How to Invest With No Experience

Maybe you’re fresh out of college in your first job, or maybe you’re getting a late start on your financial health. Either way, you’ve decided that you want to start investing. You’ve got some money saved up from your Bar Mitzvah, or maybe you’re keeping to your budget and throwing $500 a month into your savings account. And now you want to start investing but don’t know where to start. You’re in the right place, we’ll guide you through your best options.

Are You Investing For Retirement?

First, you have to decide what you’re investing for. If it’s for retirement, consider your 401(k) and IRA options. If you’re young and are in a low tax bracket, the Roth IRA is a great option. Whether you’re looking for a retirement account, or a taxable investing account for the short-term or medium-term, consider a low-cost company like Vanguard or Fidelity. Getting set up with them is very easy. Simply create an account on their website, and they’ll guide you through the process to get you set up. If you’re not sure which kind of account you need, there’s a clear hierarchy of investment accounts that you should follow.

It may feel overwhelming at the beginning. You have so many investing options and may not know where to start. You can invest in stocks, bonds, ETFs, and the list goes on. Thankfully, we’re here to help. If you’re young, you likely want to invest heavily in stocks, which tend to perform best over long period of time. If you’re in your 20s and 30s and you are going to have this money for 40+ years, stocks make a lot of sense.

Don’t Invest It All In One Stock!

Now that we know to invest in stocks, that still leaves almost an unlimited number of options. Should you put all your money into one stock? Apple has performed well, right? So should we just buy that and let it ride? Absolutely not! Diversification is really important. One stock might be volatile, but if you own bits of a lot of stocks across industries, you’ll be better protected from large swings.

Let Mutual Funds Do The Work For You

To diversify properly, we want to buy different stocks that cover different industries. And the best way to do that is to invest in a mutual fund. A mutual fund is a collection of stocks, so instead of you buying a little bit of each stock (which can add fees for each trade), you can effectively own parts of many stocks, without having to pay a $5-$10 fee for each trade.

You don’t need to be an expert to begin investing. Unless you want to do a lot of research, why not let someone else do the work for you? This is what makes mutual funds so attractive. Mutual funds are often run by groups of experts, so they do all the work, and you get to take advantage for a relatively low rate of 0.5%-1.5% of fees, or $5-$15 of each $1,000 invested.

Index Funds Are Incredibly Cheap

To take it a step further, an index funds are a type of mutual fund that tracks a specific index, like the S&P 500, for example. The reason I am such a fan of index funds is that since nobody is doing any manual stock picking (the stocks in an index are fixed, so a computer can do the work for us), the fees can be really low. For example, Vanguard has an S&P 500 index fund with fees of just 0.05% of your investment. Practically, this means that for every $1,000 you have invested, you pay just 50 cents!

The thought of starting to invest can be daunting, but getting started doesn’t have to be hard!