Disclaimer: I am not a financial advisor, please consult your financial advisor or do your own research
before applying any of my monetary strategies to your own situation.
The first step is to maximize 401K contributions, at least to the point at which the company matches. For most this will be between 3-5% of the salary. At the very least, take advantage of the “free” money offered, right?! The next step was the Roth IRA contributions. Roth IRA contributions are more important and crucial to start at the beginning of a career, since there is an income cap on Roth IRAs.
Remember both of these types of accounts need to be invested after contributions are made. A general starting place is Target or LifeCycle Funds for the 401K, as always research fees and other aspects of the stock since each company picks a different brokerage firm to handle the retirement funds. For Roth IRAs, anything is game. Some people swear by Index Funds, others by Mutual Funds. A good place to start for selecting Funds, Stocks, ETFs, etc is with the brokerage select list. These are often robust positions with minimal fees. After starting there, I buy what I believe in (and research)!
The Next Step – Standard Brokerage Account
After maximizing the “free” money (401k matching) and investment tax breaks (that’s the Roth IRA), the next step is a Standard Brokerage Account, or a taxable brokerage account. Why a brokerage account in conjunction with a 401k and a Roth IRA? I previously discussed having emergency expense account in a HYSA, but if the budget is balanced, there will be additional cash flow for other savings — vacation, home remodel, other large anticipated expense. Where is that money sitting?
Start Small, But Start
Everyone starts somewhere and it is nerve wracking, but once you build a comfort level with the basics the rest will organically develop as you find your way around a brokerage account. Below are three index fund tickers from Schwab, Fidelity, and Vanguard — three popular and reputable brokerage firms. Yes, there are others, looking at you Robinhood. Find one you like and start there.
SWPPX
FXAIX
VFINX
To buy an Index Fund, first deposit the money into the account (this will take a few days depending on how the money is transferred) and then purchase the funds or stock. For funds, the selections available will be “Buy” or “Sell.” The next step is to enter in the dollar amount. To purchase funds, it is not required to buy a full share, this aspect is appealing to people who are only able to invest a small amount or inconsistent amounts. This is not a negative at all because the point is that the money is growing faster than it would in the bank.
To buy a stock, deposit the money and then you are ready to purchase. Stocks are a little different, but we are sticking with the basics. On the purchase page, the actions will be “Buy”, “Sell”, and “Sell Short”, disregard the “Sell Short” for now, select “Buy”. The next step is selecting the Order Type – “Market Order”, “Limit”, “Stop”, “Stop Limit”, “Trailing Stop”. Once again, keeping with the basics, select Market Order. For stocks, the amount will be full stock share prices, so the dollar amount will be multiples of the full stock share price.
Now What?
This part is by far the hardest. Wait. The majority of people see the biggest returns on their investment portfolio by leaving the money in the market. There are reasons to sell if a stock/fund simply isn’t performing to your liking, but consider the feel of the market before deciding to sell. If the market is experiencing a correction, the instinct is to panic sell. The better strategy is to use the lower prices to hold or buy at a discount. Despite the correction, the S&P 500 still has an increase of 5.59% YTD this year. Just think, if that $10k saved for travel was sitting in an S&P 500 Index Fund, it would have already earned an extra $500 this year alone!