If you are thinking about starting to invest, it can be daunting knowing where to start. There are so many different things to think about, and that is before you’ve even considered what you’re going to invest in. Here is a basic quick start guide to get started investing. It is not designed to be in depth, but it will get you through to your first trade.
Getting an “Investing” Account
The first thing you have to do is get an account to invest in. You can’t just do it in a regular savings or checking account at your bank. You need to get a brokerage account at a brokerage company. These are companies that are licensed to trade securities, like stocks and bonds. There are many different companies out there, but for most people an online discount brokerage will make the most sense.
There are two main account types: regular cash accounts and retirement accounts. Regular cash accounts are accounts that you can use to invest in, and you can withdraw your money at any time. A retirement account also allows you to trade and invest, but it has requirements that don’t allow you to withdraw your money until retirement without paying penalties.
If you’re planning on investing for the long term, you should consider getting a retirement account because of the tax benefits. If you want to trade and pull your money out after a short term, get a regular brokerage account.
Getting Ready to Invest
After you have chosen where to invest and what type of account to open, you need to get ready to fund your account and make your first investment. Hopefully if you’ve been thinking about investing money, you’ve also been budgeting for investing. If you’re just getting started, you may be setting aside $100 a month. If you want to invest for retirement in an IRA, you may be planning on the maximum Roth IRA contribution of $5,000 per year, or about $416 per month.
Once you have some money set aside, you need to transfer it into your brokerage account. If you use a online brokerage, this can be as easy as setting up an online transfer.
One thing to consider about investing in a lump sum or monthly is fees: every investment transaction requires a commission to be paid. So, if you invest monthly, you could face a lot more fees versus investing in a single lump sum. Just something to consider when you start.
Making Your First Trade
Now that your account is funded, you’re ready to make your first trade. For those just getting started, it makes sense to do a little homework on the different types of investments: stocks, bonds, mutual funds, ETFs, and more! For most, investing in a mutual fund or ETF that tracks the market makes sense, but you may also want to invest in single stocks or bonds. Make sure that you select an investment that meets your needs and fits your risk tolerance.