Six Simple Steps to Start Investing
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By Floyd Saunders, The Author of Five Paths To Wealth, Family Financial Freedom and Figuring Out Wall Street.
Disclaimer:
Really Simple Investing make this information available for informational and educational purposes only. Really Simple Investing does not warrant the accuracy or completeness of the materials provided, either expressly or impliedly, and expressly disclaims any warranties for a particular purpose.
Decisions based on information contained on this site are the sole responsibility of the reader.
There is really only two paths to becoming financially free.
Either you become a successful entrepreneur or an investor. Putting money in a sock or a simple bank savings account is not going to increase your financial security.
Starting point:
1. Pay down debt. Cut up those credit cards
2. Visualize with a budget
3. Buy investing courses/ books
4. Open a brokerage account
5. Invest $500/ month in index fund
In 6 months, your finances will be unrecognizable
WHAT IS INVESTING?
Investing is putting your money into something expecting a return on your money over time. When you start investing you are putting your money to work for even while you sleep.
Investing does not need to complicated, in fact it can be really simple.
Really Simple Investing is really about having a consistently patient approach to investing. In fact, passive investing over any ten-year period will outperform almost any active managed investing approach that includes trading and management fees.
Some investments are simply gambling. Anything that requires you to frequently buy and sell positions or does not have a strong track record of steady returns is gambling, or often called speculation. Day trading is speculation.
Many people start with investing with a small initial investment in an Exchange Traded Fund (ETF) that matches an index of stocks or bonds and requires just a few hundred dollars (or less) to start. Today you can often do this from an app on your smartphone. Popular index funds to consider include Vanguard Total Stock Market ETF (VTI) or
Index-tracking ETFs typically have low expense ratios because they are passively managed, which keeps operating expenses low. Many ETFs are simply more secure and dependable because they have a long proven track record, and it is a simple way to get started.
HOW TO START INVESTING
1. Figure out how much you can invest
First, you need to figure out how much you can invest each paycheck, whether it is investing $100 or $10. Every little bit adds up and you should always try to invest as much as you can. Remember, the more money you invest the more your money will be working for you!
Start by applying a simple approach “pay yourself first,” meaning, you should invest 10 to 15 percent of your money before you spend any of it.
This is easy to do with automation – you fund your 401(k) account with a payroll deduction or an IRA account automatically from a checking account so this becomes a painless way to start down the path to wealth.
So how much money should you be investing?
Start with 5 or 10% of your monthly income, but then increase to 20% and you can retire sooner. Compounding of returns at higher rates the faster you will be able to “retire” and reach financial security.
2. Separate your short-term investments from your long-term investment
After figuring out how much money you can save each month, the next step is to separate your short term and long term investing strategies. Don’t make the mistake of putting all of your investments into the same accounts.
Short Term Investments (5 years or sooner)
If you need any of your money in the next 5 years then you shouldn’t risk it with an investment in the stock market.
You might think that a savings account is a great place to put your money, but most savings accounts have an interest rate of less than 0.01%, so you actually losing money to inflation. Instead put your short term savings/investments in:
Online High Interest Savings Account
There is an incredible number of great online savings accounts with interest rates above 2%, so your money will at least keep up with inflation.
Certificate of Deposit Account
When you buy a certificate of deposit from a bank you can often lock in a rate above 2%. Just realize you money is locked in at that rate for the term of the deposit.
A simple way to avoid locking up all of your money is to build a CD ladder with some money in CDs that mature in 6 months, in 1 year, in 2 years, etc.
Then you will always have money maturing if you need to get it out early.
Long Term Investments (5+ years into the future)
Your long-term investments are any money that you will need at a future point, typically in five to 10 years near in the future. This would include stocks, mutual funds, exchange traded funds and real estate.
3. Pick your level of risk
Basically you need to decide what kind of investor you are: conservative (low risk), moderate or aggressive(can stand to take a lose/high risk).
Next with a company retirement plan, select a model portfolio based on the level of risk that you are comfortable taking.
While an aggressive type portfolio will naturally fluctuate over time and has more “volatility,” this is nothing to get scared about because you are saving this money for the long term and over a 10+ year investing horizon you are going to make more money investing in stocks than in bonds.
4. Pick what goes into your long-term retirement investment accounts
Both the 401k and IRA are used to hold investments and are typically used to save for retirement – they are not investments themselves. This means you need to pick investment to go into them. Match your choices to the level of risk you are comfortable with and generally, if you are younger you can take more risk and then reduce that as you get closer to retirement.
5. Invest as much money as you can in tax-advantaged accounts
Taxes are one of the biggest drains on your investment returns so you want to minimize your taxes as much as possible.
Your number one goal should be to invest as much money as you can into tax advantaged accounts where your money can grow tax-free over a long period of time.
If you work at a company that offers a 401K plan invest as much as you can in the plan up to the maximum or at least invest as much as you can to get an employer match (which is an employer contribution that matches your own contribution up to a certain percentage of your income). This is free money and an incredible benefit if you have it.
6. Invest early, often, and as much as you can
Time is the most essential element of investing because it takes time for money to grow and the more time you have the more opportunity your money has to grow due to compounding interest. Albert Einstein even called compounding interest “the most powerful force in the universe.”
imagine you invest $10.00 and it grows 10% over one year so you now have $11.00 and the next year it grows 10% so then you have $12.10. This a simple view of compound interest and the more money you have invested the more this works for you.
You keep making more and more money on your growing interest and when you add to that pool of money it further compounds over time and you are able to make money on your money. It is this pretty simple idea that makes investing so powerful over time.
So how do you get compounding interest to start working for you?
Investing at least 10 to 15% of your money in the stock market is the surest path to building wealth.
If you follow the guidelines presented above you will be well on your way to building wealth and one day making work optional.
Now you can learn more about investing by getting Five Paths to Wealth, by Floyd Saunders
Five simple strategies almost anyone can follow to get started investing. Each of the steps included easy ways to get started even when you only have a small amount of money to begin with. You can start down just one of the paths or follow more than one to build your financial security.
Proven approaches to investing that have worked well for anyone who wants to start building wealth.
Book cover design by Ashley Dameron
Disclaimer:
Really Simple Investing make the information i this available for informational and educational purposes only. Really Simple Investing does not warrant the accuracy or completeness of the materials provided, either expressly or impliedly, and expressly disclaims any warranties for a particular purpose.
Decisions based on information contained on this site are the sole responsibility of the reader.
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