I’m loving the great questions. I actually waited a week to post this question because I had a post scheduled earlier in the week that would help answer the question.
This week’s question comes from Sean, who is struggling to get started investing because he keeps procrastinating…here’s the question:
The Question
My name is Sean and I’m a student at Roosevelt University in Chicago. I love your tips and insights, and I’ve been wanting to invest for quite some time now – but I can never seem to get to it. I’ve come to realize that if I keep procrastinating I’ll never start, so I want to dive in now. My question to you is…where do I start? There’s so much information out there that it becomes overwhelming, and I’m not going to put money into something I dont understand.
The Answer
Sean, first off, I want to commend you on wanting to get started investing. It’s a great way to build your financial future. Second, I’m so glad to hear that you don’t want to put your money into something you don’t understand! It’s one of the ways you can become a bad investor.
The question about where to start can be tough – because for each person it’s a little different. In your situation, you have trouble starting because you keep procrastinating. That tells me that you either don’t have the time, or don’t have the money. I wanted to follow up and see if you had regular income or an amount you want to invest. You replied:
I do have a regular paycheck, but with tuition payments and life factoring in, it doesnt leave me with too much. Since I dont have much to invest I’m worried about the possible loss of funds invested. I’m not afraid to invest I just want to make a smart investment.
First, I want you to read The College Student’s Guide to Investing. In that article, I go through the very basics of getting started:
- Opening an account at a discount brokerage
- Deciding on the right type of account for your needs (most likely a Roth IRA)
- Placing your first trade
Next, I want you to consider what type of investments you want to hold. You said your very concerned about losing money, but as we discussed, almost every investment has risk. I suggest you invest in a diversified mutual fund or ETF since you don’t have time to research and invest in individual stocks. I highlight a few funds in The College Student’s Guide, which I think the Vanguard Total Stock Market Return (VTSMX) may be the best choice for you. It simply mimics the entire stock market – when it goes up, your fund goes up. If it goes down, your fund goes down.
Over the long run, this type of investment should provide you good returns. Over the last 60 years, the overall stock market has returned a 10.5% average annual return and a 7.5% compound annual return.
Readers, how would you recommend Sean get started investing?
About Robert
I think step 0 is to determine the purpose for the invested money, which will tell you the timeframe for wanting a return and guide you in how much risk to take. Since this questioner is concerned about not losing money, that implies to me that he wants to access it in the near future and wants all his principle, and investing (solely) in the stock market would probably not be a good choice in that case.
The first step should be paying down all his debt before investing in the stock market outside of his 401k.
Totally agree, I think Sean should start by just making sure all educational loans are paid off and learn more by taking some accounting and finance courses. Then, when he’s ready to invest, he’ll be making better educated decisions.