I’ve been thinking more about investing money lately and wanted to learn how other people got started. There are so many options now like stocks, ETFs, crypto, real estate, and savings accounts that it can feel a little overwhelming at first. For beginners, what do you think is the smartest and safest way to start investing? Are there any common mistakes new investors should avoid? Would love to hear what worked best for you and any advice you’d give to someone just starting out.
As a beginner you should discard real estate and crypto. You should probably focus on dollar-cost-averaging into S&P500 index ETFs. I assume that you are investing for the long-term. You want to keep things simple when you are a beginner…
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The best starting point is to learn the principles of investing. They include:
- Develop a workable plan
- Start saving early
- Choose appropriate risk
- Diversify!
- Never try to time the market
- Use index funds when possible
- Keep costs low
- Minimize taxes
- Keep it simple
- Stay the course
Link to an article that does an excellent explanation of each of these principles
Smart Investing | Investing For Beginners | Simple Common Sense Rules
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Buy any book by the great John Bogle, the genius who started the index fund revolution at Vanguard. All the books can be found used at very reasonable prices. “Common Sense on Mutual Funds” may be his most famous. It’s tough to beat the efficiency of index funds over the long haul, meaning 15 years and beyond.
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For a self managed brokerage account, let’s just say Schwab for example, the S&P 500 choices could include such ETFs as VOO or SPY which are popular options. IRA and 401(k) only apply if you are working and both have contribution limits, so we are not talking about those for now. Next, contribute any dollar amount that you can to the ETF that you chose. Preferably set it up as a regular payment every month or pay period. In a self managed account there is no limit to what you can invest and you can also access the money any time if you need to. Once you get your brokerage account going you can research additional ETFs, such as SCHD if you want dividends or a total market fund such as SCHB or VTI.
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All of that advice is good, but the first rule should be is NIKE! Just do it. Start saving now! While you try to figure it all out, put money away. A Savings account is better than nothing. Make it a habit to save as much of your income as you possibly can. But Do It!
- Max out your employer’s 401K matching if you have one
- Invest in a Roth IRA
- You’ll need a liquid fund of 3-6 months of living expenses
- Then if there is anything left over you can consider increasing your life style.
- Make a budget and know where your money is going.
- Credit is good if you can use it wisely, otherwise it will eat you and your money up.
Don’t wait to figure it all out. Get into the habit of saving and the rest will follow, and read the little book “The Millionaire Next Door.”
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All of these posts offer great advice. As a former HR guy, I will piggy-back on the 401k mention. Target date funds are great starter funds and don’t require any investing expertise. If at all possible, contribute enough to get your max employer match, and also if possible, bite the bullet and opt for post-tax contributions if available. I learned that the hard way. Lastly, always roll your funds to your new employer plan if you change jobs. I spent a ridiculous amount of time and effort chasing down former employees “cluttering up” and adding to the administrative costs of carrying them on the plan I was responsible for. And as also noted here, DO start now, in whatever way you can - the sooner and younger the better.
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First, using pen and paper on a blank excell spreadsheet, write down every penny you spend. Within a month you will see where you are either wasting money, or find things you are willing to give up in order to build wealth. Don’t use a computer or app. There is an additional psychological benefit from pen and paper. Second, start studying things you like. I have never invested in the stock market because I love real estate, land, houses, gardening, decorating, construction, paint, buyers, sellers, agents everything. As you learn about the things you like, you will find what you want to invest in. Never stop learning and never stop monitoring your investments. There is no “passive income” there is no “set it and forget it”. The stock market fluctuates, the real estate market fluctuates, one business sector fades (buggy whips) and another rises, (cars). Don’t stress yourself, have some fun with some of your money. Since RE is my thing, I recommend you buy a house and house hack. The income will give you money to invest. I also recommend the ROTH. Good luck.
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Buy low and sell high.
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Thanks everyone for the helpful advice and different perspectives. I really liked the point about tracking spending habits first because understanding where money goes seems like an important step before investing. The advice about focusing on areas you actually enjoy learning about also makes a lot of sense since it’s probably easier to stay consistent that way.
I also agree that long-term investing and patience are important. A lot of beginners probably expect quick profits, but it seems like learning gradually and avoiding emotional decisions is the smarter approach.
The suggestions about Roth IRAs, real estate, ETFs, and staying educated have all been really useful for me. Appreciate everyone taking the time to share their experiences and tips.
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The main thing is Just Do it. Start saving while you figure it out. Don’t wait! Then:
- Do a budget and live by it
- Set priorities for your spending
- Dave as much as you can each month, until it hurts
- If your employer offers a matching participation in a 401k do it up to the match. It’s free money.
- Talk to a fee only money advisor, one who doesn’t sell you investments. You’ll learn a lot spending an hour with one.
- 401k’s are good, but not usually great. You can do better on your own.
- Absolutely, max out your Roth IRA first before investing otherwise.
- At the same time you need to be building a Rainy Day fund of liquid investments to cover 3-6 months of living expenses.
- When you have all of that going then you can take about 10% and play with it. Buying individual stocks and timing the markets is a trap. Even the pros don’t do that well. Your money manager will confirm that.
- Read the book Clark recommends “The Millionaire Next Door.” It’s a big help.
- Most of all stick with it. You’ll be a millionaire before you know it.
- Listen to people that have done it.
- and, if you have the chops, owning residential real estate is a great way to gain and grow wealth. It may be the only investment that someone else pays for. Being a landlord is work, but can be extremely profitable.
Good luck, but luck actually has nothing to do with it. You make your own luck!
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