So you want to try investing -- but where do you begin? The path to financial success starts here.
Click through the slideshow for 6 simple steps to dive into today:
6 simple ways to start investing today - lifestyle collective
6 simple ways to start investing today
1. Establish an emergency fund
Before you can do anything, you need actual cash saved. This may seem like common sense, but based on recent data from the department of commerce, the americans save 5.8% of their disposable income on average. Before you begin investing, you should have an emergency cash fund set aside, equal to 3-4 months of your salary. This would cover expenses if you lose your job, experience a medical emergency, need unexpected major repairs, etc.
Saving money is easier said than done. The easiest way to save money each month is to develop a budget to track your income and expenses over time, then you can ultimately establish a projected savings rate that you are comfortable with. Mint is an easy free tool (plus an app) that I personally use. Link up your bank, credit cards and other financial accounts, and it will automatically keep track of your transactions. Mint helps you identify how much you spend each month (and where the money is going).
Once you have established an emergency fund and have excess cash, the next step is to actually begin the investment process. If your employer offers a 401(k) plan for retirement, and especially if your employer matches contributions, think of this as the easiest way to get started investing. Otherwise you leave free money on the table from your employer.
Employers offer two options: Traditional (you'll pay taxes on that money only if/when you withdraw it) or Roth (all contributions are made with money you've already been taxed on) options. Do further research or consult a financial advisor about which option is best for you, it will depend on your age and level of income.
If your company doesn't offer a 401(k) plan, companies like Charles Schwab, E*Trade and Scottrade can establish your individual retirement accounts (ira) with a traditional or roth option. Next, you'll deposit funds and choose items/funds to invest in.
I suggest low cost ETFs or mutual funds that track entire sectors of the economy in order to minimize fees and stay diversified. Picking individual stocks is extremely risky, and even people that have years of experience and education get in trouble for doing this."
"hold onto your investments for the long term, especially if you have purchased a mutual fund or etf that is well diversified. Over time, these should grow with the overall economy. Short term investing carries risks, and even the best and brightest can't "time" the stock market.
If you are not investing for retirement, consider this step (through online brokerage companies like Charles Schwab, E*Trade and Scottrade etc.). There are no tax-deffered or tax-deductible benefits to these like a 401(k) or IRA, but you can access the money at any time with no penalty. This is great if you are saving for a major purchase like a home. 401(k)s or IRAs can only be accessed without a penalty at certain ages in preparation for retirement. You can also establish a 529 plan if you are saving for a child's college education.