The Best Way To Start Investing

Billions of dollars are traded every day in the stock exchange. That’s a lot of money, though I’m sure you didn’t need me to tell you that. And yet, only a little over half of Americans are using investments to secure their personal wealth and stability. 

Are you one of them? 

People tend to hesitate to invest money out of a sense of fear. A lack of knowledge and experience makes the prospect of investing seem dangerous. Many like knowing the money in their pocket or under their mattresses won’t go anywhere unless they physically remove it. 

But to turn away from investing is to turn away from one of the biggest opportunities you have to increase your personal wealth. And it doesn’t have to be costly or complicated to do. There are many easy ways that beginners can get into investing. 

Below, I’ll walk you through the best way to start investing as a beginner. 

Put Some Money Aside 

Investing is saving and vice versa. To begin investing, you will need to put some money aside to use. If you’re not in the habit of setting money aside or saving money, this may sound worrying. But creating a fund for your investing doesn’t have to be difficult, however. 

You can take small saving steps and in no time have a sizable about of money to invest. Start by putting away a fairly nominal amount per week. For example, $10. By the end of one full year, even that small amount will be over $500. If you skip out on your daily coffee twice a week, you can reach that goal easily.

Keeping your money in saving’s account with a good interest rate can also help you grow your money.

The higher a rate, the more the bank will owe you in interest on a month-by-month basis. Once you have enough money saved up, you can transfer this amount from a savings account (or from the shoebox under your bed) to an actual investing entity. What is enough money? Well, I would just get going as soon as you feel ready (except if you choose to invest in products with high absolute investment fees).

Deciding On An Investment Approach

There a few different ways to approach the stock market as a first-time investor. You can manage your money yourself, or you can go through an investment advisor or robo-advisor. 

Managing your money yourself may sound pretty good, and it is the option that will give the most control. It is the option I am using. It is by far the cheapest option and there are great guides on how to get started with this. But if you’re new to investing, you may be at a loss of where to start. I wouldn’t be discouraged though. It is easy to learn!

Going with a managed investment account can also cost you some high fees, which may be less than ideal for your first time at the races. 

Robo-advisers can be a great asset to new investors. Robo-advisers are algorithmic programs that pick a diversified slate of investments for you. They base their choices off of your risk profile and your overall investment goals. 

Most robo-advisers are user-friendly and super easy to work with. The fees they charge for use are generally pretty small. If you don’t want to commit the time to really learning the ins and outs of the market or how to invest in index funds on your own, robo-advising can be a quick and low-cost way to get investing fast.

Opening An Investment Account

With your approach decided, your next move is to open your very first investment account. This is exciting!

If you’re planning to branch out on your own, you have a wide array of options to consider. There are lots of different kinds of accounts you can open: traditional IRAs, Roth IRAs, Solo 401ks, taxable accounts, and so forth. In the US, it is very common for private investors to go with a company like Vanguard. 

If you’re using a robo-adviser in the US, there are certain players you’ll likely go through. They include Betterment, Wealthsimple, Ellevest, and Wealthfront, but there always new advising programs popping up over time.

I have my own strategy for investing using index funds with a Danish broker called Nordnet, but you’ll need to evaluate your own priorities and decide what is right for you. 

No matter what you decide, there are a few things you should ensure about a brokerage account before committing to it. Your intended brokerage should be insured in the case of bankruptcy. All brokerages should comply with financial industry regulations. 

In the US, the Federal Deposit Insurance Corporation should have your brokerage insured and fully backed. They should be a member of FINRA and SPIC, two independent regulators that protect investors. 

If the brokerage you are considering doesn’t mean the above requirements, I would advise you not to invest through them. 

A Diversified Portfolio

Once you’ve opened an account, you’ll want to make your initial deposit and get investing. An initial deposit is usually a no-fee transfer from your bank account. With the exception of IRAs, there should be no limit to the amount you transfer into an investment account. 

Remember, the more you invest, the more you can earn. 

If you’re working through a robo-investor, this is where the algorithm will ask you questions and build a portfolio for you. If you’re doing that yourself, this is when you’ll decide where to put your funds. 

The standard mix for a diversified portfolio is bonds, foreign stocks, both large and small cap US stocks, and potentially real estate trusts. If you invest in a strong mix of these assets you’ll be securing yourself better against risk and increasing your odds of profit. 

You could either invest directly in the assets above or invest in ETFs or exchange-traded funds. ETFs are a bundle of securities and assets that can be traded on the stock exchange. They are a great way to diversify your portfolio and target specific portions of the market. 

The Best Way To Start Investing

Many people are too focused on the present to think about their futures. But with just a little saving, planning, and research, you could be using your money to secure yourself a better life. The best way to start investing is to do just that: start.

Your turn: What advice do you have for new investors? Let me know in the comments.