Investing is the process of putting your money to work for you so that you can spend less time exchanging dollars for hours and instead spend your time on the things you value. However, to take advantage of the benefits that investing has to offer, you’ll need to put in some leg work upfront.
Before we get to the fun stuff and talk about growing your wealth, it’s important to make sure you are protected in the event an unexpected expense arises.
Tips Before You Invest
An emergency fund is typically 3 to 6 months of living expenses. These are non-discretionary expenses such as rent, mortgage, utilities, food, etc. To get an idea of your ideal emergency fund, you should consider creating a budget to understand your vital living expenses.
An emergency fund needs to be immediately available. Whether it’s a car repair or a medical bill, unexpected expenses will not wait around until your stock portfolio increases in value.
For this reason, it’s important that you hold your emergency fund somewhere you can have fast access to it. Our pick is a high-yield savings account.
Betterment Cash Reserve is a part of the Betterment robo-advisor platform (more on robo-advisors later) and provides users with one of the highest interest rates on the market. SoFi Money is part of the SoFi brand and offers a high-yield interest bearing account for those looking to earn more interest than what is typically offered at traditional banks. SoFi’s cash management feature is an extremely valuable tool in the current low interest rate environment.
Investing In Stocks
When most people think about investing, their minds immediately go to the stock market. At its most basic, a stock represents an ownership stake in a company. If you buy Apple stock, you are now a part owner of the company that created your iPhone.
Stocks trade between investors on open markets where prices are dictated by supply and demand, future expectations, and a number of other factors. Individual stocks can be quite volatile as news stories about companies or earnings reports can cause dramatic price swings both up and down. For this reason, investors will want to thoroughly research the company they are thinking about buying.
When you have done your research and are ready to buy, the next step is to decide on a brokerage platform to invest with. Here are a few of the top online brokerage platforms we’ve reviewed.
Online Broker Reviews
Webull Review 2022: Best Free Investing App? (Rated 4.1/5)
Webull is a commission-free stock, ETF, option, and crypto trading brokerage. Investors can get started for free with $0 account minimums. Learn more about Webull here
M1 Finance Review 2022: Best Free Investing App? (Rated 4/5)
M1 Finance is a free stock and ETF investing platform with access to automated rebalancing, retirement accounts, and free pre-built portfolios. Investors can get started for free with a $100 account minimum. Learn more about M1 Finance here
Robinhood Review 2022: Best Free Investing App? (Rated 3.7/5)
Robinhood is a beginner-friendly commission-free stock, ETF, option, and crypto trading platform. Investors can get started for free with $0 account minimums. Learn more about Robinhood here
Investing In Real Estate
In the past, real estate investing that went beyond owning the home you lived in was reserved only for high net worth individuals who had a minimum of tens of thousands of dollars to make a down payment on a rental property.
Today, the landscape has changed dramatically, and a number of innovations have made it possible for the everyday investor to add exposure to real estate into their investment portfolio with only a couple hundred dollars. This is primarily thanks to crowdfunded real estate platforms and REITs.
Crowdfunded Real Estate
Crowdfunded real estate is an arrangement where a large group of investors can pool their money to purchase larger deals than any of them could afford on their own. This allows investors to own slices in multiple properties and diversify their portfolios.
Fundrise is the platform that brought crowdfunding into the mainstream in 2010. Not only do they allow investors to get exposure to dozens of real estate projects across the country, but they also began letting investors get started with only $10.
Crowdstreet is another example of a real estate investment platform giving individuals access to private real estate deals. With a minimum investment of $25,000 Crowdstreet caters to investors looking to gain access to commercial real estate. Technology and new regulation have truly changed the game for real estate investors across the nation and has spurred hundreds of other crowdfunded real estate platforms to pop up in the last decade.
Learn More: Best Crowdfunded Real Estate Platforms 2022
An accredited investor is someone who makes either $200,000 per year or has a net worth of over $1,000,000 excluding their primary residence. If you meet these criteria, you’ll be able to participate in a wider array of real estate investments through a number of accredited-only crowdfunding platforms.
One of the most popular of these is EQUITYMULTIPLE. On this platform, you’re able to invest in crowdfunded deals, REITs, and individual projects. When investing in individual projects it’s important to keep in mind this can be a higher risk strategy but may also come with a higher potential return compared to a diversified fund.
Investing With Robo-Advisors
A robo-advisor is an online investment platform that tries to suggest a portfolio based on your needs, time horizon, and aversion to risk.
By using algorithms and questionnaires to analyze your situation and goals, the robo-advisor will aim to create an optimal portfolio fit to your financial situation.
Depending on your situation, your portfolio will likely include stocks, bonds, real estate, cash, and other types of investments. Going down this route can simplify your process for building a portfolio that meets your needs, saving you both time and worry that you are doing things wrong.
Two of the most common robo-advisors currently on the market are Betterment and SoFi Automated Investing.
Betterment is a platform built for passive investors of all shapes and sizes. By applying advanced investing strategies to your investments automatically you’ll be able to let your portfolio grow on autopilot. Betterment offers an automated robo-advisor service with a $0 account minimum for a 0.25% annual fee.
SoFi as mentioned before is an all-in-one investing platform offering automated investing, active investing, cash management, crypto, and a variety of other features. The SoFi Automated Investing feature will ask you to answer questions from a questionnaire and will then suggest a portfolio that fits your circumstance. SoFi Automated Investing has a $1 account minimum and no annual fees.
With either platform, you’ll have access to tools and strategies that were previously only available to individuals wealthy enough to work with a financial planner while paying only a fraction of the cost.
Deep Dive: The 10 Best Robo-Advisors For 2022
Investing in Crypto
A recent form of investing has taken the globe by storm in recent years with the creation of crypto assets. Cryptocurrency or crypto assets are types of investments built using cryptography and blockchain technology.
Currently there are over 6,000 different types of cryptocurrencies/ assets. With the largest and most notable being Bitcoin at roughly a $1 trillion dollar market cap. And some of the smallest crypto tokens being single-user private blockchains.
Right now there is controversy amongst investors on what this new asset class offers and the right way to value these new digital assets. If you are interested in gaining exposure to the crypto asset class here are a couple platforms worth checking out.
Crypto Platform Reviews
Coinbase Review 2022: Best Crypto Trading Platform? (Rated 4.3/5)
Coinbase is a leading digital asset exchange offered to American and certain international investors. Investors can gain access to over 50 cryptocurrencies on the Coinbase platform. Learn more about Coinbase here
Dollar-cost-averaging consists of investing a consistent amount on a consistent basis into a consistent investment. For example, if you invest $250 per month into an S&P 500 index fund you are practicing dollar-cost averaging.
By investing a consistent amount on a consistent basis, you are ensuring that you are buying in when the price is high, low, and in the middle. As opposed to investing a lump sum all at once where you run the risk of the investment falling tomorrow and leaving you with an initial loss.
Diversification means that your investments are spread over different asset classes (stocks, bonds, real estate, etc.) as well as different assets within each asset class. Because not all assets move together, you want to ensure that your portfolio is not too dependent on any single investment to reduce volatility.
For example, when the stock market is doing well and stock prices are increasing bond prices are typically decreasing and vice versa. By spreading your portfolio across multiple asset classes, you’ll mitigate the risk of wild price swings and the temptation to panic sell at the bottom.
As humans go, we’re not very good at getting a sense of how the fees charged on different investments will impact our returns over time.
What makes investment fees particularly dangerous is that they compound over time. Similar to the ways compound interest can allow you to grow your investments at an increasing rate over time, investment fees work the same way but in reverse.
For example, if you started investing $5,000 per year today and continued to do so for 40 years at an 8% interest rate, you would end up with just shy of $1.4 million. Now if that same investment held a 2% fee, you’d instead end up with $820,000. That’s a reduction of over 40% from “just” a 2% fee. One way investors can try to save on fees is by investing in index funds. Index funds are a popular low-cost investment vehicle used by a variety of investors.
Index funds are typically passively managed. This means that instead of trying to outperform the market, the fund will attempt to track the market by buying and holding the entire market or sector it is tracking. This often results in index funds carrying lower fees for investors.
Learn More: Index Funds For Beginners 2022: How to Get Started
The Bottom Line
We couldn’t teach you everything there is to know about investing in this one article, but if you waited to get started until you knew everything there was to know then you’d never
get started in the first place.
Sometimes you just need to jump in and get your feet wet even though you’re not completely sure of the next steps. In this case, a good next step might be trying out paper trading. This is essentially simulated stock market investing where you have a fake balance and can experiment with how investing works without having any real money on the line.
One of our favorite free apps that offers paper trading is Webull. If you’ve got your financial foundation in place and are ready to venture into investing, this could be a perfect next step for you.
Additionally, our team uses a whole host of tools to save more money and invest more money that we write about almost every day so if you’re interested in keeping up with the tools of the trade make sure to join our email newsletter where we’ll keep you in the loop.
Until then, happy investing!