5 Steps to Start Investing

5 Steps to Start Investing

It took me a while, but I finally made it. I’m at the point where I think investing is fun. The sense of control, doing my research, moving money around, and actually seeing it grow. It’s turned into a game, and I’m coming out on top. 

I wasn’t always this way. Just a short 6 years ago, I was a recent graduate who contributed to a 401(k), but was too afraid to regularly look at my bank account, so I would go weeks at a time pretending it didn’t exist. When I finally got the courage to take a peek, I realized I had to pump the brakes on eating out and getting drinks until the next paycheck. This cycle continued until I was finally ready to stop living in fear and take control of my finances and life.

I sat down with my dad, went over my finances, created a budget, learned everything I could about investing and got to work. I invite you to take a look at where your money is going and consider getting into investing. Here are the 5 steps that took me out of a fear mindset and into the game of investing. 

Step 1: Figure out how much money you have to play with

Take a look at your finances – budget your daily living expenses (and stick to it), make a plan to pay down debt and to create an emergency fund of 3-6 months worth of living expenses. Once you have that under control, see what’s left for your savings – short term and long term investing goals. It’s okay if you don’t have a whole lot left over – what matters is that you’re starting now, no matter how much you have.

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Step 2: Assess your risk tolerance

Determining your level of risk tolerance will help you establish the appropriate mix of assets in your portfolio. Typically, the longer your time frame, the higher risk you can pursue, which will generate greater long term rewards. This is because you will have more time to recover any losses that may have happened over the years. There are many well reputed sources online that can help you determine this mix – just do a quick Google search. 

Step 3: Shape your portfolio

Now that you know how much risk you are comfortable with, it’s time to establish the broad categories that will make up your portfolio: stocks vs. bonds, large caps vs. small caps, and U.S. companies vs. international firms. Diversity is good over the long term, and stocks show the best returns with anywhere from 8-12.5% annualized return, depending on the company. The well reputed risk tolerance quizzes that you’ll find online will typically also suggest a portfolio mix that can be used as a good starting point. 

Step 4: Choose your place

Most of us will start our investing through a 401(k), which is an employer sponsored retirement account. These accounts typically have a certain number of investment choices selected by the company to make investing easy. While this is a fool-proof no brainer, I also recommend opening up a separate brokerage account that lets you buy individual stocks, bonds, and funds. 

Step 5: Research & shop the market 

You’ve prepared for this. It’s time to step into the ring, embrace your inner investing nerd, and take action. I recommend signing up for Morningstar Premium to help you with your initial and ongoing research, evaluate new ideas, and monitor your portfolio’s strengths and weaknesses. It’s the tool I’ve used since the very beginning and continue to use to this day. The Morninstar instant X-Ray tool is my favorite way to monitor all of my investment accounts in one place. 

Remember to check in and rebalance your portfolio regularly – I recommend quarterly – and smartly sell winners and buy any undervalued assets. Be careful not to get too hyperactive in managing your investments – a little loss here and there can mean big returns in the future. Patience is key. Happy investing! 

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