Now that you’ve worked all summer, you now have some extra cash, and you have money not only to buy an essay and student life, If you are disciplined and responsible, investing can be a great way for saving for the future. It doesn’t require much up-front money and takes very little time. You only need to have a limited tolerance for risk and a dedicated time frame, as well as an hour of time investment.
The technology revolution has allowed everyone to invest over the past decade at a very affordable price. It is gone a time when you needed to consult an “investment advisor” to plan out your investments.
You can now invest in stocks and get them for free from many different places. Mobile apps also allow you to invest without any fees.
Based on what you are looking to invest, here are some suggestions.
M1 Finance is an innovative platform that lets you invest in stocks and ETFs free of charge. M1 allows you to create a portfolio and have it automatically invest in your portfolio. It’s an excellent way to get started and is completely free.
Robinhood is great if your goal is to invest in individual stocks and trade options. While this platform isn’t ideal for new investors, it is highly recommended for experienced investors. Robinhood’s drawback is M1 doesn’t allow fractional shares investing. This can make it difficult to start for beginners investors without a lot of capital.
Fidelity is our favourite broker. They are a full-service company that can help you gain more assets and invest with you. Fidelity provides a number of investing options that are free, such as no minimum IRAs or commission-free ETFs.
Streitwise can help you build a real-estate portfolio. It is a private equity REIT that allows you to invest in real properties. You also share in the appreciation, income, or losses of those properties. It’s an excellent way to start investing in real property for a small amount of money.
This comparison chart shows you the top brokers in your area.
What type of account do you need to open?
You will need a brokerage account if you’re new to investing. Although some banks have brokerages, investing cannot be done at the bank. For those who are just starting out, we recommend Fidelity or M1 Finance.
You have many options when you sign-up on the platform you choose.
The most basic account is the cash account. You can purchase any type security you wish with the cash you have. This option is good for all investors, particularly those just starting out or those who don’t want their money to be locked up until retirement.
Margin account: This account is very similar to the cash account except that you can borrow money for investing. This account has some advantages that a cash accounts doesn’t have, including the ability to shorten investments and sell uncovered options.
Traditional IRA is the traditional retirement account. Similar to the cash account, you can purchase securities using the cash that is available. The only problem with this account is that you can’t withdraw the money from it until you turn 59 1/2. All money invested up until the limit, which is $5,000 or $6,000 for those over 50, will be subject to a tax benefit. When you retire, any money you take out will be subject to taxes.
Roth IRA – This is a variant of the Traditional IRA. You do not get a tax benefit for the year you invest. But, when you retire, all of the withdrawals you make are exempt from tax.
Which is the best choice? If you’re looking to save for retirement, and your income came from work (meaning that it wasn’t Mom and Dad), a Roth IRA might be the right choice. This is because the tax that you pay on your income right now is so low that it allows you to save huge amounts of taxes when retirement comes around. Cash accounts are a great option if your goal is to not tie up your money over 40 years. You can find more information in What Types of Investment Accounts Do I Open?
I have opened an account. Now what?
The money you have once opened your account is still sitting there, not doing anything. This is where you need to take the time to learn and be disciplined about your time.
To begin, I would like to say that money can be lost, although it’s possible for very short periods. In 2009, for example, the S&P 500, the 500 largest companies in the United States, had a return of 27.11%. It is incredible. But, it fell by 37.22% in 2008. Market swings can be huge. But, investors invest because the 8.12% annualized return on the S&P500 over the last 20 years has been 8.12%. While there were some up- and down years as well, 8.12% annual returns would have been achieved if you did nothing. This is much higher than the standard for savings accounts, which only grew by 2.81% annually.
In conclusion, index funds are highly recommended if your goal is to invest for the long-term. ETFs and mutual funds are two types of index funds. They track an index such as the Dow Jones Industrial Average or S&P500. Here are the top-rated Mutual Funds and ETFs.
- iShares S&P500 Index, (IVV).
- Schwab S&P500 Index (SWPPX)
- Vanguard 500 Index (VFINX).
- Vanguard Total Stock Exchange Traded Fund (VTI).
- Vanguard Total Stock Market – VTSMX
Unless you use M1 Finance, these funds will be purchased by you at a commission. This commission is paid for each trade. As you can see, commissions can vary widely depending on where you invest. There are also often promotions or specials that you can take advantage.
It is likely that you will be asked if your dividends are to be reinvested or taken as cash. Large companies in the United States pay dividends to shareholders. You are a small shareholder in the company you bought in the fund, and you receive your dividends. These will be paid either quarterly or every year by the fund.
If you’re looking to invest long-term, I recommend that dividends be reinvested as this will increase your return.
If this all sounds too complicated, you can check out this guide: The Beginners’ Guide to Investing on the Stock Market.
It Was Possible! Now, what?
You have now invested $1,000 in an index fund. Congratulations. Now wait. You can add more money each month, or every year. To continue growing your portfolio, set up an automated investment and deposit option.
Stock markets will fluctuate between up and down. You should not panic in the event of a market drop and sell your investments. If you invest for the long-term, the market will recover.
Remember to start investing as soon as possible. Start investing in college to get an edge over your friends!