A recent article at Kiplinger.com laid out three simple steps to get started with investing, and I figured I would mention them here with my thoughts on each for anyone thinking of jumping into this strange market we have right now. Granted, it might not be the best time to begin investing, but at the same time stocks are cheap – and if you can learn quickly, invest in what you know and use, and can stomach a possible loss (at least for a while), now might actually be a very good time to start investing. Let’s take a look at what 3 steps they say to follow…
1. Decide how much to invest. Quite possibly the most obvious step in the process and one that I don’t think they really needed to mention. However, it is important to realize that whatever amount you do invest, you could possible lose – either a small amount or all of it. This market is hard to read, so you just never know what may happen from day to day. Also, don’t invest money you may need anytime soon – this should be long-term money.
2. Pick an approach. Stocks? ETF’s? Mutual funds? What should you put your money in? I am a big fan of index funds, as I don’t really care for monitoring individual stocks, and I prefer letting someone who knows more than I do to do the picking for me. I do own stock in a few individual companies, but most of my investments are in mutual funds – index, target-date, and world funds.
3. Set up an account and go! Um, yea, you should probably do that. How else would you invest? I use TRowePrice for all of our retirement and mutual funds, and Scottrade for my individual stocks. I refuse to pay a high-priced broker just to trade stocks. If I don’t need the advice of an adviser, why pay $29.99 for a trade when I can pay $9.99 somewhere else? But whoever you choose, go with a “name” and a trusted brand – don’t go with someone you have never heard of just because they offer $1.99 trades! ETrade and TradeKing are both good low-cost brokers. Also, be sure to pay attention to account minimums – some brokers require minimums of thousands of dollars to open an account with them.
Above all else, be prepared to lose money. Seriously. Too many people get started investing thinking they are going to make a killing – I know I did. I got into penny stocks back in the day, and while I did make some money, I lost a lot more. Invest in what you know, be patient, and invest for the long term.