Investing 101 – A beginner’s guide

beginner investing 101

You hear about the stock market hitting new highs and the economy going up and down and the job market is getting better, interest rates are rising, housing market this and that and you want some of the action.

But first things first..

Do you have an emergency fund set up already? If not, please take a look at setting an emergency fund up now and how important it is to have one for a rainy day.

Do you have high interest debt? Interest from credit card balances will far exceed any returns from the stock market in the long run, so pay them off before throwing your money into the stock market. Take a look at reducing and eliminating debt before investing anything.

Getting started with investing

If you are a first time investor, you probably don’t have thousands upon thousands of dollars sitting idly to throw into the stock market at this time. Investing in individual stocks is also a time-consuming endeavor, from researching stocks, fundamentals, news, etc., and it can often be overwhelming at times.

Fortunately, there is an easy way to get your feet wet in the world of investing with even just a small sum of money.

Fidelity allows you to open an IRA with recurring $200 per month automatic investments that waives the $2,500 minimum to open an account.

Charles Schwab has a $1,000 minimum opening balance that is waived with a $100 minimum monthly transfer via direct deposit or Schwab MoneyLink.

Both Fidelity and Schwab have many mutual funds and index funds that have no trading fees. Many do have a short-term holding period fee of 90 days. These funds are really meant to be bought and held for many years to accumulate compounding growth with reinvested dividends and capital gains.

If you do have at least $1,000 to invest, the Vanguard STAR Fund that has a minimum opening balance of $1,000 that tracks eleven actively managed Vanguard funds. The minimum for the majority of Vanguard funds do however start at $3,000, and if you do have the money to invest, Vanguard is a favorite of mine to use when investing in mutual funds.

I do have investment accounts with Vanguard, and their low fees and great track record is definitely a place for investors that want to put money in a mutual fund or index fund and let that money sit and grow for years to come.

Open an account

Take a look at different companies and the funds they offer and pick out some that you are interested in. View each fund prospectus, which contains details on a fund’s objectives, investment strategies, risks, performance, distributions, and fees and expenses. This will tell you whether or not a particular fund is in line with your objectives, your risk tolerance, and your investment strategy.

Be sure to review all necessary documentation before investing in any fund as there is no guarantee on returns.

Once you decide where you want to open up an account, the next step is to jump in headfirst and actually open one up. These days, you can open an account up online in a couple of minutes and the verification process generally takes a day or two.

Voila! Your new account is set up and ready to go.

Funding your account

Once you have your shiny new account set up, typically you will need to set up an account from which to transfer money from. This is generally done using electronic bank transfers in which you would need your bank account number and the routing number.

Put savings on auto-pilot

To put the story short, if you are brand new to investing and want to get your feet wet, investing in mutual funds are the best way to go. They tend to be low maintenance and you can easily diversify your portfolio with a couple of funds.

Setting up automatic contributions is a great  way to set investing and savings on auto-pilot and average out your cost basis. Also, make sure to reinvest any dividends and/or capital gains to allow for compounding to really make your money grow.

Once you set up automatic investments, you can check back and re-balance as needed quarterly or twice a year and odds are, you won’t even feel the money being taken out of your account.

What’s next?

You can certainly continue to contribute, but as you age and become more knowledgeable about the world of investing, your objectives may change, and you may want to invest in individual stocks, bonds, currencies, options, etc. There’s a whole world out there to invest in. Get out there and start learning and take control of your own investments and build your own personal wealth.

You can take a look at my investment strategy for 2015 and maybe it’ll help you out too. I am certainly open to comments and questions as always.

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