What’s the best way to start investing? | Smart Change: Personal Finance

(Javier Simone)

So you want to start investing. But when you’re bombarded with a wide variety of investment platforms, it may be difficult to figure out which type is right for you.

Don’t worry. I will help you understand which approach to take based on your financial situation, investment objectives and risk tolerance.

Make sure you are ready to start investing

Before you start investing, make sure you have a manageable budget and a reliable emergency fund. Most financial advisors recommend setting aside enough to cover at least six months of expenses to cover the unexpected.

You should also make sure that you have eliminated high interest credit card debt. If you are only making the minimum payments on your credit card balances, you may be tempted to use your disposable income to invest in the stock market.

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Despite the occasional market downturn, the S&P 500 – considered a benchmark for the general stock market – returns an average of 10% in the long run. This dwarfs the average interest rate on savings accounts by less than 2%.

But consider this: the credit card’s average annual percentage rate is 15%. So work to overcome this hurdle, and then your investment dollars can really take the lead.

Know your investment options

The investment universe is vast and growing. But there are a few choices that may work for beginners:

Actions: Shares represent the shares owned by a company. Depending on that company’s overall performance, the share price may rise or fall throughout the day. Stock prices can range from a few cents to hundreds of thousands of dollars. Due to its inherent volatility, investing heavily in equities is generally recommended for investors with the risk capacity to bear the lows and the time horizon to recover losses.

Bonds: Buying a bond basically means you are lending your money to a company or government that promises to pay you more interest. Bonds are generally low-risk investments. So, if you are investing in the short term, it can be worthwhile to dedicate an adequate portion of your portfolio to bonds. But remember: low risk usually means low returns.

Exchange Traded Funds (ETFs): An ETF is a basket of various stocks or bonds. You can buy shares of an ETF as you would a single stock. ETFs are known for instant diversification, low fees and low costs.

Mutual funds: Like ETFs, mutual funds invest in a variety of stocks, bonds, and other stocks. But they don’t trade like stocks and ETFs. Most require a minimal investment, which can be around $ 1,000 or more.

Index funds: An index fund is a type of mutual fund that aims to mirror the performance of a stock market index such as the S&P 500 or the Nasdaq. This strategy is known as passive management. Since index fund managers want to mimic the performance of a benchmark rather than outperform, index funds tend to have lower fees than their actively managed counterparts.

So now that you know a little bit what’s out there, you can look for the right brokerage account.

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Online investment app

If you are a beginner, one of the easiest ways to start investing is to download a discount investing app. Most don’t require a minimum investment.

If you are saving for retirement, you can open an Individual Retirement Account (IRA) or Roth IRA. But if you are saving for the short term, you can also open a taxable brokerage account. You can withdraw funds from these accounts at any time without penalty. But you may have to pay capital gains tax.

Most of today’s popular investment platforms allow you to invest in a wide variety of stocks, ETFs and options without commissions. So, if you want to build and manage your portfolio, online brokers offer an inexpensive way to do it.

Having patience and investing for the long term is usually best for most people. But if you want to try to be successful in day trading (and few people really do), you need to know what you are doing. Learn how to research stocks through techniques such as fundamental analysis and technical analysis.

Digital tools can help you do that. This is where some online brokers fall short. Many don’t offer robust tools and platforms that can help you control stocks and ETFs.

More established brokerage firms can offer better solutions for your investment needs. Several wealth management companies do not require a minimum investment to open a taxable brokerage account. And all the bells and whistles, such as advanced inventory screening tools and analytical tools, are free.

But if you don’t have the time to spend all day looking at charts and following price movements, you can still be able to invest. In fact, day trading is one of the hardest ways to try and make money in the stock market.


A robo-advisor is an investment management service that uses an algorithm to build and manage a diversified portfolio for you.

Here’s how it works: Answer an online questionnaire about your financial situation, investment goals and risk tolerance. The robo-advisor therefore recommends a portfolio typically built with low-cost ETFs.

Since you won’t be doing any of the legal work, the company offering the robo-advisor may charge an asset management fee. But these are typically competitive at around 0.25%. Some brokerage firms may waive the fee if the balance is below a certain threshold.

Additionally, many robo advisors offer distinct features such as automatic rebalancing. This means that you will not have to check your portfolio to make the necessary changes to your asset allocation. The robo-advisor does it for you.

Another common feature among robo advisors are tax loss collection services. But the disadvantage of robo advisors is that you won’t be able to choose your own stocks. You’re usually limited to a model portfolio built with ETFs or mutual funds.

The bottom line

Before you start investing, make sure you have a manageable budget, an emergency fund, and no or no interest rate debt. Once deleted, you have many options. If you want to analyze and choose your stocks, consider an online investment app.

If you are a “set and forget” investor, a robo advisor might come in handy. It builds and manages a portfolio for you in exchange for a small commission. Online investment apps and robo advisors can help the novice investor start building long-term wealth.

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