Investing can be a daunting hurdle for the millennial or at any age in life. There are copious amounts of questions flying around in your head. I'm sure beginners are asking themselves - Where do I start?
The very first step is to get a hold of a lump sum of cash. It is imperative that you save at least 10-15% of your income stream, and set it aside into a newly created bank account. Everyone is capable of surviving off 85-90% of their income/paycheck. Although you must make sacrifices in some cases; instead of spending $150 per week on dining out - pack your lunch and spend $20 per week, etc. There are small lifestyle changes individuals can make to survive off 10%, 20%, or even 50%+ of their income stream.
Once you have started to develop a solid amount of cash in a bank account separate from your everyday spending. You need find a brokerage firm. Three important traits to look for are; commission price, minimum to open an account, and trading platform. For an example; TD Ameritrade has a $6.95 commission on trades, no minimum to open an account, and a sophisticated trading platform (thinkorswim). While Charles Schwab has commissions of $4.95 per trade, $1,000 minimum, and a relatively simplistic trading platform. There are even firms like RobinHood that have $0 commissions, $0 minimum, but poor trading capabilities and convenience. Dig deep to find a brokerage firm that has reasonable commission fees, aligns with your current financial situation, and has a trading platform you feel comfortable navigating. Check out this list of top brokerage brokerage firms HERE.
Once you have selected a brokerage firm, transfer money from your newly created bank account into the broker. It is very important that you DO NOT spend money from your new bank account, as it is ONLY for investing (you can even direct deposit a percentage of your paycheck directly into your brokerage firm to help resist temptation.) Now you are ready to get after it and start putting your capital to work! The next question many people will ask - What do I invest in?
There are a plethora of investing strategies; stocks, bonds, ETFs, mutual funds, options, futures, currency exchange (FOREX), etc. Don't let the long list of investing strategies intimidate you. For a beginner the best investment you can make is in an Exchange Traded Fund (ETF). ETFs trade as a single stock, although they represent roughly 10 different stocks within in a similar industry, sector, or index. ETFs avoid single stock risk, thus making it a safe first investment. Read more on ETF basics HERE.
You must do research on an ETF that makes sense to you, and fits your financial goals. The two biggest ETF providers are Vanguard and SPDR. For an example, the Vanguard Financial ETF (VFH) has holdings in financial institutions like; JP Morgan Chase, Wells Fargo, Bank of America, Citigroup, etc. Instead of buying just Wells Fargo stock (WFC), you can buy (VFH) which has a percentage of Wells Fargo. There are even ETFs like the SPDR Dow Jones Industrial Average ETF Trust (DIA) that follows the price movement in the Dow (average of the 30 largest companies per market capitalization). An ETF will limit your risk if volatile price movement occurs within a single stock.
Hopefully this article gave you confidence, and explained how simple it is to start investing. The best time to start investing is now. Get your money working for you, so you can reap the benefits later in life. There is no get rich quick scheme, just smart investing over many years.
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