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When you’re trying to create a solid financial future, investing is a great way to go; the generally expected return of a long-term investment in the stock market is 6–7%, which can add up to a lot of money over the course of a few decades. It’s a sound financial decision for most people looking to build wealth.
And the internet has opened up a lot of great investment opportunities that can help you decide what to invest in, make trades for you, and keep track of your invested funds. But you need to know how to get started. If you can say you’ve checked off these six items from your list, you’re ready to start investing online.
Become Financially Stable
This is a crucial step; it’s easy to want to start building your wealth through investing before you’ve established a solid emergency fund or have started paying down your debts. But ensuring your financial stability first means you’ll be able to keep your money in the market for longer, your financial condition won’t suffer when you start moving your money around, and you’ll have more disposable income to invest.
Exactly what “financially stable” means is different for every person, but Good Financial Cents has a great list of 27 signs that you’re financially stable, which includes never overdrawing your checking account, paying your bills on time, having a stable job, and contributing a double-digit percentage of your income to retirement.
One of the biggest steps in becoming financially stable is not having a crazy amount of debt. If you haven’t read “How to Get Rich: The Fastest Way Out of Debt,” do yourself a favor and read it now. It just might change how you think about your finances.
Have an Emergency Fund
This is part of being financially stable, but it’s so important that it warrants an entry of its own. Would you be able to handle an emergency if something came up? What would you do if you lost your job, or if your car broke down? Do you have enough cash to cover these kinds of situations? If not, you’ll need to start saving, and fast.
How much you need to have in an emergency fund depends largely on your situation; if your life is fairly stable, three months’ worth of expenses should do it. If you’re a freelancer, you’re going through a number of life changes, or you don’t feel particularly stable, aiming for six months’ is a better idea.
If that sounds like a lot of money, that’s because it is. Establishing a solid emergency fund isn’t easy, but it’s definitely worth the time it takes to cut down your expenses and put more cash aside.
Have a Good Handle on Where Your Money Is at All Times
This means budgeting, and a lot of it. You need to know where your money is and where it’s going all the time. Budgeting gets easier with practice, but it can be difficult at first, so you’ll need to take small steps. It’s a good first step in creating good money habits, which are also essential for effective investing. If you don’t know where all of your money is, it’s going to be hard to make good investment decisions.
Using an automated budgeting app like Mint or You Need a Budget is the way to go here, especially if you want quick access to your financial information wherever you are. You can also use a homemade Excel spreadsheet to budget if you want to get really detailed, or download a budget template to get started quickly.
Choose an Investing Solution
There are a lot of different ways to invest online, and they each have their own advantages; you’ll have to compare them and decide which is right for you. On the simpler side, you have automated investing solutions like Clink and Betterment, which take a certain amount of money from your accounts and invest it on a regular basis (I have a weekly debit from my bank account set up with Clink, for example). You don’t get a whole lot of control, but you also don’t have to do much of anything to start building up your investment portfolio.
There are also a number of online brokerages that will let you take full control over your own stock portfolio, like eTrade and TD Ameritrade. These tend to have pretty low fees, but you don’t get the one-on-one attention, like you would with a traditional brokerage like Fidelity or Vanguard. These investing houses have their own advantages, but you’ll have to pay a lot more for them.
Choosing the solution that’s right for you largely depends on how much you’re willing to spend on investing and how much work you’re willing to put in to monitor your investments. It may be worth talking to a financial advisor to make sure you choose the right service.
Choose the Right Investments
There are a lot of different types of investments out there, and they each have their advantages and disadvantages. There are company stock, bonds, treasury bonds, mutual funds, exchange-traded funds, index funds, and more. They each have different advantages and disadvantages, and you’ll need to do some research to learn about them.
In general, prevailing wisdom states that low-cost index funds and similar investment options are the best way to go; you park your money there, leave it alone for 30 years or so, and when you go to take it out, you’ll have made a bunch of money on your initial investment. It’s a simple, low-effort, and relatively low-cost way to do things.
Of course, this is a huge simplification of your options and the decision-making process, and this is one of the parts of investing where talking to a professional can be hugely useful. Using a “robo-advisor,” or one of the automated investing solutions I mentioned above, also makes this part of the process a lot easier. In Clink, for example, you tell the app how much risk you’re willing to take on in your portfolio, from “very conservative” to “very aggressive,” and it distributes your funds accordingly.
No matter which strategy you decide to go with, make sure you’ve educated yourself and weighed your options carefully.
Patience and Discipline
Being able to make trades online is fantastically convenient, and makes the process of investing a lot easier. It also makes it easy to over-manage your portfolio, which is a bad idea. Making too many trades based on market movements is a recipe for disaster, even if you think you have a good idea of what you’re doing.
Before you start investing online, you need to be able to take the long view of your financial actions. Investing isn’t a get-rich-quick kind of thing. It’s a long-term strategy that requires planning, patience, and the self-control to not panic when the market takes a nosedive. Despite frequent fluctuations, most investments, over a long period of time, will have a solid return — don’t mess it up by trying to beat the market. It’s just not going to happen.
This is another advantage of using an automated solution; by ceding a good portion of your control over your portfolio to an automated system, even if you’re tempted to bail on a particular investment strategy, you can only do so much, and that will prevent you from making a big mistake.
Get Started Today
If you’re financially stable and committed to building wealth for your future self, your best investment strategy is to get started right away. The longer you can keep your money invested, the more of a return you’ll get — which will give you more money to develop the financial freedom you want.
Just remember to take the time for personal fulfillment while you’re at it.
Are you ready to start investing online? Which tools will you use? Or will you be working with a more traditional brokerage? Share your thoughts in the comments below!