Investing can be intimidating to start, but it something that many of us hear we “need” to do. There are a lot of fears and reservations about putting our money to work for us, but ultimately it comes down to having an education around the process and how to get started. Here’s where to begin:
1. Automate Contributions
Automating contributions creates the habit of saving and investing, at least on a monthly basis, which will allow you to build your wealth at a much faster rate.
If you’re contributing to an employer-sponsored retirement plan, you should be able to specify how much you want taken out of your paycheck to put toward retirement.
If you opened a retirement account on your own or have a brokerage account, then you can set up recurring transfers from your bank account to your retirement or brokerage account.
2. Start Small
Stop letting “not having enough money” hold you back from investing. Even if you have $5 left over at the end of the month, invest it. Again, it’s all about building that habit.
Additionally, compound growth is powerful, and even contributing $20 a week will get you closer to your goals. Something, however small, is always better than nothing.
3. Go for Dollar Cost Averaging
If your No. 1 concern is how volatile the stock market is, then dollar cost averaging might help. This is the practice of investing the same, pre-set amount of money each month or quarter and buying into mutual funds, exchange-traded funds, stocks, etc. over time.
For example: one month, shares of an ETF could be $25. The next, they could be $30, and the following month, they could be $20. By investing say, $100 each month, you’d purchase four 3.33 and five shares of the fund. This allows you to roll with market fluctuations and not have to worry about “market timing.”
This also lessens your risk in the market by allowing you to spread out your investments instead of investing a lump sum into one security and having it tank shortly after.
4. Make Investing a Priority
Saving up to invest becomes easier once you consciously make it a priority. If you’re working toward financial independence or wanting a cushy retirement at 60, it’s not going to happen on its own. You need to commit.
How can you make investing a priority? Realize that whenever you spend your money on something else, you’re technically robbing your future self of those funds.
So if you decide that spending $10,000 on a car is absolutely necessary (and it could be), then know that you’re sacrificing that $10,000 in the future, plus any growth your funds might have experienced.
5. Take Action
One of the best things you can do is figure out what your plan of attack is going to be. How are you going to invest?
Don’t worry — this isn’t a particularly hard question to answer, and it shouldn’t stop you from investing.
You just need to figure out what options you have available to you, and if they align with your goals.
If you have access to a workplace retirement plan such as a 401(k) or 403b, then start there. It’s even better if your employer offers to match your contributions. Try to contribute up to that match.
If you don’t have access to an employer-sponsored plan or if you max your contributions out, then look into opening a Roth individual retirement account. You can contribute up to $5,500 in this account annually.
If you’ve exhausted both of those options, you can open a regular brokerage account consisting of mutual funds and ETFs.
And remember, if you’re investing for the long term, a buy and hold mentality will help.
6. Continue Educating Yourself
One of the most important things you can do is to keep learning about what you’re doing. By investing in your financial education, you’re investing in yourself, and that will pay off for you in the future.
You could end up being more motivated to invest than ever after realizing how easy the process is. Reading books and blogs on investment strategies will give you a better chance at success when building wealth.
Seek to understand exactly what you’re investing in and why, even if you have someone else managing your accounts. That knowledge is invaluable.
Mary Beth Storjohann is a certified financial planner and money coach. She created Nine Steps to Workable Wealth to help you make smart choices with your money.Download