Okay, so we have gone through a lot these last few days. Here’s a recap of everything.
First
Have a financial foundation established before you start investing in the stock market. This means creating a budget, signing up for a high-yield savings account, creating a debt payoff plan, and saving an emergency fund.
Second
You’ve always heard the phrase “invest in stocks and bonds”. Now you know what stocks and bonds actually are!
A stock is a security representing a fraction of ownership in a company, a share. You’re a shareholder because you receive a share of the company profits.
A bond is a loan to a company or government. They use the money to fund their operations. The investor who loaned the money receives interest on the investment.
People usually do one of two things to invest in a simple, passive way inside their 401(k) and Roth IRA: target date index fund or three-fund portfolio.
- Three fund portfolio (U.S. stock, International stock, and U.S. bond)
- Target date index fund (the easy button of investing. You pick a target date index fund for year around when you turn 65 and invest your money. It automatically rebalances and manages your investment mix).
Third
You invest in stocks and bonds inside of an investment account. People usually do these investments inside of a 401k and Roth IRA because they are investment accounts that come with tax-advantages.
An employer sponsored 401k plan can even come with an employer match where, if you contribute a % of your paycheck into the account, your employer will match the % contribution.
Four
Now it’s time to actually open an investment account and start investing!
For an employer sponsored 401k plan, you don’t get to choose your brokerage. You have to go with whatever brokerage your employer uses for the 401k plan. Check with your HR department to see about this.
You have limited investment fund options inside of a 401k. If a low fee (under 0.50% expense ratio) target date index fund is not available, people often go with a three-fund portfolio mix (U.S. total stock market fund, International stock market fund, U.S. bond fund).
If you’re looking to open a Roth IRA, an individual retirement account that provides a massive amount of fund options, M1 Finance is a good option.
M1 Finance is an online brokerage designed for ease of use. The platform allows you to open accounts such as a Roth IRA and build a diversified automated investment portfolio that allows you to build long-term wealth.
You’re able to build a custom portfolio of stocks and bonds or choose from 80+ expert portfolios. When your portfolio fluctuates, enjoy automatic rebalancing. You don’t have to worry about going in and manually selling off investments to get it back to the balance you want. M1 Finance does it for you! All with no advisory fee, unlike other brokerages such as Betterment and Wealthfront.
Summary
That’s it. You’re now a bonafide investor! An important thing to remember with investing is to make consistent contributions. Whether you decide to make monthly or weekly contributions, find a schedule that works for you and stick to it.
Remember a few things when it comes to investing. The stock market is volatile. There are going to be ups and downs. Days when you look at your portfolio and the value has gone way down. The important thing to remember is to focus on the long-term, not the short-term. Because over the long-term, the stock market always goes up. It has had an average long-term annual return of 10%.
So, don’t panic. Stay the course. With consistent contributions going into your investments, you’re on the path toward building long-term wealth.
I hope you found value in the course. You can reach out to me if you have any questions or suggestions for improvements. I created this educational website because I wanted people to have a free way to learn about the basics of investing in the stock market.
If you found value in the course and would like to support, you can buy me a coffee. Thank you!