How do I start investing? This is a common question I get.

“If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.”  Warren Buffet

“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” – Robert G. Allen

People are intrigued about investing but have no clue how to get started. It’s more valuable to start by teaching how to invest, rather than listing the types of investments.

I am not a professional, I’m still learning about investing and finances in general. However, I have obtained enough financial literacy to manage my own finances without a financial adviser. 

There are many ways to get started. Here are my own narrowed down ideas.

Ways to invest for beginners

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1. Take advantage of your company’s benefits coordinator

If you are employed, this should be your first step. Every major company has a benefits coordinator, if not; there is always someone at human resource who can direct you to the right person.

Benefits coordinators, handle employee retirement plans that the company offers. It’s important to be aware of the company’s benefits package prior to accepting the job.

Benefits coordinators are well-versed in the company’s 401(k) or 403(b) plans and other retirement savings vehicles that are available. For, example, my job has non qualified deferred compensation plan (NQDCP) in addition to 401k. Don’t be afraid to ask questions. The coordinator should be able to advise you on the retirement or savings plan most appropriate for your circumstances.

If you leave your company or retire, they can also handle inquiries about vesting and how to rollover your retirement savings. I discussed the different options for rolling over your 401k in a prior post. 

2. Use Robo-advisors like Wealthfront.

This is how I started.

What are Robo-advisors?

Robo advisors can help you invest

First of all, stop imagining the futuristic robots you have seen in the movies. And no, robots are not taking over the world.

According to Investopedia,  Robo-advisors are digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision.

Robo -advisors are alternative to traditional financial advisors. Wealthfront manages your assets managed for a fee. For Wealthfront, they charge 0.25% of your asset under management (AUM). This is a deal, considering how much people pay for financial advisors.

For example, if you invest 100 dollars, they will charge you 25 cents to manage it every year. When you register, they manage your first 5,000 dollars for free.

The minimum amount to invest is 500 dollars. In my own opinion, this is best for a taxable account because of tax loss harvesting.

Disclaimer:  If you register through my affiliate link here, you will get your first 10,000 dollars managed for free. Wealthfront do not pay me. However, i get an extra 5,000 dollars of my investments managed for free. Win win.

When I registered, Wealthfront asked questions about my investment goals. Based on my responses, they provided a list of recommended accounts. It then decides what funds to include in my portfolio based on my risk tolerance. Mine is 90% risky, so it invested accordingly. If you have another account in mind, you can select it.

Know the income limit for Roth IRA though so you don’t contribute to it directly  if you don’t qualify.

In 2018, the AGI phase-out range for taxpayers making contributions to a Roth IRA is

$189,000 to $199,000 for married couples filing jointly.

$120,000 to $135,000 for singles. 

If you are confused about what AGI means. check out this post about different types of income the IRS wants you to know.

There are other ways to do Roth IRA – backdoor IRA which can be found online. Physician on fire has an awesome one. That’s a topic for another day.

When I was in training, I invested my Roth IRA through Wealthfront. I have since moved most of my investments to vanguard. I still have some investments in Wealthfront that are managed for free.

3. Open a Vanguard account and use target date funds

This is the next step up from using Robo-advisors. This one requires just a little bit more upgrade in your skills and knowledge.

Since we are generally more computer savvy nowadays, this should not be too hard to open.

Here is a youtube video on how to open a Roth IRA for example.  You can modify it in opening other accounts.

One thing to know is, when you open the account, your money might take some time to get to vanguard from your bank. when you transfer your funds to Wealthfront, you have not invested yet. . The money is usually in a form of money market and thus not yet invested. You will need to pick an investment to put your money in.

For beginners, I suggest a target date fund. This will charge you some expense ratio but it is manageable. Vanguard will manage your target date fund. I explained how the target date funds works in this post here. They do the asset allocation and the re-balancing of your portfolio. Once you are more financially savvy, you can move your funds to the portfolio that you make up yourself.

Note from Vanguard: The minimum initial investment for Vanguard Target Retirement Funds and Vanguard STAR Fund is $1,000. A $3,000 minimum applies to most other Vanguard mutual funds.

4. Hire a financial advisor to do the investing

Yes I said it.

I am a strong proponent of DIY (do it yourself) investing. My goal is that all of my readers will get to the level of comfort, to manage their own finances. However, I understand that while this is easily achievable, some people just don’t want to manage their own money. So yes, you can hire a financial advisor. My take on the issue is that if I have to pick between not investing at all or investing through a financial advisor, then I will start with an advisor. Even after hiring an advisor, you should still do your due diligence in learning about finance to ask the right questions. After all, no one cares about your money more than you do!

When you are ready to fire your financial advisor, you can opt in for this course by white coat investor. In fact, the title of the course is – Fire your financial advisor.

Use fee only financial advisor

My advice is use a “ fee only” adviser. Try to avoid anyone that says “ you pay me this percentage of your asset under management”. Fee only advisers have less conflict of interest as they have no incentive to lead you astray. Make sure you calculate  and be sure that the money you are paying is a little fraction of your investment. A recent question I answered on boggle head

The person was paying 6,000 dollars a year to a fee only advisor to manage 200,000 dollars. Using basic arithmetic; this person was paying 3% of their AUM to manage their asset.

That’s just ridiculous. And here, I thought 1% is too much. Of course, I told the person to fire their advisor.

RECAP

1. Take advantage of your company’s benefits coordinator

2. Use Robo-advisors like Wealthfront.

3. Open a Vanguard account and use target date funds

4. Hire a financial advisor to do the investing

If you follow these simple principles and start investing early, you are well on your way to early retirement.

Please let me know in the comment section if this is helpful to you. I am still fine tuning the blog niche.

If you like some contents more than the others, please let me know.

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Adebayo

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I am a pulmonary and critical care doctor by day and personal finance blogger/debt slaying ninja by night.

After paying off close to $300,000 in student loan debt in less than 6 months into my real job, I started on a mission to help others achieve the same. There is no magic to this than to strap up and get it done. Some of the ways we achieved this include side hustle, budgeting, great negotiation skills, and geographical arbitrage.

When I was growing up, common knowledge in Nigeria is that there is one thing you cannot trust anyone else with, and you guessed it – your money.

Being frugal came easily to me based on my background. However, the concept of building wealth did not solidify in my mind until when I finished medical school. I wish I knew what I know now when I was 14. Still, I don’t know enough and I am constantly learning to improve my knowledge.

My goal is to reduce financial illiteracy among young professionals. I am catering to the beginners – babies and toddlers in financial literacy.