How To Start Investing

How to Start Investing by Neil Palache, Certified Women’s Money Coach™

People ask me all the time “What’s the best way to start investing?” Of course my answer, which is somewhat ‘tongue in cheek’ is “Start!” I know it’s not really what the question means but sometimes it’s just like anything else that we want to do but somehow just don’t get round to doing it. To be fair, the question means, where do I go to get it started, what do I invest in, how much should I invest and should I invest at all. All of which are very important to know.
First of all, if you are literally having trouble putting food on the table then investing really shouldn’t be done at all, at least not yet. Having said that, don’t feel like you can’t simply put money in a coffee can. Really! Savings without interest is better than no savings at all. If for no other reason, that money could be your rainy-day fund. It works. Now if you have even a little extra, let’s say $10/week, you can open a number of different accounts at a number of different, very fine institutions. Some of your local banks will be happy to take your first $50 and open a savings account. Yes, this is the beginning of investing. You have to start somewhere. Then, once you’ve opened it, get into the habit of adding to it regularly. Make a point of going to the bank once a week and depositing some money, even if it’s $10. If you have a little more money to save, then I would recommend something automatic from your paycheck. Remember, create your rainy-day fund first. A minimum of three, preferably six months of living expenses in the bank in liquid cash. This first investment is in your self and your kids, if you have any.
Either concurrently or once you have created your rainy-day fund, you may want to start contributing to your company’s 401k plan, especially if they match. Matching is FREE money that your employer is giving you if you stay there long enough. FREE money is the best return you can get in many cases. If you’re self-employed, you can start an IRA at institutions such as Schwab, Fidelity or Ameritrade with no or very low fees and no commissions. Usually, if you have $50/mth automatically deposited, you can open an account with $50. Initially, don’t worry about how to invest it. Put it in a money market account and then get yourself educated a little. Once you have, choose a good, low-cost mutual fund. Of course, if you want or need good advice, there are a plethora of advisers that would be happy to open an account for you at one of hundreds of institutions. Oh, and by the way, you can open all sorts of accounts whether or not you’re self-employed. It doesn’t have to be an IRA. It could just be a regular investment account. A Traditional IRA will give you a tax deduction but you may not need one. A ROTH IRA does not provide a tax deduction but does provide tax-free withdrawals at retirement. Again, depending on your age and tax circumstances neither of these IRA options may be appropriate. If you’re forty, putting money into IRA instruments will tie up your money for almost twenty years. If this is money that you need at some point prior to age 59 ½, you will pay unnecessary taxes and penalties. A regular account may be more appropriate as it would provide the necessary liquidity. So, be careful.
As I’m writing, I’m thinking that the above is also why people often don’t invest. There are just too many choices, too many rules. It’s very confusing. Start slowly, do some research, talk to people you trust and find yourself a good adviser. Of course feel free to contact me. I’m happy to help.
Good luck and good investing. Remember, the most important part is to get started. So, what are you waiting for?