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What You Need to Know About Investing (for Beginners!)

start investing young / investing in your 20s

Investing for Beginners Tip #1- It’s Never Too Early to Start Investing

Investing is something I’ve known is important since I was a young girl. My grandmother left money for me in stocks to help fund my college education. My dad helped me to understand that if I went to a cheaper college and saved some of that money in stocks, I could graduate without debt and continue to grow my leftover money.

I gave up my life long dream of going to a private Christian college in California to attend a state school, all to save money and continue growing my savings. I can whole heartedly tell you I feel I made the right decision. 

Now, as a 25 year old, I have a Bachelor’s Degree and am completely debt free with a Roth IRA, a 401K, money in stocks, and a growing house fund in the prime money market that we hope to use within the next year or two to purchase our first house and continue to widen our investment portfolio with real estate.

So why am I telling you all this? (talking about money is taboo and awkward, ya know)

Because, it’s never too early to start investing, but it CAN be too late! And I don’t want you to find out too late in life that you wish you had started investing earlier. 

If you’re not investing yet, you must start investing now to be financially independent in the future.

The most important thing about investing you need to know is this:

Once it’s too late, you can’t turn back the clock. So thank goodness you’re in the best place to learn how to invest as a beginner! 

The Bogleheads’ Guide to Investing (a must-read for beginner investors)

A few months ago, my dad introduced me to the book “The Bogleheads’ Guide to Investing“.

I come from a very financially wise family with a dad who has been teaching me the importance of saving, tithing, and investing since I was young. When reading the book, “The Next Millionaire Next Door”, I realized my father could have had his face on the cover because the book was essentially written about him. Furthermore, I realized just how much like my father I’ve become in the financial/frugal living sense of things.

I’ve gleaned information over the years about investing from my dad, but it can be confusing when you look at ALL the different types of stocks, bonds, and mutual funds one can invest into. So, when my father put the Bogleheads’ book into my hands, I was excited to dig in.

Investing Statistics

Now this is where it’s going to get good and you’re going to want to listen up.

The book starts out with this quote that immediately got my attention. “Take 100 young Americans starting out at age 25. By age 65, one will be rich and four will be financially independent. The remaining 95 will reach the traditional retirement age unable to self-sustain the lifestyle to which they have become accustomed.”

Wow.

95 people out of 100 are financially unable to self-sustain their lifestyle into retirement? And only 4 are financially independent? I reread that statement twice, letting it sink in before I continued on.

These statistics are direct quotes pulled from the book:

It turns out that an investment of $601 at the beginning of each month in stock index funds, coupled with an average annual return of 10 percent, grows to the sum of $1,249,655 in 30 years.”

Let’s assume a child is born today. For the next 65 years, his or her parents will deposit a certain amount into a stock mutual fund that pays an average annual return of 10 percent. How much do you think they need to deposit each day in order for her to have $1 million at age 65? Five dollars? Ten Dollars? In fact, a daily deposit of only 54 cents compounds to more than $1 million in 65 years. It really helps to start early.”

Here’s another example to illustrate the enormous benefit of getting an early start. At age 25, Eric Early invests $4,000 per year in a Roth IRA for 10 years and stops investing. His total investment is $40,000. Larry Lately makes yearly deposits of $4,000 in his Roth IRA starting at age 35 for 30 years. His total investment is $120,000. Assuming both portfolios earn an 8 percent average annual return, at age 65, Eric’s IRA will be worth $629,741, but Larry’s IRA will be worth only $489,383. By starting 10 years earlier and making one third of the investment, Eric ends up with 29 percent more.”

Investing for Beginners Tip #2 – The Key to Wealth is to Start Saving Now

After reading the above statistics, you’re most likely intrigued and want to learn more about how to invest for your future.

While it would take a whole book to share everything, I can scratch the surface for you on how anyone can start. But if you’d like to know more in detail (which I highly recommend), please read “The Bogleheads’ Guide to Investing” for yourself. The book shares everything you need to know about how to invest in full detail.

But in the meantime, here’s what you can do to start.

The Skinny on Investing for Beginners:

1. You need to pay yourself first.

Paying yourself first means each month you’re putting aside a percentage of your income to invest. You can’t invest if you’re living month to month. If you can’t put money aside for investing, you need to sacrifice some of the luxuries you’re spending your money on. Once you lower your expenses you’ll then have money to invest.

2. Have an emergency fund of savings (3 months to 6 months income worth of savings)

Because investing can be risky at time, it’s always important to have an emergency fund. Finance gurus like Dave Ramsey recommend having 3 to 6 months worth of your income saved in an emergency fund.

For example, if my household income is $5,000 monthly, then I’ll want to have $15,000 to $30,000 saved in an emergency fund.

Even if you’re not investing, it’s wise to have an emergency fund because life happens and you never know when an unexpected cost will arise. 

3. Once you’ve accomplished the above steps, you can now invest a percentage (minimum 10%) of your income into different options:

-Stocks

-Bonds

-Mutual Funds

-Real Estate

-Your Own Business

This is where the Bogleheads’ book will come in handy because there are many chapters that go in depth on each of these options and all their counterparts. 

4. Invest for the Long Run 

The stock market has its ups and downs, always. If you invest for the long run, over time, the trend of the market will continue to rise and your money will grow. Investing won’t be a steady incline all the time. That’s one of the reasons it’s important to start investing young so that your money will have plenty of time to grow despite the fluctuations of the market. 

5. Never Stop Investing In Yourself by Learning!

You’ll never know all there is to know about investing. Much of becoming a successful investor is through trial and error, learning from your mistakes, and learning from other successful investors. Keep learning as much as you can. My dad, who’s been at this since he was my age, still feels there’s plenty about investing he doesn’t know. But the moral is, he still continues to learn at over twice my age. Keep on learning!

That’s a Wrap on How to Start Investing for Beginners 

As mentioned above, please read “The Bogleheads’ Guide to Investing” for a more detailed education on how to invest. The book is full of detailed information on your various options. There are many other investing books out there as well that offer valuable information on how to invest. Pick one and get started! Let me know in the comments below which book you pick, whether it be The Bogleheads’ or a different resource. I’m always looking for more books to add to my list.

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Investing for Beginners / Investing in your 20s

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