What do investing moves really look like?
You’ve sent us “investing 101” questions because you want to take action. We’ve first tackled how you’re spending, so we can set smart habits from Day 1. Not a 10 on the fun scale, but without the foundation, you won’t know how much $ you have to invest.
PSA: We eat jargon for candy, so if a memory-jog on some basic investing terms is needed, go get it.
$500, $10K, seriously any amount that can get you a balanced portfolio. The question isn’t about the absolute dollar number. The question is: how much money can you set aside that you can handle not touching for 3- 5 years (or even longer). Ex: if your life is anything like our scenario here, you can invest $600 a month.
If you REALLY want to own a couple individual stocks just to track their ups & downs, sure, doesn’t hurt to get smarter. You just need enough money to pick up a few shares of that stock. Ex: if Starbucks is $86 a share right now, then all you’d need is $500 to buy 5 shares. Just know it's as good as a gamble! (MoneyGirls team members definitely individually own a few Amazon and Apple shares here and there.)
Yes, it IS RISKY if you have ALL of your money in just 3 or 5 stocks. Not balanced. Plus, picking individual stocks means you have to dedicate TIME to understand your chosen companies. So what do you do if your dream job ISN’T a day trader? Enter: Exchange Traded Funds (ETF).
Because with ETFs, you’re buying a slice of an overall stock market (vs being overpowered by the highs/lows of a specific few stocks). What ETFs you choose to buy is your investing flavor - whether you choose a certain sector (like a tech or healthcare ETF), or geography (US or emerging-market ETF), or market capitalization (“large-cap” companies are worth $10 billion+; “small-cap” companies are worth less than $10B), or you pick all of the above! FOR EXAMPLE, you could own…
ETFs are easy (you don’t have to research specific companies) and they’ve historically performed very well because they track overall markets (and stock markets have mostly gained money over 10yr periods). So it makes a lot of sense to put money here and forget about it until you're 60. We get it, that's not as FUN, but investing doesn’t need to be nose-bleed exciting.
You need an investment account. Easy. 3 main ways to put your dollars to work:
1) EMPLOYER: Through your job’s retirement account. If your company offers a 401(k), that’s easiest. 401(k)s are simply investments specifically earmarked for retirement. It invests a portion of your pay before taxes are taken out, and you won’t pay taxes if you don’t touch it until you retire. And if your employer MATCHES your contribution (you invest $1, they invest $1), that’s free money.
How it works: When you start a job you set a certain % of your pay to go directly into your401(k) - this $ never hits your bank account.
2) YOUR OWN: Retirement account. Not all jobs come with a retirement plan, no worries. You can open your own individual retirement account (IRA).
How it works: You can open IRAs at banks (ex: Bank of America), brokerage firms (ex: Charles Schwab), or digital robo-investing companies (ex: Ellevest). Once you open an account, you can choose your own ETF, or take a survey on your risk tolerance (impacted by your personality, time horizon), and let the robo decide for you.
3) YOUR OWN: Brokerage account. If you’re investing for retirement already and you want to do MORE (maybe you have extra $ you want to invest, but may want to use it before retirement) — this is the way to go. Unlike retirement accounts, you do pay taxes (because, “capital gains”) if you sell stocks in brokerage accounts.
How it works: Open an account (bank/brokerage/robo, all work - if you want us to go into a few specifically, tell us!) and transfer money from the bank where you’ve stashed away savings, into this investment account. Then you invest away! These days, your investments are likely to be managed by an algorithm that robo-trades in and out of things for you.