A lot of people are afraid of investing. They fear that there is a stock market bubble (and that it will burst). They worry about another crash, like the one we experienced in 2008 where lots of peoples’ retirement accounts were cut in half. The truth is, as you already know, that if you want to ever retire you cannot count on Social Security to keep you afloat. You have to invest and you have to invest wisely.
That’s an intimidating prospect. There are so many stocks and bonds and dividends and investment opportunities out there. Choosing between them feels like a Herculean task. Here’s a little tidbit of good news that most investment advisors don’t want you to know: you do not have to have a perfect portfolio from the beginning. In fact, it is better to start small and build your portfolio over time. This way you can learn about the investing process. You can figure out what works for you and what doesn’t.
Here is how you get started.
Step One: Make Sure You Can Afford It
A lot of people believe that investing is something that they can only do after they have paid off all of their debts. This is absolutely not true! While you might not be able to invest as much or as widely if you’re drowning in debt, you can still invest. At this stage of the game, you are simply investing in yourself.
This doesn’t mean, though, that you should put off paying your debt in favor of investing. It is imperative, if you want to become a successful investor, that you get your financial house in order. For some this might simply mean making a budget and setting up automatic payments. For others professional help might be required.
If you decide to hire someone to help you clean up your credit and get your finances back on track, it is important that you hire the right someone. There are a lot of scam artists out there. One of the best ways to tell the difference, according to the Lexington Law reviews page on Lawyers.com, is the value the professional places on transparency. In some cases, transparency is even more important than the rates they choose (especially if you’re thinking of hiring a non-profit).
Step Two: Start With Yourself
As we’ve already mentioned, it is absolutely possible to fix your credit, get your finances in order and build an investment portfolio at the same time. You simply have to start building that portfolio by investing in yourself. Building an emergency fund and having a savings account that can keep you afloat for at least a year (it used to be six months, but given the economy a year seems more practical) are your first goals.
Step Three: Baby Investments
As soon as you have that year’s worth of savings built up you can start contributing to your investment fund. You can create this fund by setting up a separate account with your bank. In fact, that separate account–if you make it a money market account–can be your first real investment.
After your money market account, you should buy a few CDs. CDs are basically high-powered savings accounts that you can’t touch for a predetermined period of time. “High powered” in this case means higher interest rates than your standard savings or money market accounts.
Step Four: Build Momentum
What a lot of people do is open a couple of CDs and, when they have matured, take the interest they’ve earned; after reinvesting their original CD deposit into new (and hopefully even higher interest rated) CDs use that to start buying small but more “high profile” investments. They might, for example, buy a few shares of stock in a company. They might buy into a small mutual fund.
If you have multiple CDs you might consider, after one of them has reached maturity, cashing it out so that you can invest even more into “high profile” investments.
Step Five: Diversifying
By the time you’ve reached this point you will have likely built up at least a passing knowledge of what the major types of investments are and how they work. This is knowledge that you can use to start diversifying your portfolio. For example, if you’ve been concentrating primarily in straight forward stock purchases, you can start exploring our preferred type of investment: dividends (which are actually just a different type of stock, so it shouldn’t feel like a big stretch to explore this area).
Some people do so well with their investments that they start to branch out into things like angel investing and non-profit building (which carry their own tax benefits). The point is to diversify as much as possible so that you don’t have all of your eggs in one basket.
Hiring Someone to Help You
It is totally possible, especially if you have the knowledge and the know how, to manage your portfolio yourself. It is better, though, to hire someone to take care of your portfolio for you. This doesn’t mean that you give that person completely control over your investments. On the contrary! A financial or investment manager might advise you and encourage you to make certain investments, but they cannot actually buy into anything without your express permission.
Make sure that you choose your financial planner with the same level of care that you used to hire your personal finance advisor or credit repair professional. While the person will require your permission to do anything with your money, it is important that you hire someone whose advice you will trust. Just like in other areas of financial management, there are a lot of amateurs and scam artists who are just trying to make a quick buck. (you’ve seen Wall Street, right?)
The point is this: you can invest. You should invest. You should start laying the groundwork for building your portfolio now so that later you can enjoy your retirement!