Should a Mutual Fund Be Your First Investment (Go Banking Rates)
This is a writing sample from Scripted writer Dorethia Kelly
[This article was written for Go Banking Rates and is published on their website]
Many would be surprised at how a little strategy can lead them to understanding and saving for their first investment. I always suggest that the novice investor start with mutual funds, which are a pool of stocks. Jumping right into buying individual stocks with no experience can be an emotional rollercoaster, whereas purchasing a mutual fund that holds stocks in diverse industries will calm the nerves while you learn.
Here are a few tips to prepare you to buy your first mutual fund:
1. Start With Your Budget
It's no secret that investing requires disposable income. If you don't do a budget, you won't have a handle on what you truly have to invest after paying your bills and funding your savings. If you are in the red, work on ways you can increase your income by getting a second job online or in person, working part-time.
A budget also shows where you might be spending a little too much that you could otherwise use to invest. Most brokerage firms require $1,000 to open a mutual fund account. Banks also sell investments and you might be able to get started with $500. Once you make the initial investment, you will then add money to the mutual fund account each month. So you definitely want to make sure you have a handle on what is coming in and going out.
2. Up Your Understanding
Understanding how investing works can seem intimidating at first, but just like anything else, once you peel back the layers and learn each piece, investing becomes crystal clear. So, while you are saving the money for your initial investment, begin to educate yourself on investing terms, how to read the stock charts in the financial newspapers. Learn how to measure how a stock or other investment is performing. You want to know the differences between each type of investment.
Whew, okay — I see your blank stare. Start with Googling "what is a stock" — and so on with bonds and mutual funds. Seriously, everything is at your fingertips. Download investment apps on your phone — you can peruse them during your downtime. A great app to download is the Investopedia app; you can search any investing topic and find answers explained in plain English.
Side note: Stay away from the advanced stuff for now; that's right — don't confuse yourself by trying to take a deep dive into index funds.
3. Invest in Your Retirement First
Your employer most likely offers a retirement plan and will match up to a certain percentage. Contact your company's human resources department to get signed up. You don't have to invest the max 15 percent — start where you are comfortable, but don't miss out on this awesome benefit: the company matches plus the tax deferral puts you in a good position, long term.
If your employer doesn't offer a retirement plan or you are self-employed, you can open a Roth or traditional individual retirement account to get started.
4. Determine Your Investing Goals
Okay, so there are a lot of strategies out there. At this point you've been doing your homework; you're seeing a lot of information out there. Remember that just because a chart says that at your age you should be doing A, B, or C doesn't mean you have to do it. Only do what you are truly comfortable with because no one is going to put money into your investment account but you.
5. Find an Investment Advisor
Begin researching investment advisers. Ask people who they'd refer. LinkedIn is also a good way to find advisors to check out. Your bank is another great place to start; most banks have investment advisory services and would be glad to walk a loyal customer through the process. You can check advisors' registration or see if they have any complaints on the Investment Adviser Public Disclosure website.
Schedule meetings with three reputable advisors and compare notes. You want an advisor who listens, is more concerned with your financial goals and tolerance rather than his commission. This is why it's important to educate yourself first: By the time you talk to an advisor, you'll have a base knowledge of financial terms, how it all works and your goals. Knowledge keeps you from getting hoodwinked by a fast talking salesperson.
There you have it — you are well on your way. See, that wasn't so bad. How else are you preparing for your first investment?
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