How to Start Investing: A 5-Step Guide for Beginners (2024)

1. Get out of debt

Pay off everything but your house if you’ve bought a house.

2. Set up an investment portfolio

Use Fidelity, Etrade, Wealthfront, Morgan Stanley, Vanguard, or whatever platform you prefer.

3. Automate or invest every month

Invest however much you can afford.

People typically recommend between 10–15%, but if you can do more, even better.

It is best if you can automate this to eliminate the decision each month or each paycheck.

Being consistent and starting early are the keys.

“Always save 10% of what you earn.” — The Richest Man in Babylon

4. Buy index funds and ETFs

These will automatically diversify you and help you invest intelligently without needing to do the work yourself.

Some examples are FXAIX, VOO, IVV.

“A low-cost index fund is the best tool ever created for low-maintenance stock investing.” — The Intelligent Investor

Check the tips below for more information on why you should buy index funds.

5. Don’t obsess

Leave your investments be. you’re in it for the long game.

The market will always fluctuate, but being able to invest and let your money work for you will eliminate headaches and save you time.

Try to trade as little as possible and make commission-free trades.

Most trades cost money.

If you sell, you will pay tax on your gains.

You pay less tax if you hold your investment for over a year.

“The investor’s chief problem is likely to be himself.” — The Intelligent Investor

“The more you trade, the less you keep.” — The Intelligent Investor

“The defensive (or passive) investor will place his chief emphasis on the avoidance of serious mistakes or losses. His second aim will be freedom from effort, annoyance, and the need for making frequent decisions.” — The Intelligent Investor

“A defensive investor runs — and wins — the race by sitting still.” — The Intelligent Investor

1. Pay yourself first

Determine an amount of money you can/want to save each week/month and automate it.

If you wait to invest after all of your expenses you may not have anything left. If you take it out first, then you are forced to spend less.

“You and your children’s future will be determined by the choices you make today, not tomorrow.” — Rich Dad Poor Dad

2. Save as much as you can

Dave Ramsey suggests investing 15% of your income.

“Most people fail to realize that in life, it’s not how much money you make, it’s how much money you keep.” — Rich Dad Poor Dad

“Poor people simply have poor spending habits.” — Rich Dad Poor Dad

“A penny saved is a penny earned” — Banjamin Franklin

“Live well below your means.” — The Millionaire Next Door

“Being frugal is the cornerstone of wealth-building.” — The Millionaire Next Door

3. Investments compound

Each year, your investments will increase based on the interest you earn. Each year, they will return more and more thanks to the interest earned from previous years.

A typical savings account returns 0.01% to about 1% per year, depending on the bank and the economic environment.

During periods of higher interest rates, some high-yield savings accounts might offer rates as high as 2% to 3%.

Real estate investments can return 2–10% per year.

Stocks return around 7–10% per year and bonds return 3–5% per year.

Over the long term, these investments compound to be worth much more.

Therefore, the earlier you start, the more money you’ll have will in the long run.

“Small expenses become big expenses over time. Small amounts invested periodically also become large investments over time.” — The Millionaire Next Door

“Begin earning and investing early in your adult life.” — The Millionaire Next Door

4. Diversify

The easiest way to diversify is with ETFs and index funds.

Don’t buy individual stocks.

Buy total market ETFs or buy different sectors: growth, mid-cap, small-cap, emerging, developed, trust, value, and bonds.

“A simple portfolio policy: purchase high-grade bonds plus a diversified list of leading common stocks.” — The Intelligent Investor

“Index funds are a defensive investors dream come true.” — The Intelligent Investor

“The portion of your investments held in bonds should never be less than 25% and never more than 75%.” — The Intelligent Investor

“Rebalance your stocks and bonds every six months.” — The Intelligent Investor

“Putting up to a third of your stock money in mutual funds that hold foreign stocks helps insure against the risk that our own backyard may not always be the best place in the world to invest.” — The Intelligent Investor

“Avoid investing in gold directly, instead, seek out a well diversified mutual fund specializing in the stocks of precious metal companies and charging below 1% in annual expenses. Limit your stake to 2% of your total financial assets.” — The Intelligent Investor

“Real Estate Investment Trusts, or REITs, are companies that own and collect rent from commercial and residential properties, and do a decent job of combating inflation.” — The Intelligent Investor

“Treasury Inflation-Protected Securities, or TIPS, are U.S. government bonds that automatically go up in value when inflation rises. They are safe from the risk of default. They insure you against financial loss and the loss of purchasing power caused by inflation. Allocate at least 10% of your retirement assets to TIPS.” — The Intelligent Investor

5. The future is unknown

“You should never succumb to the “certainty” that any industry will outperform all others in the future.” — The Intelligent Investor

“The intelligent investor must never forecast the future exclusively by extrapolating the past.” — The Intelligent Investor

“Anyone who claims that the long-term record proves that stocks are guaranteed to outperform bonds or cash is an ignoramus.” — The Intelligent Investor

“The only indisputable truth that the past teaches us is that the future will always surprise us — always.” — The Intelligent Investor

“The only thing you can be confident of while forecasting future stock returns is that you will probably be wrong.” — The Intelligent Investor

The Intelligent Investor by Benjamin Graham

Rich Dad Poor Dad by Robert T. Kiyosaki

The Millionaire Next Door by Thomas Stanley

The Richest Man in Babylon by George S. Clason

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