How to Start Investing: You Do Not Have to Be Rich to Invest

For a lot of people, investing and the stock market is so, so intimidating. It’s okay. Nobody was born knowing how to day trade. If you have the inclination to learn this stuff (and you can!) and if you have even the smallest drive to propel yourself toward financial freedom, you should be congratulated.

They are intimidated by so many things that look like this:

And then, there are things that look like this:

And pretty soon, all of those “things” build up and make you want to crawl under your covers and hide because none of it makes any sense whatsoever.

I firmly believe that if you take an active role in your own finances and manage as much as you possibly can on your own (instead of passively letting an investment professional do everything for you) you’re more likely to get excited about what’s happening right before your eyes.

The miracle of compound interest

And once you do start investing, what is happening right before your eyes? Compounding, that’s what!

In my opinion, there’s nothing more miraculous (with maybe the exception of childbirth) than the amazing concept of compound interest. This is why we invest, people—and this is why we invest over the long haul!

Here’s the reason, right here, that it’s imperative that you carefully consider this and to start investing for the future:

Now, I will admit that 12 percent annual growth could be a stretch (if anyone has consistently gotten returns of 12 percent for 50 years, I want to know what fund you’re invested in right now!)

Ultimately, however, you will see your money grow at an exponential rate if you put it in a well-diversified portfolio, leave it there, and let it go. Don’t time the market and don’t get antsy when the stock market goes down. Leave your money to its own devices and it will do wonders for you. If you’re in a fund with low fees and commissions and you’re watching it well, you’ll be amazed at what you can accomplish.

Okay, so now I’ve just thrown about eight words in there that may have you shell-shocked by now: Diversified portfolio, time the market, low fees and commissions. Let’s back all the way up.

Why you should start investing now

What are your goals? Without goals, how do you know what your plan is and where you’re going? Growing up, I was a 4-Her, and if you don’t know what 4-H is, it’s a project-based organization delivered by Cooperative Extension where young people learn by doing and complete hands-on projects in areas like health, science, agriculture, and citizenship—and it’s all about goal-setting.

So, again, what do you want your money to do for you? Do you want to build up a secure retirement? Save some money for a vacation to New Zealand? Save money for your kids’ college education? Make sure you have enough for an addition to your home?

All of the above?

You need to write down your goals. My husband and I did that ten years ago and mapped out the first ten years of our lives. We needed to do that so we could get our finances working in the right direction for ourselves. Now, we’re in the next phase and are in dire need of writing down our goals for the next ten. They might look something like this:

1. Save money to build an extra garage on our property.
2. Come up with $XX in order to finish our basement.
3. Continue saving for the kids’ college funds. (The goal is $XX.)
4. Continue saving for retirement—a goal we have in mind is $XX.
5. Save money for our 15-year anniversary trip to XYZ location.

Goals. It’ll be what fuels your drive and inner fire to invest. And if you do have some money socked away for something really fun, like a trip to New Zealand, man, won’t that be exciting to watch it grow? Then, rewarding yourself with something tangible at the end of all that hard work is so, so sweet.

Retirement

So, how do I get started? Where do I go? What do I do?

A good place to begin is to start investing in your retirement. You’ll have silver hairs before you know it, and it’s imperative that you save for the future.

Instead of encouraging you to go to TD Ameritrade’s website, searching a plethora of mutual fund options and encouraging you to choose one (which one!?) I encourage you to make sure you simply walk down the hallway to your company’s benefits office and sign up for a 401k, if you haven’t already done this. If you already do have silver hairs and haven’t yet gotten started in the retirement game, never fear. Just get down to that HR office and start. It’s never too late start investing in your retirement fund.

Pledge at least 10 percent of your pre-tax earnings toward your retirement, and by golly, make sure you get the company match! If your company has a match and you’re not investing to get the match, you’re just flushing money down the toilet.

Your HR office will be able to connect you with a representative so you can select the right funds for you, and will ask you questions about your risk tolerance, your retirement timeline, and objectives, etc.

Next steps

Congratulations! You’ve funded your retirement. Now what? I’d like to introduce a couple of things that I think are imperative to take care of prior to seriously investing any further:

Emergency fund

Another really, really important thing to do is set enough money aside for an emergency fund. What if your car poops out and you really, really need one now? What if there’s a health issue?

Emergency fund, to the rescue.

The rule of thumb is to save at least six months’ worth of expenses, and a great place to stash that is in a money market fund because it’s liquid and offers you a little bit more yield than you would in a traditional savings account.

Be sure to take this seriously and set up your emergency fund. The other thing to note is that this truly is an emergency fund, not a “weekend getaway fund” or an “I feel like getting a new iPad fund.”

Take it seriously. You may really appreciate it one day.

Pay down high-interest debt

Take any extra penny you have and throw it at your high-interest debt, particularly credit card debt.

That’s it. If you’re serious about getting out of debt, it’s a really good idea to sit down and plan out your budget. Plan out exactly how much you can live off of while taking into consideration your retirement and emergency funds and attack that debt with gusto.

Fund a Roth IRA or other investments

Now you’re really on a roll. Now you can get creative, and you can fund whatever you’d wish, whether it’s mutual funds, stocks, ETFs, 529 plans, etc. The sky’s the limit, and you can chase those goals with gusto now. I really recommend checking out this handy-dandy website (from the SEC!) https://www.sec.gov/reportspubs/investor-publications/investorpubsinvestophtm.html so you can understand all of the different types of investment vehicles that are out there. (Once you know what an IPO is, your life may never be the same.)

Let’s go over it again, all over again!

1. Build your emergency fund.
2. Put at least 10 percent of your income into a pre-tax retirement account.
3. Pay off your high-interest debt (with the exception of your mortgage.)
4. Fund a Roth IRA.
5. Extra investments.

Just remember, investing is not just a “rich person’s game.” Just like nobody was born learning to day trade, there are certainly self-made millionaires out there who started from nothing.