Updated: Apr 13, 2022
First step: open a brokerage account with Vanguard, Schwab, Fidelity or any other major brokerage firm.
Broad market ETFs are a fantastic first investment (we recommend VTI) as they are a low maintenance investment that provide diversification at a low cost.
Diversification is essential as investing in singular companies provides outsized risk for a given level of expected return.
So you’re interested in investing, but maybe aren’t sure where to start. Or possibly you’ve started, but aren’t quite sure if you’re invested in the right stuff. Let’s start from the beginning.
The first step is signing up for a brokerage account, which is quick, easy and something you can knock out in the next 15 minutes. We use Vanguard, but Schwab and Fidelity are also great options. If you have a 401K already set up through one of these banks, it may make sense to start there (hint hint: if you already have an active 401K, congrats you're already an investor!). You can always open another brokerage account if you realize down the road that your current one doesn’t offer exactly what you’re looking for.
Now that your account is open, it’s time to consider what exactly you want to invest in.
Quick level set here: when we talk about “investing” we're generally talking about a long term horizon (i.e. 10+ years) where money that you put in your investment account isn’t used until many years in the future, if ever. Your investments are creating a nest egg for your future self, so you can be happy and comfortable through the end of days. We will be sure to cover more short term horizons, as those require different types of investment strategy, and are just as important.
So, you’ve opened your brokerage account and now what? It’s time to chat about risk tolerance and timeline. Investing in the stock market can be a wild ride and your portfolio value will fluctuate day to day. The good news is that if you’re like us, your focus is long term and over time the market has historically gone up, so short term losses aren't a huge concern. We're also going to focus on putting money into well-diversified investments, which is essential to maximizing your return, while mitigating risk.
A great first investment is in a market index. We like investing in ETFs (exchange traded funds) because they are a low cost way to provide immediate diversification and minimize the time spent managing your money. ETFs are a type of index, which pools together 100s or even 1000s of different companies' shares (aka stocks) into one financial instrument that has a share price and trades like a stock. It sounds complicated, but I promise it doesn't have to be.
Here's an example: you want to invest in Amazon, but have $1,000 to invest and that's the exact price of one share of Amazon. However, even though you may like Amazon, believe in the future of the company and notice that their share prices has historically performed well, putting all your money in one company is highly risky! So, rather than putting all your money into one company and hoping it pans out long term, you can purchase $1,000 worth of shares of an ETF that includes Amazon. This will allow you to still invest in Amazon, but also many other companies so you maximize return and mitigate risk (hollaa!).
To keep things simple while investing in a quality index, we recommend investing in a broad market index fund, like Vanguard Total Stock Market ETF (VTI). This ETF provides exposure to all company sizes (small-, mid-, and large-cap) as well as growth and value stocks with a very low expense ratio (low cost to you). Exposure is US-focused, however some international exposure is achieved by investing in global companies such as google, Microsoft, and J&J.
This is just an introduction to active steps you can take to begin your investment journey. There is so much more to learn and we look forward to being with you every step of the way!
If you haven't opened your brokerage account yet, do that now! It's an easy first step to knock out in just a few minutes.
Once your account is open, explore around the site a bit and learn how to purchase your first investment. Your brokerage account will also show you performance over time and the ability to set up automatic transfers from your bank account.
Buy a share. VTI (the ETF's ticker) is a great first option, but any broad market ETF will do.
Voila! Your investment journey has just begun. Congrats! This is a big first step.