Many of us defer investment or shy away from it because it looks scary. We are often worried about buying the wrong thing. We worry we will never know when to buy or sell. Those are all fair concerns but should not stop you from putting your money to work. Investing does not have to be complex. What is most important is starting early and staying disciplined. Saving and invest early in your life is important as the longer you can let compound interest work in your favor, the better it is. I did a post on the impact of compound interest, if you are interested to deep diver on that.
•Get started as soon as you can. Even if it does not seem like much
•Use automated investing. Betterment and Wealthfront make this easy. It is equally easy to invest in index funds by yourself and avoid the small fees these services charge but for most of us, that extra thing to do or the added opportunity to break a routine gets in the way.
•Using automated investing, spread out your investments to take advantage of dollar cost averaging. For example, if you are planning to invest $200 per month, it is better to break that into $100 every two weeks.
•Do not try to time the market. In long term, there are only a handful of people who have been able to beat the market. Robo advisors like those listed above also do periodic re-balancing for you as the market changes.
•Don’t go looking for overnight successes.
•If you are still in your twenties or early thirties, choose aggressive strategies. If you are using the robo advisors, they have a questionnaire to help pick your risk tolerance.
•Avoid fees! For robo advisors, use sites like Wealthfront and Betterment who have low fees and a free tier. If you are managing everything yourself, use Robinhood, which charges no fees. If you are using Robinhood and do not know what stocks to start with, consider starting with index funds such as VWO, SCHB, VIG, MUB, etc.
Stay patient and disciplined. If you are saving for retirement, it makes no sense to panic and sell every time the market has a big drop. The market eventually recovers. Think of the long game.
•Diversify! It is never a good idea to put all your eggs in one basket. It is not only important to pick different stocks and funds but also the ones from different industries to ensure good diversification. Again, robo advisors will care of this for you.
•After you have been investing for a while, compare your returns to an index like S&P 500 or Nasdaq. You might be worried that you lost 5 percent last year, while the market had lost 8 percent. It’s important to have benchmarks to compare to.
Regardless of whether you use robo advisors or pick stocks on your own or create your own index fund, what is important is to start early and contribute consistently. If you are just starting off, one of the easiest and best ways to start is using sites like Wealthfront and Betterment.
I hope you found this useful. If there are any simple tips I have missed, please share with everyone in the comments.
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