Investing your money is one of the smartest things you can do to build wealth over the long run. However, getting started can seem complicated and overwhelming. The good news is, it’s simpler than you might think. Here are 10 easy steps to start investing today:
Pay off high-interest debt. The first step is to pay off any high-interest debt like credit cards, as the interest you’re paying is likely higher than what you can earn investing. Make paying this off a priority before investing.
Set financial goals. Do you want to save for retirement? A down payment on a house? Your child’s college education? Setting concrete goals will help determine how much you need to invest and the best ways to invest it.
Create a budget. Review your income and expenses to see how much you can set aside for investing each month. Even small, regular contributions can add up to a lot over time thanks to compounding returns.
Open an investing account. The most common options are brokerage accounts, IRA’s, and 401(k)s. A brokerage account has the most flexibility but no tax benefits. IRA’s and 401(k)s offer tax advantages but have contribution limits. Choose what’s right for your needs.
Decide how involved you want to be. Do you want to be hands-off and have a financial advisor manage your investments? Or do you want to pick and choose investments yourself? Robo-advisors and target-date funds are good for hands-off investors. DIY investing works for those who want more control.
Choose what to invest in. The three most common options for new investors are stocks, bonds, and mutual funds. Stocks and stock mutual funds offer the highest potential returns but also the most risk. Bonds and bond funds are more stable but often don’t beat inflation. A mix of stocks and bonds is a good start for most investors.
Open your accounts and fund them. Once you’ve chosen a brokerage or fund company, open your accounts on their website and link your bank account to easily transfer money. Most allow you to set up automatic contributions from your paycheck or bank account.
Review and rebalance. Over time, your investment mix can change as some investments perform better than others. It’s a good idea to review your accounts at least once a year to make sure your money is allocated appropriately based on your goals. You may need to rebalance by selling some investments and buying others.
Stay invested for the long run. One of the biggest mistakes new investors make is buying and selling too frequently. The stock market always has ups and downs, so resist the urge to react by jumping in and out. Stay invested for many years to ride out the market’s fluctuations and take advantage of its long-term growth.
Increase contributions over time. If possible, increase how much you contribute to your investment accounts each year as your income rises. The more you’re able to sock away, the sooner you’ll reach your important financial goals. Consistently increasing your contributions over decades can make an enormous difference.