Showing you that investing doesn't have to be scary or confusing
Emergency fund—check. Credit card debt demolished—check. All other debts paid on-time and in-full—check. Retirement contributed to—check. Extra money saved to make your first investment and begin your path toward becoming the next Warren Buffett with better hair—oh crap, how do I do that?
So you have that first $1,000 saved up—maybe more, maybe less—and you’re ready to jump on the investing train and grow your little nest egg. But how do you actually do it? How do you know where to put your money? There’s a lot of info out there, and a quick Google search will throw you into a whirlwind of analysis paralysis, get you all jacked up one minute and scared out of your wits the next. Suddenly, you throw up your hands and wait until you’re making a lot more money so you can hire someone to do this for you.
But what if you can DIY and start dabbling and capitalizing on your money savings now? Here’s the deal, I’m giving you full permission to take this $1,000 and make this a learning experience. A “get your feet wet” investment, if you will. You don’t need to become a millionaire from your first $1,000 investment.
There, doesn’t that feel better?
So now that the pressure is off, these next three steps should be super easy for you to implement – Warren B, here we come!
Step 1: Choose your first investment platform
Check out discount brokerages like Charles Schwab or Vanguard. Look up their cost per trade (you’ll want the lowest, obviously), and weigh that with how much you like their website and the information they offer. Remember, the best tool is the one you will regularly use. Through the platform, find index funds that you like, one for stocks and one for bonds, and invest based on your allocation in Step 2.
Another option is to invest through an automatic investing platform, or some may call them “robo-advisors,” like Betterment. These are newer, startup companies with online platforms that offer super easy index fund investing with low expenses and easy transactions. They also offer advice on the allocation of your portfolio—which you can double check with Step 2.
I have one of each from the above groups—don’t beat yourself up. Just pick one!
Step 2: Choose your asset allocation
Asset allocation might sound like a lot of mumble jumble, but it really boils down to what type of “asset” (stock, bond, etc.) you choose to put your money towards and how much goes to each.
Deciding this has a lot to do with how soon you will need the money and the amount of risk you are willing to take on. For the sake of the length of this article, I’m going to assume you’ve done your due diligence, have your emergency fund up-to-snuff, and you’re ready to invest for the long-term, not for the car you want to buy next year—Don’t worry, we’ll discuss ways to make that happen another time.
The general rule of thumb for asset allocation is 100 minus your age. That is how much you will put in stocks, and the rest (your actual age) is how much you will put in bonds. For example, I’m 24—so I would put 76% of my $1,000 ($760) in a stock index fund and 24% ($240) in a bond index fund. This is a very general rule of thumb, so you can tweak as much as you see fit, but it will get you one step closer to having that first investment under your belt.
Step 3: Now hold onto your patient pants
I probably should have put this as a disclaimer at the bottom, but I guess I’ll just say it right here. This isn’t a get-rich-quick program or a way to beat the market. In fact, there are very few people who consistently beat the market year-over-year. So few, that it’s about as rare for me to become a WNBA player, in which I’d really have to work on my vertical. (If you’ve ever stood next to me, you’ll understand.) We’ll do a deeper-dive on this subject later.
For now, remember that we’re simply investing for financial freedom in the future. And by future, I don’t mean when you’re 25. Constantly checking your stocks will drive you crazy. I know it’s not very sexy, but short term fluctuations under 10 years means almost nothing. It takes several years to make that nest egg grow, baby, grow, and investing is a great way to do it–but you must be patient.
CONGRATS! – You're now an investor! And it didn't take a suit, 40 years in the financial industry, or a receding hairline to do so. Want more info on investing? Let me know what your questions are below in the comments!