You are a modern woman who is about earning her own money and making her own way. So you are fully aware of the importance of investing. And yet, for some reason, this investment portfolio never comes to fruition. Why? Because investing in the stock market can be intimidating. Possibly putting your hard-earned money in the wrong place can feel like too much of a risk.
However, contrary to popular belief, you don’t have to be a math genius, have tens of thousands of dollars, or be the woman Wolf of Wall Street to invest in the stock market. If you do it right, you can make a huge long-term payout and grow your wealth without lifting a finger. This is the ultimate lazy girl’s guide to investing in the stock market. Read on to learn exactly how to get started, the best ways to be safe, and what to look out for.
1. Decide how much you can invest
The last thing you want to do is overdo yourself. So take the time to figure out how much money you can afford to invest. Calculate the total of your living expenses and any debt you are paying off. Once you have that number, subtract it from your income to see how much money you have left. From there, set aside 50% of that for “fun” expenses (like eating out or shopping), 25% for savings, and 25% for investments. By following this method, or one similar to it, you can ensure that you keep your finances on track. Of course you can adjust it if necessary.
Also, take the time to review your savings. The rule of thumb is to have at least 3-6 months of expenses saved. But with rising costs and inflation, you might want something extra to fall back on. However, if you have the extra money, you should put some of it into your investment account. For example: If you have $20,000 in savings and need $12,000 to make a living for six months, you can take $2,000 and put it into investments.
Key things to think about when deciding how much you can afford to invest:
- Don’t go into debt for investments. Make sure you continue to pay for living expenses and contribute to your emergency fund and outstanding debt.
- You don’t need a lot of money to start investing.
- The amount you choose depends on your individual financial situation.
- Investing little is better than investing nothing at all.
2. Find out what you want to invest in
The first step is to determine whether you want to grow your wealth with a personal investment portfolio or invest for retirement. With a personal portfolio, you can take money that’s in savings and put as much into your account as you like. You are free to redeem and withdraw at any time. However, these withdrawals and any investment income will be taxed and contributions cannot be amortized. However, investments held for more than one year are considered long-term capital gains and are therefore taxed significantly less.
On the other hand, there’s a limit to how much you can put into a retirement fund — up to $6,000 a year, or $7,000 if you’re 50 or older — and it can’t be touched until you’re 59 ½ years old. Early withdrawals are penalized and taxed. However, unlike personal portfolios, retirement funds can be a bit more tax-friendly. Traditional IRAs and Roth IRAs are the two most popular options, and each has its own tax benefits. With a traditional IRA, income is not taxed and contributions are deductible, but withdrawals are subject to income tax. However, income and withdrawals are tax-free with a Roth IRA, but contributions cannot be written off.
It is important to note that unless you are trading on the day, these investments are meant to be held for the long term. In theory, you can hold your personal investment portfolio for as long as you like – even until you retire. Take the time to really think about what best suits your needs and lifestyle. If you want to grow your wealth and access it instantly, a personal investment portfolio may be the right move for you. A pension fund might work better if you want financial security for the future, are self-employed or an entrepreneur and want additional tax allowances, or want to make smaller contributions over a longer period of time. Whatever you decide, remember that there is no right or wrong option. It’s about doing what’s best for you.
3. Find a broker who will work for you
After you’ve figured out your investment goals, it’s time to find a broker who can make it happen. There are many investment platforms out there, but there are some tried and true options that are perfect for beginners.
Vanguard is ideal for those building a retirement fund as it is safe, secure and offers low-cost, long-term investment options – perfect for retirement. Also, no minimum balance is required to open an account. For a personal portfolio, Robinhood probably has the most user-friendly interface that you can access from your computer or through the Robinhood app. Since their account minimum is $0, you can get started right away. They now offer 1.5% interest on uninvested money in your account – meaning you can grow your money before you start investing. Public is another option that, like Robinhood, offers a streamlined user interface, making it perfect for beginners. There is also no account minimum or trading fees, and they also offer 2% interest on cash in your account.
4. Make your first investment
One of the safest places to start is by investing in an exchange-traded fund (ETF), which is essentially a basket of different stocks. This is an affordable way to get more skins into the game and diversify your portfolio. For starters, investing in an ETF that tracks the S&P 500 — a stock market index that measures the overall performance of the 500 largest publicly traded companies in the US — is your best bet. Although individual stocks can rise and fall, the stock market as a whole has historically risen. With an S&P 500 ETF, you get a fraction of a little bit of everything while reducing volatility and exposure risk.
SPY, VOO and IVV are the three S&P 500 ETFs. They’re all essentially the same, but since all funds have expense fees associated with them, the biggest difference between them is the cost. SPY is the most popular choice, but I personally prefer VOO because it’s powered by Vanguard and is slightly cheaper and less volatile.
5. Expand your portfolio
Little is enough for long-term investments. Although your initial investment will grow on its own over time, it’s crucial that you continue to grow your portfolio. Alongside your initial investment in ETFs, set up a system that automatically puts a percentage (read: 25%) of your leftover pocket money into your portfolio. From there, you can choose to add it to your current investments or branch out and diversify a bit more. Whatever you decide, following these tips will help you grow your wealth to its maximum potential.
Consider investing in a value stock
If you have a little extra cash, consider adding a value stock to your portfolio. These are stocks that are less exciting than “trending” stocks like Gamestop and Tesla, but are currently considered the backbone of society. They are healthy, safe, conservative and consistent. When the market falls, they tend to hold up well. Johnson & Johnson, CVS, and Walmart are some examples of value stocks. You will not dramatically increase your account overnight. However, over time they will expand your portfolio.
Use the DRIP model
Like most value stocks, ETFs pay dividends. Dividends are amounts of money that a company pays periodically (usually quarterly) to its shareholders out of the company’s own profits. With the DRIP (dividend reinvestment plan) model, dividends are reinvested directly back into your portfolio and used to buy more shares of that dividend.
For example, if you receive a $20 dividend from your ETF, you can have it automatically reinvested in the same ETF to grow your holdings. Over time, this will grow your investment and accumulate more shares, increasing your dividend payment. It’s a growth cycle that’s completely free. No matter how small your dividend is (one of mine is only $7 right now), set up a DRIP plan with your broker. It’s a guaranteed way to add to your portfolio at no cost to you, so you can’t go wrong.
Avoid over-the-counter (OTC) stocks
Over-the-counter (OTC) stocks are stocks that are not listed on national stock exchanges such as the New York Stock Exchange or the Chicago Stock Exchange. This means they are unregulated and unreliable. To put it simply, you are a player stock. Penny stocks are probably the most notorious of OTC stocks, and if you’ve seen it The Wolf of Wall Street, then you already know how dangerous they can be. Do yourself a favor and avoid OTC stocks at all costs. They are not good for long-term investments.
Remember, time in the market is better than market timing
It’s not uncommon for people to talk about “buying at the bottom,” but over the long term, the market will be higher. Decide what you want to buy and get started. The time in the market always beats the timing of the market. As the market falls, you can always buy more at the bottom.
With that in mind, it’s important to remember that stocks will rise and fall, but whatever you do, don’t panic. What comes down has to come up again and vice versa. You won’t lose money unless you sell and you can’t lose if you leave it alone. The best thing you can do is follow the steps above, make similar investments over time and forget about them completely. If you return to them in the future, you will be pleasantly surprised by your little nest egg.