STEP 5: Investing Your Money For The Future - Debt to Zero

STEP 5: Investing Your Money For The Future

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To build wealth, you need to develop good habits. A few key habits of the wealthy include regularly saving and investing their income, an essential wealth building tool. If the majority of your income is going towards making regular debt payments, you can’t use it for wealth building. 

If you're still in debt, I'd encourage you to postpone investing for now. A fully funded emergency fund and becoming debt free would serve you better at the moment as it is a solid foundation for building wealth.

If you're debt-free, now is the time to start thinking about investing. Many people postpone investing because they believe they need a lot of money to get started, which simply isn't true. You can start investing with as little as $5 per month and the best time to start is today. 

If you are like many people out there, you may not know how to start investing your money. Investing can be a scary, stressful, and overwhelming topic. My goal is to make it easier on you by providing the basics so you can begin investing and building your retirement fund as soon as possible.


Investing Basics


Once you’ve completed STEPS 1-4 you are ready for Step 5 — investing for the future. There are many ways you can invest. Your investment portfolio could consist of stocks, mutual funds, bonds, real estate, art, vintage cars, and much more.

However, we're going to focus on investments that you can choose in a brokerage account or retirement plan. These types of investments generally include the following:

  1. Mutual funds and ETFs -  Mutual funds and ETFs (also known as exchange-traded funds) allow for the pooling of funds from several investors. The money is then invested into different stocks, bonds, and other types of investments. For example, the S&P 500 EFT invests in all the 500 stocks that make up the entire index.

  1. Stocks - Stocks (also known as equities) essentially gives you partial ownership of one or more companies. If the company performs well, the stock rises and increases in value. While they are more volatile than other types of investments we’ll discuss, they do have the potential to bring in higher returns over long periods of time.

  1. Bonds - Bonds (or fixed-income investments) allow for investors to maintain a consistent stream of income. Bond values fluctuate with interest-rates, but they are less-volatile than stocks. However, they come with a much lower return than stocks.

  1. Cash - Cash includes investments like CD’s, money market accounts, and savings accounts. These types of investments have the lowest return potential, but they are much less risky than the other investments we’ve discussed.

Should I invest actively or passively?

There are two investing methods — Active and Passive.

Active investment allows for investors to pick individual stocks and bonds or purchase mutual funds that are actively managed by professionals. In other words, an active investor's goal is to beat the market.

Passive investing involves purchasing investments through funds that track indexes. The goal is to match the market's performance. For example, an S&P 500 ETF (mentioned in the prior section) is a passive investment vehicle.

You need to decide how much time you want to spend investing. If you have the time and desire to research individual stocks — you may prefer active investing.

For those of you who lack the time and aren't motivated to study the stock market, passive investing may be a better choice.

 

Research and Learn

Before you start investing your money in the stock market and other investments, it's a good idea to know what you're investing in. It will benefit you in the long-run to read various investment-related tips and research the different options available to you.

How you invest your money depends on your risk tolerance. You will also need to consider the period of time you have for investing. In other words, when do you plan to retire? Generally, the sooner you need your money, the less risk you will be able to take. If you have a longer time-frame to invest, your risk tolerance will be higher because you will have time to recover from market fluctuations.

Find a good online brokerage

You can invest your money yourself through an online brokerage, or you could find someone to manage your investment portfolio for you.  There are many online brokers to choose from; however, my favorites include the following:

Betterment Betterment is an extremely affordable way to invest your money. They have over 270,000 customers, and over $10 billion has been invested through their service.  Betterment is an automated investment platform that’s cheap and super easy to use.

Once you invest with Betterment, your portfolio will be invested in several

exchange traded funds (ETFs). They determine how to invest your money based on a short questionnaire you fill out.  This platform is not a do-it-yourself account where you buy and sell. Instead, they platform automatically manages your account for you.

 

Not only will they handle investing for you, but there is also no minimum deposit to open an account. It's perfect if you're new to investing, have a limited amount to invest, and you're intimidated by managing your portfolio.

 

Their fees are reasonably low at just .25 percent on accounts up to $2 million. Plus, they offer access to Certified Financial Planners (CFP) on balances of $100,000 and up for an additional fee. You can start investing in your future today with as little as $10.


STASH - is a free app that you download, and it's perfect for those of you who have trouble putting money aside yourself. The app analyzes your checking account and makes small transfers to a savings account for you.



Acorns- If you prefer investing any extra money you have rather than saving it, Acorns is a free app you download as well. Instead of throwing extra money into a savings account, the app rounds up your credit and debit card purchases and invests the difference.

 

Regularly review your investment portfolio.

So, you have finally invested your money. What’s next?

Now it's time to track your investments. This is important because eventually, you may need to change your investments, the amounts invested, and so on.


Now, the key here is not to go crazy! Don’t become obsessed and check your investments every hour of the day.  Small daily changes in the stock market won’t have a big effect on your long-term financial goals.

The key here is to monitor your investments and ensure you’re staying on course to meet your short-term and long-term goals. Getting wealthy through investments takes time, so be prepared to develop consistent investing habits.

 

NEXT UP: Step 6 - Giving Back

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