People tend to stay away from the things they don’t understand and unfortunately investing is one of those things that can take up too much time in order to understand well. I get that it can be boring or too complex but I find it quite exciting! The good news is that there are so many great options out there that you can easily get started! And if you start, you’re going to learn something whether it be good or bad so start conservatively and work your way up.
Before You Invest
If you have read some of my other posts, you know that I approach financial planning like building a house. Start with a solid foundation and build your way up. Missing part of the foundation, or having cracks in your foundation, only means your financial house is doomed to an uncertain future.
Your foundation is a starting place. If everything went wrong, do you have a strong financial foundation to rebuild everything again and rebuild it quickly? This means things like life insurance, disability insurance, and estate planning documents. Once your foundation is in place, take a look at your cash flow. Do you have an emergency fund with at least 3 months worth of living expenses (a 12-month emergency fund is even better in my opinion)? Have you paid off your high interest debt and are you managing your remaining debt well? Do you have a budget where you’re implementing the 50/20/30 Rule? Yes? Then let’s look at investing!
This post is not about what type of accounts you should be funding first, but how to get started! Like mentioned before, people tend to stay away from investing because they don’t understand it but jumping in is one of the best ways to learn! And it doesn’t matter if you only have a few dollars to invest every month or a lump sum that you want to manage and grow because there are options for all shapes and sizes. There are just two tips I want you to keep in mind and those are (1) Keep your fees low and (2) Diversify. Easy, right?!
Keep your fees low. Regardless of how well your investments are doing, if you have high fees, those fees will eat away at your returns. If you invest with a financial advisor, ask them how they are paid. Do they receive a commission or do they charge you a fee based on your assets under management? What are the internal fees of the underlying investments? Ask to see those. The good news for you is that the Department of Labor passed new legislation requiring financial advisors to become more transparent in their advisory fees by 2017.
If you want low fees and don’t necessarily need the customized guidance of a financial advisor, you may want to explore the option of using a robo-advisor. This is a great option for those just getting started without a whole lot to invest, or those that are strictly looking for a low cost asset mangement service. Instead of a human advisor incorporating your entire financial situation and choosing specific investments for you, a robo-advisor uses computer algorithms to diversify your assets into pre-selected investments in exchange for a small fee.
Diversify. How well your overall portfolio performs is based largely on how your money is allocated between different asset categories (also known as asset allocation). Different asset classes will offer different levels of return during a variety of market cycles so by diversifying you are spreading your risk over several investments. You can accomplish this by investing in a mutual fund or exchange traded funds (ETFs) which are funds made up of several other underlying investments.
What Are My Options?
When you decide to take the leap into the world of investing your first decision needs to be based on whether you want to work with a licensed advisor, perhaps somebody locally, or a robo-advisor as described above. There are pros and cons with each but again it depends on what level of guidance you need and your comfort level with each.
If you choose to work with a licensed advisor there are a couple of websites you can visit to do your own due diligence.
WealthMinder allows you to search advisors based on services or expertise that you need. This will allow you to be introduced to financial advisors until you find the perfect fit. You can also search the CFP Board’s website to find a Certified Financial Planner TM here. And once you’ve found the perfect fit, be sure to check out the meaning of those credentials and the SEC’s website to ensure they have a clean record.
Choosing the robo-advisor route gives you several different options as well..
Betterment is an asset management service with no account minimums and will charge you a small fee of 0.35% with balances below $10,000 + $3 monthly fee which is waived if you auto deposit a minimum of $100/month. Your management fee will drop to 0.15% if you have more than $100,000 invested with them. What I like about Betterment is their ability to handle a variety of different account types, they automatically rebalance your portfolio for you, and it is very easy to get started with $100 a month!
Wealthfront is another robo-advisor out there that does much the same thing that Betterment accomplishes however the difference is that you need a $500 minimum, the fee is a flat 0.25% unless you have less than $10,000 then it is managed for free!
If you’re testing the waters and have a little to invest here and there, a good option is Stash Invest. Stash allows you to invest as little as $5 at a time on any schedule you choose automatically or if you’re not a fan of automation, whenever you choose. The downside to these are if you are investing anything less than $5,000, you are charged $1 per month. However Stash will waive the $1/month fee for the first 3 months and will give you $5 by using my promo code crystal295nk and get started!
These are just a few options of the many out there. Regardless of which route you take just remember my two tips. If you keep your fees low and you’re diversified then you are already on the right track! If you’re trying to decide between retirement accounts, read my post here.
Disclaimer: I am a CERTIFIED FINANCIAL PLANNER TM (CFP®), but I am not your CFP® or financial advisor. The information in this article is for general informational and entertainment purposes only and does not constitute financial advice. This article does not create a financial planner-client relationship. The author is not liable for any losses or damages related to actions of failure to act related to the content in this article. If you need specific financial advice, consult with a licensed financial advisor or CFP® who can tailor advice regarding your specific circumstances. Additionally, sometimes I use affiliate links to support my website. This means I may earn a small commission, which is no additional cost to you, for referring and discussing products and services that I personally use, or have used, and trust. Thanks for your support!