Back to basics. Today I’m going to talk about how to start investing.
We write articles every day aimed at investors looking for many different things. Some want to get into options, some want to invest in the next Facebook (Nasdaq: FB). Others simply want a stable portfolio to save for retirement.
But we all start somewhere and taking those initial steps towards becoming an “investor” can be daunting. Once you have taken those steps, however, you can begin taking your financial security into your own hands.
Step 1: Should you be investing?
Most financial advisors will suggest that you do two things before you start investing. The first is to pay off your “bad debt,” any short-term debt you might have like credit card debt or high-interest student loans.
Next they’ll suggest that you establish some kind of emergency fund and to keep that money “liquid,” meaning that you can quickly access it in an emergency. I like to keep this money separate but still within reach and find that a savings account works perfectly. It doesn’t generate much in interest but I know it is there.
Once you’ve done this you’re ready to learn how to start investing!
Step 2: Open a brokerage account.
The next thing you’ll need to do is open a brokerage account. Once you’ve opened this account you’ll be able to buy stocks as well as ETFs. There are many great online brokerage accounts out there to choose from.
I personally like Sharebuilder because of its user-friendly interface, great customer service and simple fee structure.
When opening an account you’ll be asked to select what kind of account you’re opening. If you intend to save for retirement then open an IRA, or Individual Retirement Arrangement. These accounts carry special rules about how much you can contribute and when you can take money out.
Otherwise you’ll want to select a regular brokerage account.
Step 3: Fund your account!
Next you’ll need to add money to your brokerage account. If you’ve opened an IRA then there are limits to how much you can add to this account each year. The 2014 contribution limit is $5,500 but (if you’ve opened a Roth IRA) there are additional restrictions based on your income and these rules tend to change year-to-year. Be sure to consult the Roth IRA section of the Internal Revenue Service’s website, which is actually a pretty handy resource for tax information.
If you’ve opened a regular brokerage account there are no limits on the amount you can add to your brokerage account.
Follow your brokerage’s instructions for how to fund the account. Some will have you mail a check. Most will allow you to do a simple electronic transfer.
Step 4: Select your investment and place an order!
Choosing what to invest in might be the toughest part.
If you’re just starting out you should probably stick to a no-brainer boring stock like Exxon Mobil (NYSE: XOM) or 3M (NYSE: MMM), something that you’ve heard of with a business model you can easily picture and isn’t going anywhere anytime soon.
You could also buy an index tracking ETF like the one that tracks the S&P 500 (NYSE: SPY) or the ETF that tracks the Nasdaq (Nasdaq: QQQ), two of the most important stock indices.
While choosing what to invest can be difficult, placing the stock order itself can be tricky.
If you’ve never placed a stock order before there will be a few terms and pieces of information that are unfamiliar. Check out my how-to guide for buying stocks online for a walk-through of this process!
Once you’ve clicked “Confirm Order” you are officially an investor!
Now that you know how to start investing be sure to check in regularly with Wyatt Investment Research for excellent research and market commentary. You can even sign up for our e-mail list to get these resources delivered straight to your mailbox!
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