So you’ve finally saved up some money and you are ready to start investing? But, you have absolutely zero experience or education in the space and don’t even know where to start?
Well we are going to fix that in a very simple way without getting too technical.
The following will give you just enough information to get started without diving too deep into finance, asset allocation, stocks, bonds, IRAs, Roth IRAs, etc. This is intended to start from the very beginning and set you on solid footing.
There are a number of good online brokerages that you can choose from, but you cannot go wrong with opening a Vanguard account. This firm pioneered low-cost index fund investing for the retail investor and you will be in good company if you start here.
First, you will need to open a brokerage account. Go to www.vanguard.com and open a new brokerage account.
Follow the steps to fund the account with however much you are ready to invest.
Now, what do you invest in? The good news is that you are not going to be picking individual stocks. This is long term investing in mutual funds that don’t require you to be a stock picking genius. In fact, its better to avoid all individual stock picking.
There are probably hundreds of options for investing on the site, but I will distill everything down to two points:
Diversification (index mutual funds). Invest in a low fee, passive index fund. This will give you broad market exposure without single stock risk. You are not making a specific bet on a single company you heard about. You are investing for the long term in the US and or global economies.
Timeline (Risk). Do you need this money in the near term? If so, you should be ultra conservative. Investing in stocks is a longer term strategy and you should really only be investing in stock mutual funds if you have a time horizon of longer than 5 years at a minimum (and probably longer). Assuming this is money you do not need for the short term, you have several options that will give you stock market exposure.
Three Options to Invest for Starters
Vanguard has created investment products that are one-stop solutions for your investing. Since you are new to this, this is a great option. It comes down to how much risk you want to take. These portfolios are shown here in more detail:
There is a ton of good information to get educated on these two websites that talk about risk, time horizon, retirement saving, or saving for other goals. The bottom line is that investing in all-in-one fund created by Vanguard is a great low cost option for new investors.
If you have a longer term horizon, the below fund would be a good option that includes 80% stocks and 20% bonds. It has higher risk and you should be aware of that, but it is broadly diversified and includes some bond exposure that will reduce the downside volatility.
- LifeStrategy Growth Fund. 80% stocks and 20% bonds
- LifeStrategy Moderate Growth Fund. 60% stocks and 40% bonds
- Vanguard Total Stock Market Index (VTSAX). Another option is to simply invest in the the total stock market through this fund. This would give you diversified exposure to 100% U.S. stocks (no bonds). This is a great option, but note that it includes no bonds in the portfolio and is therefore riskier than the two LifeStrategy funds previously mentioned.
All of these funds are very low cost and combine passive investment strategies offered by Vanguard on an individual basis.
For beginners, these are great options.
If you never learned any more about investing, and methodically saved and invested bi-weekly or monthly into this single investment for the next 30 years, you would very likely be in strong shape.
It’s this simple.
Don’t over complicate it.