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A Beginner’s Guide to Investing

It’s not as confusing as the bankers and economists make it out to be.

It’s easy for long-term money plans to get lost in the shuffle. After all, paying the rent or mortgage, planning your next well-deserved break, or finding the perfect outfit for that job interview are things you need to take care of now. The future? That’s decades away.

And yet, planning for your future by investing your money shouldn’t be put off. It’s one of the most important things you can do for yourself. Self-care, you might say. By putting money into the stock or bond market, your hard-earned dollars can grow faster than if you were to keep it in cash or a savings account.

“Money, in a capitalist society, is power. Women retire with two-thirds of the money of men. If you think about the means to have more power, getting a raise is certainly one of them. Investing is another,” says Sallie Krawcheck, CEO and co-founder of Ellevest, a digital financial advisory for women.

Despite its importance, many Americans aren’t investing. According to a 2018 survey by NerdWallet, 39 percent of Americans say they aren’t investing, with 28 percent saying it’s because they don’t know how.

There’s a common misperception that in order to invest, you need to first amass a large fortune. That’s not true. You can open accounts with $0—you won’t earn anything, but you can open the account. With as little as $1, you can start investing in exchange traded funds, or ETFs. You’ll need to open an account with a brokerage, which you can do online. Some popular choices are E*Trade, Charles Schwab, or Fidelity. Which type of account is right for you depends on your goals and income.

Traditional or Roth IRA

There are penalty fees if you withdraw from these types of accounts before age 59½, so these are best used for retirement. A traditional IRA allows a maximum deposit of $5,500 a year ($6,500 a year for people 50 or over) of pre-tax money. You only pay taxes on it when you withdraw money. With a Roth IRA, you can put away a similar amount; the difference is the money is you put in after-tax money. Upside: no taxes when you withdraw.

529 college savings plans

The money in these accounts can only be used for education and typically have to be used within 10 years of the projected college enrollment date. Different states sponsor different plans and offer various tax benefits—check the details of individual plans where you live.

Joint or individual brokerage account

Saving for something other than retirement or college? This kind of account may be for you. The funds you put in are after-tax, so any money you make from your investments will taxed, but you won’t pay a penalty if you withdraw while you’re still young.

401(k) retirement account

This is offered by companies to their employees, so you can’t open one on your own unless you have your own business. If this is a benefit where you work, you should take advantage of that. Contributions to these accounts can be taken out directly from your paycheck and are pre-tax dollars. Some companies will even match your contributions up to a certain percentage. “That’s free money,” says Lorraine Ell, CEO and senior financial advisor at Better Money Decisions.

 

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About the Author

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Lorraine Ell

CEO and Senior Financial Advisor

Lorraine is the CEO of Better Money Decisions (B$D) and co-author of the blog Better Financial Decisions. As a principal of B$D, she is excited to continue her long career as an investment professional which started when she worked in the 1980s as an advisor with Drexel, Burnham and Lambert and J.W. Charles and as co-owner of a Registered Investment Advisory firm.

Living and working in places as diverse as Jeddah, Saudi Arabia, and Budapest, Hungary has given her a unique perspective on the world of investing. Through these experiences she has learned that life can change in an instant and having a financial guide can make all the difference between a retirement fraught with worry and one with peace of mind.

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