees
Fees are an important part of investing. That’s because hefty investor fees will cut into money you earn from investing. The higher the fees, the less your pot of money in the long run. Investing fees can include expense ratios, portfolio management fees, front- and back-load fees, transaction fees and annual account fees.
Different companies have different fees and fee structures. Depending on the company and type of assets (i.e., stocks, bonds, cash equivalents), you’ll have to pay a certain amount in fees. If you have questions, feel free to contact someone at the investment company to get them answered. And get on the phone with your rep to gauge their responsiveness.
Step #3: Research Your Options
There’s certainly no shortage of ways you can invest. If you’re just starting out, consider robo-advisors. These are known to have lower fees than traditional financial advisors. They offer financial advice through algorithms, and have minimal human contact. Through a robo-advisor you can invest in low-fee ETFs, which are types of securities that track either an index, bond, or index fund. Besides known to have lower fees, ETFs can be traded like stocks. A few popular robo-advisor investment firms include Wealthsimple, Betterment and Wealthfront.
Looking for a traditional financial planner or a registered investment adviser to help guide you in your investing decisions, you work with one through a major investment company or look for an independent financial planner. Fee-only planners are financial planners who don’t make commissions from selling their clients financial products and services. As their name implies, they make a living strictly from charging their clients either an hourly, flat fee or annual retainer. Working with a fee-only planner may be your best bet for unbiased advice free from questionable motives.
Do you care about the social good and how your choices as a consumer affect the world at large? If so, there are investment companies that specialize in what’s called impact investing. Some popular impact investment companies include Swell Investing and Motif Investing. Many major financial companies also now have an impact investment arm.
Step #4: Start Small
If you’re still learning the ropes—there is a ton to learn, after all—consider starting by investing with just a little bit of money. While you may not necessarily rake in big bucks, you’ll create the inroads for investing on the regular.
And getting starting takes just a few dollars. Apps such as Acorns, Stash, and Robinhood have low minimum deposits to open an account and low fees. Through companies such as Stockpile, you can even invest in fractional shares or partial shares of stocks with just a dollar.
Step #5: Set Your Sights On The Long Game
No matter how conservative your strategy is, all investing comes with some risk. And because the market bears volatility, you’ll need to keep your eye on the long-term with investing. Regardless of your time frame, comfort level with risk and investment preferences, you need to be okay with riding out the inevitable ups and downs that come with investing.
This will help you avoid freaking out and making sudden, regrettable moves when the stock market takes a scary tumble. By focusing on the long game—and investing for Cash Flow—you’ll give your money a chance to grow.
Step #6: Get Some Practice
If you’re a investing scaredy cat (I once was, too), start by pretending to invest in the stock market. Not only will this help you understand the basics of investing in stocks, but you’ll also get a sense for your emotional response to market volatility. Investopedia, MarketWatch and Wall Street Survivor are stock market games that help you learn about investing without having any skin in the game.
We know taking the first step to investing isn’t easy. But getting started is what’s most important. Even taking these six baby steps will pave the way to becoming a confident investor. In turn, you’ll achieve your ultimate goal: Financial Freedom.