Everyone and their mother talks about investing. Your neighbor probably mentioned his “portfolio” to you over the fence one day. There is 401k paperwork involved in every new employee onboarding process. There are several channels with stock tickers at the bottom of the screen 24/7. You hear about it and you know that it’s important for your future. But, how do you get started? Have you gotten too embarrassed to ask this question? I would much rather you ask this question to yourself and look for answers on a blog like mine than never ask the question and go through life without ever looking into it. Investing is important and necessary for your financial future!
On this page, I’ll give you my recommendations for getting into the game. It’s actually quite easy to get started with investing, and there are multiple ways to do it. I’ll walk you through your employer options, your IRA options, and retail investment accounts. So, let’s get started!
Employer options – 401k(403b) or Roth 401k, Simple IRA, Company stock
The place most people get started is through their employer. Most companies offer some type of retirement plan. These days it’s near impossible to be an attractive employer to a qualified candidate without a retirement benefit. My list above is not exhaustive, but includes the most common accounts offered through employers.
401k(403b) – If you’ve ever started a new job with a company, including some mom & pop stores, you likely went through an “onboarding” process where you learned about the company and the benefits offered. If you saw information about a 401k, I’m hoping you didn’t ignore it. Most companies give you the option to invest part of your paycheck into a 401k before you ever see it. Think of it as a “Set it and Forget it” option. Most 401ks are pre-tax accounts, meaning your contribution is deducted from your paycheck before you ever see it. This lowers your taxable income and therefore lowers your tax obligation. Once you reach the age of retirement, you are taxed at your normal income tax rate on any money you take out of the 401k. If your company offers a Roth 401k, the money is contributed AFTER you get taxed on it, but your distributions in retirement are INCOME TAX FREE. Contributions are usually calculated as a percentage of your income(i.e. 1%, 2%, 3%, etc.)
Many companies offered a 401k match. This is the single best reason to start investing in this account. Whatever percentage the company matches, take full advantage of it. For example, if the company says they match 100% of your contributions up to 4%, that means they are doubling all contributions you make up to 4% of your salary. In other words, you better be investing at least 4% of your salary to this account or else you’re leaving easy money on the table. There is no other investment option available where you are guaranteed to instantly double your money. This is what happens when you take advantage of the company match—you are doubling your money up to the match limit. DO IT!
These accounts typically offer numerous investment options. Various mutual funds and company stock are the most common options available. If you have no idea where to start, check out my page on Investing 101 to get a basic idea of what all the options mean. If you’re still lost, look for a fund that says something like “Retirement 2050” and go with the date that lines up with your retirement year. These funds are another “Set it and Forget it” option where they become more conservative as you get closer to retirement.
The IRS sets limits for how much you can contribute to these each year. The limit often goes up slightly each year. For 2024, the total contribution limit is $23,000.
SIMPLE IRA – These are very similar to 401ks, but are offered by small businesses. It makes no sense for a business with 10 employees to do a 401k(because of expenses), but providing a SIMPLE IRA achieves the same objective with less cost to the owner. If you work somewhere that offers this account, go ahead and get started with it.
Company Stock – If you work for a publicly traded company, they probably offer the option to buy company stock directly from your paycheck. This is a personal decision that could go either way. If you feel good about the company’s future and like the idea of owning stock, go for it. If the company is failing or you don’t see yourself staying there long, you may want to pass. Either way, they make it easy to get started investing with this option.
IRA (Individual Retirement Account)
This section will make more sense if you also visit my page on the differences between a Traditional and Roth IRA.
An IRA is an investment account you take out as an individual that is not connected in any way to your employer. There are IRS limitations based on your employment and income, so you can review those here. Your annual contribution limit in 2024 is $7,000 if you are age 49 or younger; $8,000 if you are age 50 and above.
To get started, you can visit almost any bank, brokerage firm, financial services company, etc. and they likely offer IRAs. You can contribute either as single payments whenever you are ready, or as an automatic monthly contribution debited from your bank account. Monthly contributions can start under $100/mo depending on the company. If you are under age 50, I would caution you about starting one at a bank simply because banks usually offer money market or CD rates. These rates are always less than inflation and not recommended for a person with 10 or more years of investment growth opportunity available to them. You will need to invest in something with the potential to outpace inflation if you are under 50, like stocks or mutual funds.
You should talk to an investment advisor about what to pick based on your situation. The company you pick to start your IRA will have someone who fulfills this role. Investment options are vastly greater in IRAs than they are in 401ks, and you can invest in just about anything. Individual stocks/bonds, mutual funds, ETFs, etc. The sky is the limit for your selection. Most people are overwhelmed by the options, which is why I suggest meeting with someone who can help. You likely will not be charged just to talk to someone. You may even not have a cost at all, depending on the scope of the relationship.
Retail Investment Account
These are very similar to IRAs, but without any of the tax benefits. You set these up the same way you would an IRA at a financial company. You can make lump sum contributions or automatic monthly contributions. You can invest in just about anything. There are no contribution limits like there are with IRAs. The reason is because the IRS doesn’t set the rules on retail accounts. Any time the IRS sets some rules, it also sets limits. I’m not suggesting that retail accounts aren’t taxed, but I am saying they are not treated the same from a tax perspective.
I’ve seen people use these accounts for “fun money” AFTER they do their retirement investing. When I worked for a brokerage company, cannabis was all the rage, so everyone wanted to open a retail account to invest in cannabis. Today, digital currency is a popular option for retail accounts. You can invest however you want in these, which is what makes it more fun. However, if you have no interest in doing that, then stick with tax-friendly retirement plans and max those out before you look into anything else.
There you have it. These are 3 easy ways to get started. The sooner you get started, the better. I’ve heard it said that the best time to start investing is many years ago, and the second best time to start is TODAY. If you aren’t currently investing, start today. You can go through your employer quickly and easily. You can leave this page and open an IRA from your desk in a few minutes. To point is: GET STARTED!
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“You step into investments, and if you don’t keep your feet, there is no knowing where you might be swept off to.”