5 Simple Steps to Start Investing

Financial Responsibility, Saving & Investing | Wednesday, October 26th, 2016

The easiest part about investing your money is getting started, but it’s often the most difficult obstacle for people to overcome. Investing can feel complicated and overwhelming to newcomers — there’s a whole new set of terminology, various banks and investment firms, and a myriad of account types to choose along the way.

But once you decide to start, each step gets easier. So if you’ve decided to finally conquer your fear of investing, here are five simple steps to build a solid portfolio and prepare for your future.

1. Plug the Leaks

Investing your money is pretty much pointless if you have high-interest debt and poor spending habits looming over your head. Even the best investments won’t deliver the same return as paying down your credit cards and other bad loans, so take care of this first. Try the snowball method if you’re paying off multiple balances.

2. Start a Savings Account

A high-yield savings account (Ally Bank and American Express are two good options for this) accomplishes two things:

  1. Sets up an emergency fund so you don’t have to rely on credit cards if you lose your job, have a medical emergency or another unexpected expense
  2. Builds a small nest egg for your first investment account (more on this later)

3. Use Your 401(k) Match

If your employer offers a 401(k) match, take it. Even if you have credit card debt and no savings account, always take the match. It’s free money. A 401(k) is a tax-deferred retirement account that takes a pre-taxed amount out of your paycheck (typically 4-6 percent) and puts it into a retirement account where it slowly grows over time. Many employers also match your contribution up to a certain percentage, making this a no brainer investment tip.

4. Open a Set-and-Forget Roth IRA

OK, you’re finally ready for your first investment account. For most people, this is the Roth IRA. A Roth IRA is the opposite of a 401(k) in that the money you invest is already taxed, but it grows in your account tax free. So, when it comes time to collect the money when you retire, you won’t pay a dime in taxes.

A Roth IRA is a type of account, but you must choose the type of fund to invest in. Funds are groups of stocks, bonds and other investments that vary depending on your financial goals and how much risk you’re willing to take. For most people who are starting out, a low-cost index fund is the ideal investment.

Even easier is a Vanguard Target Retirement Fund. This type of investment lets you choose the year you want to retire and then the fund automatically balances between stocks and bonds every few years (hence the set-and-forget) to help you achieve this goal. You can open these accounts with as little as $1,000 (from the savings account you started).

5. Streamline Your Snapshot

If you like to keep a daily eye on your finances (and hopefully watch them rise), all you need is a good smartphone like the Galaxy S7. These new phones have large screens that help you easily view data and security precautions so you don’t have to worry about keeping your financial data protected. There also are some incredible free apps to see your portfolio grow over time. Personal Capital and USA Today Money are two popular apps that track investments and stack them against spending and income so you can get a better handle on your overall finances.

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