Roadmap to Investing in 2021
Let’s face it. When it comes to talking about investing in the stock market, most of us tend to tune out. This could be because “investing” and “stock market” scream uncertainty. However, using the stock market as a tool to generate long term wealth is something everyone should consider…and yes, that includes you reading this post.
As the founder of Invested Millennial, I am dedicated to educating and empowering women (especially women of color) to invest in the stock market. In today’s post, I am going to take you through the basics of investing and what you need to know to jumpstart your money making journey in 2021.
ROADMAP TO INVESTING:
Have an emergency fund
Contribute to an employee 401(k) or IRA account
Build an investment portfolio for everyday use
THE EMERGENCY FUND
You need to have an emergency fund in place before you start thinking about investing your hard-earned money. Your emergency fund should be ready to go in case something drastic happens like a natural disaster, losing a job, illness, family matters...a PANDEMIC! Your emergency fund money should be sitting in a high-interest savings account that offers a competitive interest rate so that your money continues to grow in the background. If you happen to have a substantial amount of debt, your main priority should be paying off that debt. Debt is crippling. It is important to tackle debt first to free up your budget for saving and investing down the road.
RETIREMENT SAVING VIA A 401(k) OR IRA If your employer offers a 401(k) or similar plan, consider opening an account and taking advantage of this retirement saving opportunity. A 401(k) allows you to invest money on a pre-tax basis (up to $19,500 in 2020 for those under age 50) that grows tax-deferred until you decide to withdraw at retirement. It’s important to note that many companies also match employees’ contributions up to a certain percentage. So, if you know your company offers this AMAZING perk…open that 401(k) and get the match!
On the other hand, if you want to skip the 401(k) or employer-sponsored plan or if you’re self-employed and do not qualify for the options previously mentioned, you can also open up an IRA! To keep this post digestible, I will break down the two most popular IRA options: traditional and Roth. Contributions to a traditional IRA are similar to a 401(k) in that you invest on a pre-tax basis and you will not be taxed until withdrawal (usually when you retire). Roth IRA contributions, on the other hand, are made from already taxed dollars and the profits you make are not subject to taxes when you withdraw at retirement. I have a Roth IRA with Vanguard. I love Vanguard’s ETF and index fund options, plus their expense ratios are relatively cheaper than their competitors!
EVERYDAY USE INVESTMENT PORTFOLIO
Brokerage accounts are a great way to invest for both short-term and long-term goals pre-retirement. I always encourage people to start investing via a retirement plan and once that is established, then it makes sense to consider opening a brokerage account to invest more of your hard-earned dollars. If you’re interested in going the traditional route when it comes to investing, check out these platforms that offer amazing tools for retail investors like: Fidelity, E-trade, Charles Schwab, and TD Ameritrade. However, if you want a hands-off approach to investing there are also user-friendly robo-advisor platforms like Ellevest, So-Fi, Betterment, and Wealthfront that provide algorithm-driven investments to give you the flexibility to invest passively. Robo-advisor platforms simplify the investing process and give investors the ability to craft a portfolio to meet their target goals without getting into the nitty-gritty of evaluating and picking individual stocks.
Before you go, I do want to share four simple investing strategies you can follow today that will help you pick quality stocks. Get your pen and paper ready to jot this down:
Meaning: make sure you understand the business you want to invest in
Moat: invest in companies that are competitive and doing well!
Management: make sure the business has a solid team and CEO
Margin of Safety: track stocks and understand their market trends to ensure you can buy at an attractive price when possible.
I know it will be stressful and perhaps overwhelming to get going in the world of investing, but remember everyone starts somewhere. It’s a brand new year, we just overcame one of the toughest years in recent history, so it’s time you get your money house together and create a plan for yourself. Believe it or not, the internet has a plethora of free resources that will help you find more clarity around investing, you just need to do a little bit of work and research. When I started my journey over 3 years ago, I relied on free resources like Yahoo Finance and Investopedia to get a better understanding of stock market investing. This year, I encourage all of you to make it a goal to teach yourself the skills necessary to build a better financial future, regardless of how much you make right now. Investing is all about building, and you can start with very little...the key is to be consistent and patient!