Recently, a friend of mine (and reader of this blog, so a good friend 😀 ) asked me a question. “So do you have an actual investing portfolio?” It’s sounds so grown up. So fancy. So complicated.
“I do,” I said. “And you have a 401k at work, so you’ve got one, too!”
“Oh yeah, that’s true,” she said, and I realized that a lot of people don’t consider themselves investors, even though they are! Which is pretty awesome when you think about it. A lot of us talk about how scary investing is without even realizing we’re already doing it.
And if you’re not doing it? Hey, don’t worry. It’s so easy to get started, a lot of people don’t even know they already have. Just take what I call the “no brainer” first step.
It’s no wonder we’re all terrified of investing. There’s so much jargon; so many terms and numbers to think about. Capital gains. Diversification. Assets. What the hell does it all mean? One day, years ago, I decided to figure it out. I vowed to learn everything I could about investing in a single afternoon. I studied the terms. I memorized their definitions. I drew pictures, trying to make sense of it all. Guess what? It still made zero sense to me. Without any experience, there was no context for those terms. It was just a bunch of gobbledygook.
Investing isn’t something you learn in afternoon. Most of us learn by jumping in and doing it, and then we figure it out as we go along. Investing makes sense gradually, but not until you take the first step and get your feet wet. And the good news is, it’s incredibly easy to do that. Here are three “no brainer” first steps to start investing:
Enroll in your 401(k): If you work full time, chances are your company offers a 401(k). Hell, they may even match some of the money you put into it! Sign up for it. Ask your HR person for the paperwork, fill it out, and automatically save even the smallest percentage of your paycheck. That’s it. If you can fill out paperwork, you can start investing.
Ask your employer to START a retirement plan: It’s a bold move, but it can work. My fiancé tried this, and his employer went for it, and now he has a retirement plan at work. If you can have a meeting with your boss, you can start investing.
Open an Individual Retirement Account (IRA): But let’s say your boss isn’t as cool as my fiancés, and she doesn’t go for it. That’s okay, you can still start investing. Go to an online brokerage firm (Fidelity and Vanguard are my favorites) and sign up for an account. They make it really easy–when you sign up, they’ll ask you what kind of account you want to open. Select Retirement, and they’ll walk you through the process from there. It basically involves transferring money from your checking account into your new investment account.
When you have cash in your account, you can start buying funds–basically, groups of companies or other types of investments. They’ll walk you through that, too. They offer something called “target date funds,” which is basically a starter investment portfolio. There are better options, but even a target date fund is a better option than not investing at all. Don’t have enough cash to open a target date fund? There are cheaper funds you can invest in.
If you can fill out an online application, initiate a bank transfer and navigate a website, you can start investing.
Don’t get me wrong–I’m not saying investing is as easy as talking to your boss, filling out some paperwork, and setting up an online account.
But getting started with investing? Yes, it’s that easy.
And from there, you learn. You read more about the funds you should buy here. You learn how to diversify there. But first, you have to take that “no brainer” first step.
Photo by luxstorm.
Nice post!
Some people are just so afraid of making that first step that they do nothing. I recommend a Roth IRA to every young person, but probably less the 1/4 of the people I tell actually do it. If only they knew how easy it is! It doesn’t have to be perfect at first, as long as you start. You can figure it out as you go.
Totally! I had a 401(k) for years because it was easy and my job did it for me. What scared me about opening my own IRA was exactly what you said–I thought it had to be perfect. I mean, you want to read what you’re getting into when you open ANY account, but yes, you learn so much of it as you go!
What is it about investing that makes it so difficult to overcome the status quo bias of doing nothing? You’re exactly right – it’s easy to start! So do it!
The good news is that you don’t have to know everything about investing to be a good investor. IMO, you need to know how to start and you need to know how to say “Index funds”. 🙂
Good job! Well said!
Thanks! Yes x 1000 to index funds. When I started investing on my own (outside of any 401k), that was the one thing I researched pretty well before opening my IRA. Index funds make it super easy to take over your own investing.
It really is pretty easy and fortunately for me, my job offers great choices in our 457 plan. There is no matching because we also have a pension plan but there are many low cost choices (Vanguard being my favorite). I finally convinced 2 of my co-workers to enroll. Since the money is pre-tax, they barely noticed a difference in their paychecks but after awhile they definitely noticed the amount of money they saved in their account.
Nice! Yeah, having that option available at work makes all the difference. I don’t think I would have started investing as soon as I did without having a full-time job with that benefit–it just makes it so easy! And you’re right, you don’t even notice the difference in your paycheck.
Great advice! You can’t really screw up too badly with a $1K-$5K portfolio which is what you’ll start with. Maybe by the time you hit $100K you should know a little something about asset allocation and risk adjusted returns, but before that point the biggest mistake you can make is not investing (well the other mistake is try to be a hot shit investor with no money or experience)
Haha yeah, and that reminds me of another point worth mentioning. This is more long-term investing, not day trading, which is a totally different animal.
Also, like you mention, the key is to KEEP learning after you take the first step.
A portfolio does sound fancy. Words are powerful. But with online investing, hopefully that hoity toity stigma will go away. I know I (like your friend) thought investing was intimidating before I actually started investing doing it on my own.
Can’t help it, anytime I hear the phrase “diversify your portfolio” I just think of that Chris Rock stripper bit. But I digress.
Yeah, I’m with you on the online investing thing! Also, there are so many cool companies out there (Robinhood, Betterment, for example) that make it really intuitive and simple.
I’ve always been particularly baffled by employees who don’t sign up for their employer’s 401k plan, even though it has a match! Free money folks! Would you turn down a raise? That’s effectively what one does by not contributing enough to a 401k to at least get all the employer match. Just goes to show the sorry state of financial education, I guess.
Sigh, I know. I was one of those folks. I mean, I invested in the 401k, but for a while, I didn’t take advantage of the full match. As a self-employed freelancer, I now appreciate just how sweet of a deal that was!
I really like this post because all too often we’re hit with analysis paralysis, especially with a complicated subject like investing. I was stuck with the intricacies of investing and taxes so I didn’t invest outside of my 401(k), but the 401(k) was a simple choice – contribute and get matching funds. Done. Definite no-brainer.
Thanks, Jim! I’m a big fan of yours.
I think analysis paralysis hits the nail on the head. That, and the paradox of choice: there’s so much info and it seems like we have to make so many decisions, so we opt to do nothing. So having the option of a 401k definitely makes that choice really easy!
Best way to get involved is to get involved! You can read all you want and talk to others – and it’s helpful – but the best way is to jump in . . . possibly with enough money that you feel it but doesn’t impact your overall finances in a major way. You’ll learn some expensive lessons, but that’s how you improve. Just like any complex challenging task. You can’t expect to hit a consistent 300 yard drive off the tee the first few times you hit the golf course; practice makes perfect! Good write up!
-DP
True that! Thanks DP 🙂