This guide is intended to help new investors/beginners. I aim to make it comprehensive and breakdown the world of investments. I’ll cover why investing is important, what to do before you begin investing, types of investment accounts, my favorite stock brokerage, investing strategies, and much more. Despite what you may have heard, you don’t need a lot of money to start investing so let’s dive in.
You’ve probably heard this before, but investing early in life is one of the easiest ways to build wealth! When you invest early, your money will benefit from stock market growth, dividends, and compounding long term. It’s like getting a second job, but not having to do any work as your money keeps making you more money!
If you were to invest $100/month in the U.S. stock market, assuming a 7% historical annual return, your money will have more than doubled in 20 years. Yes, even though you only invested $24,000 over those 20 years, your investments will have grown and compounded to be worth more than $50,000. That’s the power of investing!
Playing it safe with a checking account or high-interest saving account will offer very little return over the same time frame as demonstrated in the chart above.
Not everyone is in the position to invest right away. Tackling other financial goals first will provide greater benefits for your financial future. Start investing after you:
Now that you are ready to begin investing you will need to determine what kind of account is best for you to invest in. The most popular are Traditional and Roth IRAs “Individual Retirement Accounts” and taxable brokerage accounts and I’ve summarized each below.
Traditional IRA — This allows you to contribute pre-tax dollars into a retirement account where investments will grow tax-deferred until you withdraw funds during retirement. Depending on your tax situation your contributions may also be tax-deductible. Vanguard has a great guide here with more information to help you figure out if this is the right account for you.
Roth IRA — This allows you to contribute post-tax dollars into a retirement account where investments will grow tax-free including in retirement. There are more restrictions on who is eligible to contribute to this type of account but also note that your contributions to ROTH IRAs aren’t tax-deductible. Vanguard has a great guide here with more information to help you figure out if this is the right account for you.
Taxable Brokerage Account — This allows you to invest your money into a general investment account either as an individual or in a joint account. It’s called a taxable brokerage account because you will be subject to taxes if you sell any investments for a gain or receive a dividend payment. Some people prefer to invest here because there are no limits and you can access your money anytime you want, which can provide more flexibility before retirement.
I’m a big fan of maxing out an IRA to take advantage of the tax benefits early in the year and then contributing to my taxable brokerage account. There are also annual contribution limits for IRAs so make sure to check the IRS IRA contribution limits each year so you don’t go over the limit.
If you are new to investing, starting with an IRA is a smart move. Depending on your income and tax situation, one type of IRA may be favorable over the other so do your research and understand the differences between a Roth & Traditional IRA.
Once you’ve decided on which type of account to open you’re now ready to open it at a brokerage firm. Brokerage firms allow you to easily invest in a wide variety of investments including stocks, bonds, ETFs, mutual funds, and more.
I love M1 Finance as a brokerage because they don’t charge any commissions/fees and make it really easy to get started if you’re new to investing. The website and mobile app are simple to use and you can sign up in under 10 minutes. You’ll have to verify your bank account information and then you’ll be able to fund your account in just a few days.
M1 Finance offers both IRAs and taxable brokerage accounts. If you struggle with building habits, you can automate your investing each month with automatic transfers from your bank right into your portfolio.
If you are looking for more of the traditional brokerages consider looking at Vanguard or Charles Schwab. I have accounts with a few as each company offers different kinds of mutual funds and benefits, but M1 Finance is my new favorite brokerage!
If you sign up for M1 Finance using my link you’ll also get $20 for free as a bonus when you open your account and start investing.
If you’re new to investing this can seem like the scariest part. You’ve saved up all this money and now you’re ready to invest it and grow it, but there are so many options it may feel daunting at first. M1 Finance makes this easy for new investors.
When you sign-up for M1 Finance you’ll build your first portfolio or as they call it a “pie” that you can customize however you want. They also provide a number of pre-built “expert pies” you can choose from and tweak however you want based on your goals.
Pies can be customized to include a mix of stocks, bonds, ETFs (exchange-traded fund), mutual funds, REITs (real-estate investment trusts), and more and M1 Finance also supports fractional shares. Don’t have $3000 to buy one share of Amazon? You can buy fractional shares or small parts of one share using M1 Finance. As you continue to invest more and buy more fractional shares you’ll eventually own a full share.
After you’ve created your pies it’s time to set it on autopilot and continue to invest every month. Make sure your investment strategy matches your risk tolerance and financial goals. Younger investors have longer horizons for investments to grow so they can take more risk, while older investors are seeking stability as they move towards retirement so they ofter take less risk.
While Vanguard, Charles Schwab, and other traditional brokerages may not allow you as much freedom with fractional shares, you can do much of this with them as well, they just won’t allow the same level of customization and automation that M1 Finance offers.
I encourage new investors to start by investing in ETFs “Exchange Traded Funds” as opposed to buying individual stocks. ETFs trade like stocks, but act more like mutual funds as they are often made up of many different stocks and not just a single company. They often represent different industries or track the overall stock market.
Picking individual stocks may sound like fun for a number of reasons, but I argue against it because most people aren’t willing to spend the time doing proper due diligence on their investments.
Instead of spending hours researching stocks and investment strategies, you can let the professionals who manage ETFs and mutual funds do all the work for you. Of course, you have to select ETFs or mutual funds to invest in, but M1 Finance makes that easy for new investors.
I prefer ETFs over mutual funds for new investors because the minimum to get started can be as low as $50. Some mutual funds require as much as $3,000 to begin investing which. can be a major barrier to new and young investors!
ETFs often have low expense ratios (management fees). Mutual funds and investment companies charge fees to investors to maintain and operate their funds.
You will find the expense ratio listed on the funds website or you can Google it. Here are a few examples:
ETFs have helped to disrupt high-fee mutual funds by providing lower-cost alternatives over the past few decades. Many mutual funds have followed ETFs and lowered their expense ratios, but the average mutual fund expense ratio today is still above .50% and varies depending on the type of mutual fund. Actively managed mutual funds can have expense ratios anywhere from .50% up to 2%, which can significantly lower your returns.
This is why it’s a smart money move to invest in ETFs and mutual funds that have expense ratios below .50%. Low expense ratios and management fees can save you tens of thousands of dollars long term and years of your retirement life, while still providing the same kind of return. Here is a helpful calculator from Nerdwallet to calculate fees on investments.
It can be hard to know where to start or what to do first. As a financial coach, I have helped hundreds of people get out of debt, save more, and transform their relationship with money.
I will help you create a system that builds the right money habits to enable you to achieve your financial goals. Everyone’s situation is unique so you’ll get personalized coaching tailored to your specific needs. I guarantee that you’ll leave feeling confident about your financial future and in control of your money!
If you’re interested, please schedule a free consult on my website and we can see if we are a good fit for each other. You can also email me with any questions at info@organizedbyjosh.com.
Disclaimer: I love providing unique insights on personal finance, but please note that I am not a certified financial professional, advisor, or tax professional. This post is not financial advice, investment advice, or tax advice and is provided purely for informational & educational purposes only. This post contains affiliate links that I may receive compensation from, but I only recommend products or services I personally use and trust.
I am a financial coach who has helped hundreds of people transform their relationship with money and improve their financial future. My mission is to help everyone achieve financial freedom by educating and motivating them to build smart money habits so they can live the life of their dreams.
