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Before we begin, this is absolutely not investment advice and I am certainly not a financial professional. Please understand this is entirely for informational purposes only and in no way are we making any claims about this style of investing. Use your head people, this is a blog, not a financial consultation.
How to Begin Investing
How do you actually become an "investor"? This is a common question to which the answer is actually quite a bit simpler than you think.
First and foremost, to be an investor, it takes having a little extra pocket change for which to invest. Remember, it takes money to make money.
What does this mean for you? It means you need to start saving some extra money.
Previously we discussed what it means to have a margin of potential for savings. Your margin of potential is calculated by subtracting your expenses from your income (margin of potential = income - expenses).
Without having a positive margin of potential, you will lack the most sufficient tool required for investing, money. I am not interested in discussing using other people's money or marginal investing because that is not what this community is about.
You can increase your margin of potential two ways:
I do have a basic tenant that I believe all should follow. I believe that you should eliminate your debt first before worrying about becoming an investor. The only debt I believe that you can keep around is a mortgage, provided that you have at least 20 percent equity in your home.
This is a community filled with people searching for financial strength. You do not get to a financially fit position by borrowing. End of story. If you do believe that you can borrow your way to wealth, stop reading right now and find something else to do with your time (like read a personal finance book or two). This community is the type that pays off their credit card bills, in full, every month. That's what brings us security.
Deciding where to save it
Once you've broken free from spending every single dollar you earn, and you have eliminated debt, you have some choices.
Where can you begin investing?
Here are some of the primary investment vehicles where you can save your money and have access to investing in "the market" (not supposed to be an exhaustive list, just the most common):
I just happen to use Fidelity and Vanguard because I have found they offer the lowest account fees and best customer support around. I have tried MANY other investment companies for various accounts without much success. They will remain nameless.
To open an account in order to begin investing, just visit the company site or call the company directly, and seek advisement for how to open any of the following accounts - or even ask about one's I haven't listed such as a 457 plan, etc.
I do not use a financial professional and choose to pick the funds myself. I do this for the lowest possible cost and the greatest potential return. Read the two books below if you think that you cannot do it yourself when it comes to investing.
How To Start Investing (once you have eliminated your debt)
The simplest way to break into the investing circles is through low cost index funds.
If you are uncertain about investing and you need more confidence built up before enbtering the stock market, here are two must-read books for you:
How to Start Investing (steps)
Step 1. Choose which type of account you will begin investing in from above (Roth IRA, Traditional IRA, Brokerage Account, 401(k), 403(b), etc.)
Step 2. Choose your Financial Service Provider (Fidelity and Vanguard are my favorites - however your 401(k) and 403(b) plans might not offer these companies)
Note: I primarily use Fidelity and Vanguard due to the low cost nature of their funds and little to no fees associated with their accounts.
Step 3. Link your checking account to whichever account you opened after following steps 1 & 2 above. Start depositing money into this account.
Step 4. Choose your investments (by searching the following "ticker symbols"):
My belief is that the younger you are, the greater the percentage of equity index funds you should have in your overall investing portfolio. My preferred choice is low cost index funds that track the total market or a major index.
Step 5. Keep investing in this account and buying shares of the above for years and years to come to take advantage of compound interest.
That is it. Be advised, there are some limits for the types of accounts listed above for how much you can deposit into your account each year. To find up to date contribution limits, visit the IRS website here.
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