About 2 years ago, I made up my mind that I didn’t want to be one of the many women who never invest, so I made a plan to go from zero to investing. While the steps intimidated me at first, I created a plan to get to my end goal and this dramatically reduced the overwhelming and intimidating feeling.
Today, I can confidently say that I have made several investments, and my goal is to continue to push myself every day to be better than the day before.
To help you reduce those “scaries” bubbling up in your stomach, I outlined the approach that I took below to hopefully inspire you to create your own plan.
Before getting into the details, I first want to call out that everyone’s situation will be unique, and you will need to create an approach that works for you and your lifestyle. When creating a plan, your mindset needs to be thinking about creating a plan that spans over years. This is not a time to try to get rich quickly, but slow and steady will win the race.
Without further ado, I’ve outlined my personal approach below.
How to Start Investing
1 – Save!
For one entire year, I focused exclusively on 1) rebuilding my emergency savings fund that had been depleted after being hit by a car and 2) creating a pool of money that I could invest! It sounds silly to say, but I’ll say it. You can’t invest if you don’t have any money, so the first step is to kick saving habits into high gear.
Rebuilding an emergency fund gives me the peace of mind that, should anything disastrous happen to my income, I have a cushion where I can support myself for at least 8-10 months (most people recommend 6-8 months, but I am more conservative).
Once I had my safety net, over the remainder of the year, I tucked away every extra dollar I had into a high-yield savings account. I wouldn’t say I’m a big spender anyway, but I focused on building sustainable lifestyle habits that let me live below my means, and develop skills at my job to increase my future earning potential.
2 – Prioritize learning as much as you possibly can
During the same first year where I focused on saving, I also spent that time learning as much as I possibly could about investing. When I started, I felt SO overwhelmed because financial jargon is so confusing and obfuscates quite simple ideas. A tip from me to you, the concepts themselves are not as confusing as the financial world makes them seem, but it will take time and focus to do the proper research and develop your financial literacy.
Learning about investing is a lifelong goal that will definitely not end after one year, but my main goal was to make sure that investing no longer felt like a foreign language.
- Below are some of my favorite financial resources:
3 – Fund retirement accounts
A year later, after I built up a decent pool of savings and equipped myself with more knowledge about the fundamentals, I started prioritizing funding my retirement accounts. This included both my 401K with my company and an IRA (Individual Retirement Account). Unfortunately, during year 1, my employer did not offer a 401K and I didn’t know what an IRA was, or I would have prioritized these accounts MUCH earlier.
Why did I start with retirement accounts? These tax-advantaged accounts allow me to grow my money faster than a normal brokerage account. You only pay taxes when you either put your money in the IRA (Roth IRA) or when you take your money out of the IRA (Traditional IRA), but not on the gains from any of your trades. This yields faster-compounding growth over time because taxes aren’t being pulled out. Learn about the differences between Traditional and Roth accounts here.
My 401K provides very few choices on how to allocate my money, so I have simply set my preferences and forget about it. I write this as we go through a very volatile moment in history with the rapid spread of Coronavirus, and I refuse to even look at my 401K account.
4 – Create a watchlist
The next step was to create a watchlist. So to recap, it’s been over a year now, and I still haven’t made any investments on my own (401K is automatically invested). Before I feel comfortable making any investments, I want to research companies and get a better understanding of the company and the fundamentals.
I created a watchlist of companies that easily came to mind. I then started digging into annual reports and researching more about those companies. This also started a ton of research on what is the best way to evaluate a company, which will be an ongoing lifelong learning project.
5- Invest in ETFs
Exchange-traded funds, or ETFs, are a basket of stocks that provide instant diversification. All ETFs require research to learn what is in that basket, but a very common ETF for investors is the S&P 500 ETF, which is a basket of the 500 largest companies on the stock exchange.
Everyone gives the advice that 1) you can never time the market and 2) time in the market is always better than trying to time the market. With that advice in mind, I know my IRA funds are untouchable for about 30 years. So, I started with investing some of my IRA funds into ETFs I researched and felt would provide good returns and would last through the years.
My personal preference is to start with “safer” bets in my portfolio, and then gradually add very small positions of riskier bets. ETFs provided the instant diversification I was looking for, and I went with some of the more popular ETFs (S&P 500, Large Cap, Medium Cap, etc.)
6 – Wait for a dip and buy stocks!
I already created a strong watchlist and did research on individual companies, and once the market pulled back, I finally felt confident enough to start investing in the market! I’m excited to continue learning and to keep investing.
I’m sure I’m going to make plenty of mistakes throughout my time investing, but knowing that I have a strong budget, an ample emergency fund, and maxed out retirement accounts, I feel confident that I’m moving in the right direction.
Everyone’s path will be different, and everyone’s portfolio and investment strategy will vary widely depending on your lifestyle and goals. If you are brand new and don’t know where to start, I hope this Beginner’s Guide on How to Start Investing was helpful!
Check out additional topics to make personal finance SLIGHTLY EDUCATIONAL on our Personal Finance page.
