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“I want to start investing and don’t know where to begin”
“I want to start investing, but I’m afraid”
These are very common phrases among people in their 20s and 30s. I was in the same boat as a young adult, curious about the investment world, but with zero idea how to start doing it.
According to this survey, 61% of Americans find investing “scary” and “intimidating”.
Even though this article is written with young adults in mind, the tips and ideas can be implemented by anyone starting out to invest. You can learn to invest at any age, really.
It is generally recommended that you save to invest because you need somewhere to start, unless you inherit money. I recommend this too, however, I also recommend that you make extra money, not just save your salary to start and to continue to invest.
What’s Keeping you from Achieving your Dream of Investing
Learn to Invest as a Young Adult
1.Get Rid of Limiting Beliefs
What are limiting beliefs? Here are some examples to show you.
“It’s too difficult to understand investments, that’s just for professionals”
Nope. It is NOT difficult to understand investments, most are pretty simple if you dedicate some time every day to learning. However, it’s true that there is NO get rich quick scheme, that doesn’t exist.
“I have to wait a very long time to see results”
Nope again. Even thought there ins’t a get rich quick scheme, you don’t have to wait a very long time to see your investments grow.
“I have to stop going out and become extremely cheap to save money to invest”
Nope, Nope. I’m a fan of saving and not wasting, but I’m not a fan of clipping coupons, sewing my own clothes and making my own soap and shampoo to save money, otherwise known as extreme frugality.
You can start investing and continue to go out and to spend moderately, these are not mutually exclusive.
These beliefs, even though they sound inconsequential can block our minds and us from starting to invest. Change these limiting beliefs and others you may have and investing for yourself will be much easier, as you feel more freedom to pursue it.
2.Increase your Income to Start Investing
Set a goal to double or triple your income. There are many ways to accomplish this, but the best way in my opinion is to work on side hustles, thanks to the Gig economy. If you work for a salary, supplement it with side hustling. Look at these gigs as a zone of opportunities.
Use your skills or obtain new ones to double your income. Among the skills with very high demands for jobs that you can work as a side hustler include; Online writing, editing, blogging, SEO, graphic designs, coding and social media managers.
3.Get a Mentor to Start Investing
A mentor can be a coach or a financial/investment blog that you trust and read often. If you’re stuck on the planning stages of investing, it’s probably true that you can’t find a mentor in your family. You’re probably the first one or one of a few with this “crazy” idea of investing. So, go outside your family to find mentoring. The right mentor can even help you improve your mindset with regards to investing.
4.Build a Side Hustle Business
I’m a fan of side hustles that you can grow into businesses. A blog, teaching online, writing ebooks, doing videos, selling t-shirts. So many online businesses you can pursue. For some of these opportunities, read 10 side hustles.
5.Learn how to Invest
The investment world is large. You got options like; individual stocks, bonds, dividend stocks, Mutual Funds, ETFs, real estate crowdsourcing, real estate properties and more. There is a lot out there. For the purpose of learning how to invest for beginners, I will focus on entry level investment alternatives.
Max out your 401k plan
If your employer offers a 401K plan, participate in it. Most employers offer a “match” to your own contribution. Let’s say for example you contribute $3,000 and your employer match is 50% or .50 on the dollar, you’ll get a match worth $1,500. You end up with $4,500 in your account.
Your employer’s 401k is an account that invest the funds collected from everyone in the stock and bond markets. The returns will reflect how well the money is invested and how the stock and bond market perform.
The Plan – the 401K is governed by an official Plan that sets out the rules and guidance for the 401K administration. The Plan will outline how much you can contribute, the types of funds available to invest in, the percent match by your employer and all the applicable rules.
Set up a Roth IRA account
First, if you really need optimal tax advice for setting up a Traditional IRA vs a Roth IRA, contact a licensed tax accountant.
Basically, a traditional IRA lets you make tax free contributions, but you pay tax later when you sell. A Roth IRA you pay tax on your contributions, but don’t pay later when you withdraw. A Roth is my recommendation because 15 or 20 years down the road you’ll want as much money as you can for retirement, free of taxes.
For this year, 2019, the maximum contribution to a Roth IRA is $6,000 per year. The income requirement is $122,000 per year for singles and $193,000 for married filing jointly.
You can set up a Roth IRA at any one of the brokerage houses. Vanguard, Fidelity and Schwab are some of the most popular ones. You’ll need to select investments to place in your Roth IRA account.
These investments can include individual stocks, bonds, money markets, ETFs, mutual funds.
Invest in ETFs
I’m a fan of ETF investments because they are generally well managed, if you select a good brokerage, and you get to diversify your holdings. Compared to mutual funds you have more control over ETFs since they are priced like stocks, so you can sell them during the day.
Oh, you’re in luck. Here is an article about ETFs
ETFs are also low cost to maintain. Look for ETFs with 1% or less in fund’s administrative costs.
There are many brokerage houses with ETFs offerings, again Vanguard, Fidelity and Schwab are 3 of the big ones.
The Math for Young Adults Investing
How much money do I need? You don’t need a lot of money to start investing in ETFs. Most brokerages have low minimums or no minimums. You can continue making small investments every month, automatically.
Recommended road map – If you want to learn and to start investing with ETFs.
- Select a basic fund, example the S&P 500 is one.
- Open an account with a broker offering this fund.
- Make your first investment.
- Set up automatic fund transfers from your checking account to the fund, as low as $50 a month. It’s easier to save and invest if you never see the money.
- Reinvest the dividends. Maintain your discipline.
This strategy is only a guide, as you learn and move along you can explore other types of funds and other strategies. Always remember, investing is a long term game.
These are the hacks you need to manage to get rid of your fear of investing and actually start doing it. Once you get to the point where you start investing, look at your options. The 401 Plan should be max out, a Roth IRA holds the money you can’t have in your 401K (after you maxed out) and ETFs investing is easy and you don’t have to worry about picking individual stocks.