I'm a Brand-New Investor. Here's How I'm Starting Out

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  • I made it to almost middle age without any investments of any kind -- not even a 401(k).
  • In 2023, I'm opening a taxable brokerage account so I can get started with investing in stocks and ETFs.
  • In 2024, after I buy a home, I'll be opening a retirement account.

Can you teach an old dog new (investing) tricks?

I've spent the last year drastically improving my finances. In 2022, I started meeting regularly with a financial planner and increased my income. As a result, I got out of debt, took my credit score to over 800, and started saving money for the future. As I look back on all I've accomplished and learned in the last year, there's one omission that is getting harder and harder to ignore: I've never had investments of any kind.

It's the ultimate form of imposter syndrome; I'm surrounded by folks who are savvy investors, and I've never even had so much as a 401(k) plan through an employer. For all but the last year of my old career, I was very focused on paying off the debt I incurred as a college and then graduate student, and investing seemed like a thing only rich people did. Now I'm a full-time freelancer, without access to an employer 401(k), so it's up to me to forge my own investing path starting in 2023.

Is it too late for me?

I am approaching middle age, which means that if I want to be able to spend my later years not working (or working much less), I will have to invest more money in the working years I have left. Had I started earlier, I could have invested less and taken advantage of compound interest for longer. Compound interest is the reason people are encouraged to start saving for retirement as early as possible.

For an example in real numbers, let's say I had started investing $250 per month when I was younger, with the intention to work for 45 years (and maintain the same level of investing). The stock market's average return over the last 50 years was nearly 10% before inflation, but let's be a bit more conservative here and say my return on investment (ROI) was 7%. After 45 years, I'd be sitting on a balance of $862,498.55. Not bad.

It's been almost 15 years since I started my career, however. So let's say I am now looking at retirement in 30 years. To achieve the same return, I'd need to invest about $755 per month. Quite a difference. I'm not panicking, however. For one thing, I hope and intend to keep working into my senior years, because I enjoy it and I like being busy and learning new things. I'm very fortunate that my work allows me to do that. And for another, my earning potential has increased significantly over earlier in my working years, so I am capable of saving more now.

I'm in good company

According to research from The Motley Fool, 58% of Americans own stock, so I'm clearly in good company among the 42% who don't. I'm trying not to be down on myself for not investing sooner, and taking to heart these words of wisdom from Jenn Uhen, the founder of The Pledgettes. She said, "I appreciate this Chinese Proverb, 'The best time to plant a tree was 20 years ago. The second best time is now.' Since we can’t go back in time, the only choice we have is to act in the future." To that end, 2023 is the year that I'll become a brand-new investor. Here's my plan.

This year: Pick the right taxable brokerage account

It's a big wide world of investing out there, and I have my pick of brokerage accounts. Since I'm new to this and comfortable with online financial accounts, I'll likely choose one of the best online stock brokers for beginners to give myself the best chance to learn and grow as an investor.

While I hope to become more confident over time, it's likely better for me to start out with investing in exchange-traded funds, or ETFs, before jumping into buying stocks. With only a small amount of money, I can invest in fractional shares of ETFs, and they're traded on major stock exchanges, making them easy to buy. Since I'm planning to start this process with a few hundred dollars, this is ideal. ETFs also make it easy to diversify investments, resulting in less risk -- after all, I don't want to put all my eggs in one basket.

Once I've chosen the right account for me and given myself some seed money, there are other investing pitfalls I'll need to avoid. When I get started, I want to stay invested and keep adding money over time. It's a mistake to try to time the market, and to avoid that temptation, I'm planning to buy with dollar-cost averaging and add a set amount of money every month. By the same token, I don't want to spook myself into panic-selling if the market takes a downturn, because I'm in this for the long haul. Checking on my account on the day I add money is likely sufficient to ensure that all is well, and I can avoid the stress of watching daily market fluctuations.

Next year: Start a retirement account

Based on how long I've waited to start investing, you might be wondering why I'm not immediately going all-in on a tax-advantaged retirement account. There are a few good reasons why I'm waiting.

Since it's my intention to max out a retirement account starting in 2024 and going forward, I want to ensure I've picked the right one for me. As I noted above, I'm self-employed, and I have several options. Based on my initial research, it sounds as if a Solo 401(k) might be a good bet, but I'll be consulting with my financial planner and building my knowledge to make the right choice.

The other big reason I'm waiting is that I have a goal of buying a house in 2024. While some people do regard buying a primary residence as an investment, I don't. I know that buying a home will cost me more money than I can expect to get back from the purchase, especially during the first several years of ownership (when more of my mortgage payments will go toward interest than my principal balance).

That said, after a lifetime of constantly moving and a bad experience with homeownership in the past, it's a dream of mine to stop renting and settle into a home of my very own. Right now, I am focused on saving a significant amount of money for a down payment and closing costs, and to give myself an emergency fund for home repairs. Once I'm in a home, I can shift my savings goals to retirement.

Let's get started

While I do have some regrets for not becoming an investor sooner, I'm excited about the future and keeping this encouragement from Jenn Uhen of the Pledgettes in mind: "It's not possible to be a perfect investor. So focus on being a good investor. Know you probably have a number of good investments in front of you. And make a choice. If you're still feeling apprehensive, start small."

By opening a taxable brokerage account in 2023 and a retirement account in 2024, I'll be starting small -- but making the right moves to grow my money well into the future.

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