Many people still worry about investing. Even though the industry has been trying really hard to make the tools accessible for the masses, it can still seem too complicated to get started. However, taking the step to get the ball rolling is worth it, because investing is one of the best ways to build wealth over time. If are still on the fence about jumping in, then here are some reasons to start investing as soon as possible:
Compound Interest Works for You
One of the best reasons to get started as soon as you can is due to compound interest. Compound interest is earnings on your earnings. It’s the way money works on your behalf to grow over time. The longer compound interest has to grow, the bigger your nest egg will be.
You might have heard of the phrase “time in the market beats timing the market.” This is simply acknowledging the fact that compound works wonders over a long period of time. Time and consistency are keys for a long-term investing strategy. Keep buying, stay the course, and you’ll be rewarded.
Starting is Easier Than Ever
One of the best ways to build wealth over the long term is to invest. Investing allows you to take your capital and put it to work for you. In the past, the perception was that you needed a large sum in order to start investing. However, thanks to technology and online brokers, almost anyone can start investing without too much trouble.
Most online brokerages will allow you to start investing with as little as $25. Some, like Ally Invest, don’t require you to make an opening deposit at all. You can open a brokerage account and then fund it when you can.
Partial Shares Make It Even Easier
These days, you don’t even have to worry about how much each share cost and figure out how many shares you can buy. Just enter the dollar amount you would like to invest and the brokerage will calculate and execute the trade for you by letting you own partial shares — sometimes also called fractional shares.
Let’s say you want to buy a stock or ETF that costs $300 a share. If you have $300 that you want to invest, then you can buy one share. But if you only have $150, you used to be out of luck because you can only buy whole shares. Now, you can buy partial shares and own 0.5 shares instead. This means it’s never been easier to buy in small increments.
Opening an Account is Dead Simple
Opening a brokerage account is fairly easy as well. You can do it online as long as you can provide the following information:
- Birth date
- Social Security Number
The process takes about five minutes. It’s really easy. Once your account is opened, then you can link your brokerage account to a bank account so it’s easier to fund your investments. You will need your bank’s routing number and your account number to link the two. Some will even let you link to your accounts by having you log into your bank, which is even easier.
Index Funds and ETFs Make Investing Easier
One of the reasons that many people struggle with investing is due to there being too many choices. They are worried about how to choose individual stocks and concerned about getting it “wrong.” Things have changed in the last few decades, however.
The rise of index funds made it easier for people to make better choices about investing and get started without picking the right stock. An index fund is a collection of securities with similar characteristics. One of the easiest ways to get started is to choose an all-market index fund. These funds basically track the overall performance of every company publicly listed in the United States stock exchanges.
There Are Plenty of Index Funds
There are also funds that focus on specific indexes, like the S&P 500, or funds that focus on dividend stocks. And for those who still want to make specific bets on corners of the market, there are also sector specific ETFs. You can also trade index ETFs like stocks and reap the benefits of ease and low-cost trading.
Starting with indexing can be a good way to just start building your portfolio without the need for a lot of expertise. Plus, it reduces the risk somewhat because you aren’t relying on the fortunes of just one company.
You Might Already Be Investing
Getting started is often the hardest step but there’s a chance that you may already be investing without realizing it. If you have been contributing to your company’s retirement plan, then you are already investing. What you put into your plan goes into investments – usually funds – that help you accumulate wealth over time. On top of that, using a qualified retirement plan comes with tax advantages. Tax-advantaged investing puts your money to more efficient use and you end up with better results over time.
Check to see what you’re already investing in at work through a 401(k). If you don’t have a plan through work, consider opening an IRA through a low-cost broker. As your financial situation improves, make sure that you increase the amount that you invest. If you can get in the habit of adding to your portfolio over time, your results will be much better.
And while you are at it, set up an automatic withdrawal from your bank account to your brokerage and set up a recurring investment order. This automated setup will help you to build up your portfolio over time. Investing a little bit consistently over time can have a significant effect on your future wealth.
Ready to Jump In? Here’s What to Consider
Because there is a risk of loss anytime you invest, it is important to start with investments that you understand. Learn how stocks work before you invest. Prior to purchasing a bond, know how they function. And make sure you know what an index fund is before you put your money in. The simpler investments can be understood after a few minutes’ study.
Many experts recommend that you start with the simpler investments. Index funds are popular because they are easy to understand, low cost, and come with built-in diversity. Treasury bonds are also popular for novice investors because it’s low risk. For those who want to try investing in individual stocks, dividend aristocrats are often considered less risky choices.
Consider Starting with Funds
One of the best things you can do for your finances is to be something of a boring investor. Instead of going for individual stocks and trying to pick the right ones, consider starting with funds. Look at index funds and at ETFs. While you might eventually move on to individual stocks, starting with funds can help you achieve diversity and take some of the pressure off as you learn more about investing.
Whatever you start with, though, the investment should be something that fits with your long-term financial goals. It should also be expected to help you reach your money objectives. Also, it’s important that you start investing with money you can afford to lose while you learn the ropes. After all, any investment can lose money and there is no full-proof way to invest and earn money. This is especially true in the short term because stock and index fund prices can be very volatile. However, that said, if you are willing to take a little risk, you have a better chance of returns.
Decide How Much You Can Invest Each Month
One of the keys to investing is to consistently buy more. Figure out how much you can invest each month and invest continually. Thanks to dollar cost averaging, you can do reasonably well over time.
Whether you have some of your money withheld from your paycheck and diverted to your retirement account or whether you sign up for an automatic investing plan with your broker, think about investing a set amount each month and consider raising the amount you invest if you see good fortune and a raise.
Remember the Long Term
It can be hard sometimes to block out the noise related to stocks. Every day, it seems as though the stock market is always in the news, gaining or losing by a lot.
Remember, though, that over time the stock market performance smooths out somewhat. Keep in mind that you are in this for the long haul and don’t worry quite so much about the day-to-day changes.
Seriously, Just Get Started
The best thing you can do is to get started. Don’t procrastinate, putting it off day after day. Instead, push yourself to make that first step. With fund opportunities and the fact that nearly anyone can open an account, it’s possible for you to begin investing. Get started as soon as you can in order to take advantage of compound interest for longer.
Long term wealth could be obtained, but only if you get started. There’s almost no barrier these days to setup an account and make your first investment, so don’t delay anymore.