How To Start Investing

Scroll

Sometimes we have the greatest intentions, but never take the first step to start a new habit. If you’ve been thinking of starting to invest, here are five steps to help get started:

Work On Your Household Budget

For the purpose of this article, I’m assuming you didn’t just fall into a pot of money. For most people, wealth is accumulated by consistently adding to an investment account each month. If you’re going to be consistent in your investing, then you need to make sure you have room in the monthly budget to invest. Therefore, a great place to start is by looking at your monthly budget to determine how much you have available to invest.

Establish An Emergency Fund

An ’emergency fund’ is an amount of money used for household emergencies, such as temporary loss of a job or a major car or home repair. Having an emergency fund gives you a safety cushion when these unusual expenses happen so that your investing program (and other important monthly commitments) can continue uninterrupted.

Choose A Broker Or Advisor

The choice here is whether to go on your own or hire a professional to help you. Your choice will be determined by your comfort level, experience, and time you have available to monitor your investments. If you’re just starting out, focus on low cost funds. A fund selection from a no load (re: no commission,) low expense fund from a firm like Vanguard or Fidelity is a great way to start. If you have specific financial planning requirements you could hire a fee only investment advisor to help you.

Start Small

Be Consistent I think it’s good to start with a comfortable dollar amount but then commit to regular increases. By starting with something small, but easily manageable, you can insure the investing habit forms. By increasing the contributions over time, you are saving more, but in a way that helps you continue the investment habit. An example would be to increase your contributions by 5% each year or maybe increase it by the amount of a pay raise. The most important thing is focus on consistency and the habit of investing.

Stay On Top Of Your Investments

It’s important to stay on top of your investments and your financial plan. You should review everything on a regular basis. During these reviews, take a look at if anything has changed with your investment funds. Specifically, changes in how it is invested, performance relative to peers and indices, and changes to expenses. It is also important to review your retirement goals, or other goals you have established for yourself. Periodically reviewing helps you understand how you are progressing and helps you determine whether or not current contribution amounts are appropriate.

Use Time As An Asset

So there are five points to consider as you start your investment program. The last point I wanted to make was to remember that time is most important to your success. The sooner you can start investing and the longer you can let it grow, the more your chances for success increase. Most of us are putting away money for retirement, which means we have a deadline looming at age 65. No matter what your current age or situation, the sooner you start, the better you can use time and the magic of compounding returns to grow your portfolio. So start today and don’t delay!