Investing can seem like a big, hairy, scary deal, but the truth is that simply getting started is the most important step in taking control of your financial future. It’s not as hard nor as time-consuming as you think, and you don’t need as much money as you’ve been led to believe.
So, how do you start investing?
First, you’ll want to pay off any high-interest debt (think credit cards) and make sure you have a cash cushion you can get to easily in case things don’t go according to plan. Also, be sure you’re contributing to your company’s 401(k), especially if your employer matches your money.
Then comes the fun stuff.
To start, you’ll need a broker. We strongly recommend online brokers — they won’t walk your dog for you, but their fees are low, their commissions are generally clear, they have low (or even no) cash minimums, and there’s nothing quite like the feeling of buying stocks while wearing a bathrobe and slippers.
We think a great first purchase in your new brokerage account is an index fund. While it doesn’t sound super-sexy, an index fund like the Vanguard 500 Index (VFINX) fund has a minuscule expense ratio and it gives you instant diversification for your portfolio.
Then we get to stocks. The key to becoming a successful investor is understanding the importance of timeline and temperament. We’re big fans of buying great companies and holding them for the long term, and not freaking out with the daily fluctuations in the market.
What stock do you start with? It all depends on your interests, your style, and your timeline. We recommend you find a company you’re already knowledgable about. Maybe you shop there, eat their food, or use their computers. Do some research — we recommend clicking over to CAPS, our stock-picking game, to see what investors’ sentiment is — but don’t feel a need to go overboard in your analysis. If it’s a company you love, buy a share. Even if it’s not the best value in the market — heck, even if it tanks — you’ll learn much more from making that first stock purchase than you would reading the thickest investment tome. And you’ll be able to call yourself an investor!
Obviously, that’s only a very quick look at how to get started. We’ve compiled the 13 Steps to Investing Foolishly to provide a much fuller picture to help folks like you get on the path to investing. It covers everything from how to get started to how to retire in style. Start your journey today.