On the journey to financial independence, you will need to save and invest. Once you have saved for your emergency fund, the question is, how to start investing? You start by first investing in yourself. Whether this is by investing in your education to obtain a better job/career option, or doing your due diligence to make appropriate decisions. Investing in yourself is the key to success.
Investing in your future is an extension of investing in yourself. Once you begin to look to the financial markets, when asking how to start investing, look to learning more about the opportunities that are available to you. Educate yourself.
How To Start Investing For Retirement
No matter your age, you should begin thinking about your retirement and related investment options. In thinking about your retirement, you will no doubt hear about traditional IRAs, roth IRAs, SEP, roth 401Ks, 401Ks, 403Bs, 457Bs and TSPs to name a few. Do not simply get lost in the alphabet soup of different retirement plans. Do your due diligence. An investment in your retirement plan education is invaluable to your financial future.
Your retirement plan will depend on (1) whether or not you are an employee vs self-employed and (2) whether or not the retirement plans are employer sponsored or self controlled. It is incumbent upon you to fully understand the plans that are available to you, their contribution limits, mandatory withdraw, age of withdrawal, tax position and penalties associated with early withdraws. It is also incumbent upon you to take advantage of any matching benefits provided to you. For example, a 401K match.
The 401K match provides free money from your employer and is a sure-fire way to achieve financial independence early. Employer 401K match can come in a variety of shapes and sizes. In one instance, the employer will match a portion of your contribution up to a limit. Typically, this limit is represented as a percentage of your salary. Further, an employer may match your contribution if you contribute or irrespective of if you contribute. If your employer provides a 401K match only if you contribute to your 401K, ensure that you are contributing at least up to that threshold. An employer 401K match is free money. Take advantage.
How To Start Investing – Brokerage Account
After establishing your retirement accounts, it is time to begin thinking about other investment options. For example, brokerage accounts. Brokerage accounts are investment accounts that allow you to buy and sell investments such as stocks, bonds, mutual funds, and Exchange-traded funds (ETFs).
There are a number of different brokerage firms where you can set up a brokerage account. These brokerage firms are well known and include Fidelity, Merrill, E-Trade, TD Ameritrade, Robinhood and Vanguard to name a few. Essentially, the brokerage firm is an intermediary that holds your brokerage account and act as an intermediary between you and the investments that you buy and sell.
Once you set up a brokerage account, which is usually free, you will be able to deposit money into that account that you can use to buy investments. Once you begin investing, you can buy and sell investments through your brokerage account. Do your due diligence prior to trading on the different platforms and understand the risk associated. Knowledge is power.
Investing In Education
Once you have done your research and have established your own investment plan, begin thinking about your legacy, your children and their future. Think about a 529 plan. By contributing to a 529 plan, you are able to offset some or all costs associated with a college education. In many States, two 529 plans are available, an investment plan or a prepaid plan.
- The investment plan allows you to contribute by buying and selling shares offered by the State or the State’s agent (similar to investing in the stock market).
- The prepaid plan is based on the cost of attending a college. Here, you are prepaying the cost of attendance.
While 529 plans are not deductible on your federal tax filings, many States allow you to deduct a set portion of your 529 contribution from your State tax filings.
How To Start Investing – Caution
Once you have educated yourself and have made the decision to invest for yourself, with a financial planner or with an advisor, you will begin using different investment accounts to your advantage. Pay special attention to the fees and the taxes associated with each account.
One of the biggest item that you should pay attention to is the fees associated with your retirement accounts and the investment options. Whether that is the fees charged by an investment fund, your advisor or related financial professional.
It is important to remember that over time, fees can cripple your financial growth. While paying 1% of your total investment per year may not seem like a lot when you begin investing, Think long term. Project the number of years until retirement and also the amount of funds that you will have in that account. Paying 1% in fees each year can be a significant detriment to your financial growth, imagine if you are paying more. As always, do your due diligence and think long term in your financial decisions.
Conclusion
On the journey to financial independence, you will need to save and invest. Once you have saved for your emergency fund, the question is, how to start investing? You start by first investing in yourself. Whether this is by investing in your education to obtain a better job/career option, or it is doing your due diligence to make appropriate decisions. Investing in yourself is the key to success. Continue investing by educating yourself about the financial markets, plan and execute your plans.
Follow me on Twitter @JoToFI_com
Follow me on Instagram @JoToFI_com
