How Do You Get Started Investing?

Make Money on Your Money

The average investor who reinvests dividends within a broad-based index, such as the S&P 500, has a 94% chance of positive return over 10 years, according to Lee. If you extend that timeline to 20 years, investors can increase that chance to 99%.

“If you invest for the long term, your chances of obtaining a positive return increase dramatically,” Lee said.

In other words: when it comes to investing, “keep calm and carry on.”

But first, you have to cough up the ante!

How Do You Get Started Investing?

If you’ve read this far, you’re (hopefully) at least a little more comfortable with the lingo, and convinced that investing is the way to go if you want your money to be fruitful and multiply.

So now, how do you get started on your own investments? And what if you don’t have very much money to get started with?

1. Choose an Investment Vehicle

First things first: you’ll need to decide on what type of investment account best fits your needs. A variety of different account types, or “investment vehicles,” correspond to different financial goals, some of which carry special tax incentives when used correctly.

For instance, if you’re investing to save for retirement, an account like a401(k) or traditional IRA allows you to make tax-deferred contributions, which can help lower the amount you pay in income tax today while simultaneously building your nest egg for later.

A Roth IRA works a little differently: your contributions are taxed today, but then grow, and are more importantly withdrawn, tax-free thereafter.

These retirement accounts do come with certain IRS regulations, including strict rules regarding when the funds can be taken out. (The short story: you’ll have to wait until age 59.5, with a few circumstantial exceptions.)

There are also investment accounts geared specifically toward paying for college (529 plans) and health care (HSAs, or health savings accounts), which carry similar restrictions.

The most flexible option: opening a plain-old individual investment account, which allows you to withdraw your funds at any time to pay for miscellaneous objectives.

Even then, it’s a much better idea to leave your contributions invested as long as possible — not only to maximize your returns through compound interest, but also to avoid short-term capital gains taxes, which can be levied at a higher rate than what you’d pay on long-term holdings.

Taking a look at your own financial timeline and plans for your future can help you decide which type of investment vehicle is right for you.

Our suggestion? If your workplace offers access to a 401(k), start there — and if there’s a percentage match on offer, be sure to take advantage of it. Your contributions will be deducted directly from your wages and are tax-deductible, so it’s a pretty pain-free way to get started.

Then, you can consider opening an auxiliary account — whether that means accelerating your retirement savings with an IRA or investing your pocket change with a digital app like Stash.

Speaking of which…

2. Open a Brokerage Account (or Download an App, or…)

If you’d asked somebody how to invest in stocks 20 years ago, you would have gotten one resounding answer: Call up a stockbroker and place your order. I mean, you’ve seen “Wolf of Wall Street,” right?

Fortunately today’s technology has transformed the investment landscape, creating a spectrum of easily accessible options regardless of how hands-on you want to be with your portfolio.

Of course, you can still hire a full-service brokerage, like Morgan Stanley, staffed by investment advisers who will allocate your assets and manage your account for you, insofar as you allow it.

While you’ll always maintain the final say-so, you can offload the research and strategizing to someone who does it for a living. And if you don’t want to pick up the phone, you’ll find a huge range of features and resources available through the firm’s online client portal.

This kind of hands-on, human-powered advice does come at a cost, though — usually expressed as a percentage of your assets under management (AUM). These firms may also have lofty minimum account balances, so you’ll probably need to deposit a significant chunk of change (think: several thousand dollars) to get started.

Another option for those who want to do as little research as possible is to open an account with a robo-adviser, like Stash or Acorns. 

Robo-advisers use computer algorithms (backed by human research) to create and manage portfolios for their clients, and thus are able to offer their services at a much lower fee than a human investment adviser.

If you’re looking for a more hands-on experience, you can open a DIY brokerage account through a firm like TD Ameritrade. Many of these brokerages offer free accounts with low or no account minimums, but you will be on the hook to pay for trade fees and commissions on the assets you buy or sell — and to do the research to make those trades good ones.

Finally, there’s a growing class of investment apps, like Stash and Acorns, that make it simple to invest right from your cell phone, even if you have very little cash to get started with.

Stash, for instance, will let you open an account with just $5, and Acorns uses “round-ups” to slowly grow your account with spare change you’ll barely even notice has gone missing from your bank account.

3. Research Your Investment Options

Having an active investment account is a good start, but it’s not enough. Now it’s time for the real fun: actually investing your money!

Of course, as we mentioned above, investing is risky. You don’t want to just throw your money into any old set of stocks.

And by the way, stocks aren’t the only asset you should look at: You’ll also want to consider adding some bonds and mutual funds to the mix.

“Baskets” of Assets: Mutual Funds and ETFs

So what, exactly, is a mutual fund? As mentioned above, a mutual fund as pre-built set of stock market assets — which means it’s an easy way to bring diversification into your portfolio.

Diversification is uber-important when you’re investing, and the reason why can be summed up in a well-worn cliche: You don’t want to carry all of your eggs in the same basket.

By investing across a wide range of asset types, including companies in different industries and locations, you can help safeguard your portfolio against a total meltdown should any one sector have a downturn.

Mutual funds are usually put together and managed by a financial professional or firm, and require a significant minimum investment — often $3,000 or more depending on the management company.

There are, however, mutual fund companies that offer lower minimums for beginners; Vanguard’s STAR Fund, for instance, carries a minimum initial investment of $1,000.

ETFs, or exchange-traded funds, are similar to mutual funds in that they bundle a range of investment products in one simple asset, but in general they’re not actively managed by a human being — which means they carry lower expense ratios than mutual funds do. And unlike mutual funds, you can buy ETFs on the market directly just like you would shares of stock; an ETF’s price varies based on market value, just like stocks do, and there’s no expensive minimum buy-in amount.