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School of Investing: Investing Basics for New Grads

I remember the days of being a fresh college graduate: I was living on my own for the first time, trying to get my bearings in the corporate workforce, navigating the post-grad social scene, and learning about myself every step of the way. Needless to say, any new graduate is sure to have a lot on their plate.

With so much going on, investing is probably the last thing on your radar. After all, there’s plenty of time to get serious about investing later when you have more time, more money, and a better understanding of the stock market…right?

Trust me, I thought the same thing once. But here’s the thing: when it comes to investing, time is your most valuable asset. The sooner you start investing, the more time you will have to reap the financial rewards.

My post-grad years are now behind me, and I am thankful that my years after college took me from corporate America to running my own personal finance business. This opportunity has allowed me to touch the lives of millions and hear their stories along the way. One of the most common narratives I’ve heard on my career path?

“I just wish I had started sooner.”

Lucky for you, you don’t have to find yourself making the same wish ten, twenty, or thirty years down the road. You have the opportunity right now to start investing in your financial future so that you can enjoy all the benefits that come along with financial preparedness and proactive investing.

Now I know that investing can sound intimidating: what should you invest in? How much should you be investing? How regularly should you be investing? Here, I’ll provide you with considerations on the basics of investing so that you can start investing confidently and sustainably for the long-term.

Want a better way to manage your money? I use Personal Capital’s free and secure online financial tools to see all of my accounts in one place, analyze my investments, and plan for my long-term goals, like saving for retirement.

Why you should start investing…like, right now

While you may have just entered the workforce for the first time, many of you may already be dreaming of retirement and enjoying your golden years on a beach, fancy drink in hand. Here’s a shocking fact that will bring that fantasy to a grinding halt: if you don’t invest, kiss those piña coladas goodbye because you may not be able to retire…ever.

The reality of today’s economy is that the general cost of living has skyrocketed. While generations past were able to comfortably retire at 65 after 40ish active years in the workforce with a pension, that might not necessarily be a possibility for many people today. Additionally, the prospect of having access to social security is becoming less and less likely for younger generations, as significant funding shortages are anticipated to result in dramatic reductions of social security benefits as early as 2034.

So needless to say, investing is really, really important.

It’s not all bad news though! You have the opportunity to get an early start on your investing, and when it comes to investing, your most valuable asset is time.

The sooner you start investing, the sooner you can take advantage of the magic of compounding – a highly beneficial perk of investing that allows your investments to earn interest both on the initial investment as well as on all the interest accrued. In other words, compound interest allows your money to earn as much interest as possible, as quickly as possible, and the longer your money has the opportunity to compound in value, the more money you will have come retirement.

Okay, so I’ve convinced you to start investing, but you have no idea how to start. Let me break it down for you in three easy steps.

Where to invest

The first step to investing is deciding where to invest your money.

There are a number of accounts and investment options to choose from, and it’s important to keep in mind that the most successful investment strategy is a diverse strategy – meaning that you have multiple different types of investments and accounts that you contribute to over the course of years and decades. While this is certainly the end goal we should strive for, it’s totally okay if it takes you some time to accumulate a variety of investment options.

HYSA

Before investing, you may want to consider a High Yield Savings Accounts (HYSA) for your emergency savings fund. This account is not actually an investment, but an emergency fund is a solid building block of your financial house. HYSAs are just like traditional savings accounts, but they give you a higher rate of interest on your cash – up to 50x higher depending on the account! Basically, this account gives you returns on the cash you’re not touching for day-to-day expenses.

The best part? They’re generally quite accessible and are built for varying financial levels. While some do require minimum balances and automatic transfers, just as many do not. Additionally, because many HYSAs are online banks, you don’t have to travel to a traditional brick-and-mortar bank to deposit or withdraw your money! For the most part, you can make all your HYSA-related transactions from the convenience of your smartphone or computer.

Certificates of Deposit

Similar to a HYSA, CDs are another option for earning interest on your money. A CD has a set term ranging anywhere from six months to five years and will earn a set amount of interest for the entire duration of the term, but that money is not accessible to you until the term is complete. So while you are earning more interest on your money than in a traditional savings account, your money is not as accessible.

In addition to the appealing interest rate, CDs are also considered to be extremely safe with a guaranteed rate of return, making them especially good accounts for new investors.

It should be noted that both high yield savings accounts and certificates of deposit are good options for emergency funds and short term goals where you don’t want to risk the volatility of the stock market. These investments are best when utilized in addition to other investment options that are better suited for long term goals, like the options below.

Tax-advantaged retirement plan

It is never too soon to start saving for your retirement, and starting with a tax-advantaged retirement account is a great way to do so. These accounts (IRA, Roth IRA, HSA, 401(k), 457 Plan) provide you a designated place to contribute funds for your retirement while also giving you certain tax advantages.

By starting to regularly contribute to a retirement account as a new grad, you will give yourself the most time to build wealth for retirement and reduce future financial stress.

Feeling overwhelmed or confused by all these retirement account options? Consider using Personal Capital to plan for your retirement. Not only will this free tool allow you to create a retirement savings plan that is personalized to your income and goals, but it also gives you all the tools you need to track your progress in order to reach your goals. Investing in your financial future has never been easier.

Mutual funds

Mutual funds are especially popular among investors as they provide the opportunity to invest in a collection of stocks or bonds that are otherwise difficult to invest in on their own.

ETFs

Exchange-traded funds are similar to mutual funds as they both offer investors the opportunity to invest in a collection of stocks or bonds, but ETFs can be particularly appealing to new investors as they typically have a more accessible price point than mutual funds.

Individual stocks

Stocks are probably the most common investment discussed in pop culture but are just one investing option among many.

When you invest in a stock, you are essentially buying a tiny fraction of ownership in a business. The value of that stock will increase and decrease based on the performance of the company as well as the economy as a whole. While building a portfolio of stocks can certainly be rewarding, it will also require a lot of time and research to figure out exactly which stocks will perform well for you. Additionally, the price of stocks changes every second of the day, so it can be easy to slip into a short-term trading mindset that will not be advantageous for the long run.

How much to invest

Once you have decided where to invest, you will need to decide how much you would like to invest.

This will vary from person to person depending on your income and expenses. After creating a thorough budget, I like to allocate a certain amount of money to go toward my various investments every month. By having a dollar amount designated for your investments, you will be more likely to consistently follow through and invest it rather than spending it on something that doesn’t align with your personal goals. For this same reason, I also like to set up automatic transfers to my investment accounts.

Now I know that as a new graduate you may not feel like you have a lot of extra money to direct towards your investments. That’s totally okay! Because there are so many different types of investments, you can get started with investing even if you only have the $50 your grandma gave you for your birthday. Thanks to compound interest, that $50 has the potential to grow exponentially over the years.

Every six months or anytime your income/expenses significantly change, reevaluate your budget and update the amount of money that you plan to invest. This way, you avoid the pitfalls of lifestyle creep and stay on track toward your financial goals.

How frequently to invest

If there’s anything that new graduates are short on, it’s time – the last thing you need is to take on a practice that will eat up your precious free time and energy.

Here’s some good news: you do not have to be active in the stock market every day to be a successful investor.

By all means, if you enjoy checking on your stocks and staying on top of minute-by-minute market trends, feel free to do so. But for the average investor who wants to grow their net worth and prepare for their financial future with as little time and effort as possible, they will be pleased to know that you can settle into an investing frequency that works best for you.

Personally, I am typically active in my investments between once and twice a month. This gives me plenty of opportunity to stay on top of my investments, become aware of any significant changes, and continue to grow my portfolio, all without getting overwhelmed and burnt out by having to dedicate too much time, effort, and mental energy to the process.

Tips for new investors

At 28, I am internationally recognized as a money coach…but that wasn’t always the case. Just a few short years ago, I was a new graduate who was also navigating the wide world of investments for the first time. I learned a lot through trial and error, and often found myself wishing that there was someone just a few years ahead of me who could give me some tips and tricks along the way.

Well, I’m here to share the wealth of knowledge! These are my top tips for finance newbies that I wish I had learned earlier.

An emergency fund is your #1 financial priority

I know I spent a good long while ranting and raving about why you shouldn’t wait to start investing, and I do stand by that. BUT the only exception is if you don’t already have an emergency fund. Typically, an emergency fund should cover 3-6 months of essential living expenses saved up in case of, you guessed it, an emergency.

I know what you’re thinking: “But I want to grow my net worth and prepare for my financial future through investing – isn’t that more important than an emergency fund that is just going to sit there?”

Trust me, I totally see where you’re coming from. While investing may feel a bit more exciting and appealing, building up an emergency fund is foundational.

You see, life has a way of throwing curveballs our way when we are the least prepared for them or just when we feel like we are making progress on our goals. From unexpected car repairs to unplanned medical expenses to suddenly losing a job, the last thing that we want to happen as we focus on growing our net worth and preparing for our financial future is running into an emergency that we aren’t financially prepared for and then having our financial goals totally derailed.

My personal pro tip? Consider stashing away your emergency fund into a high yield savings account so that it can continue to earn as much interest as possible, even while it’s just sitting there waiting for a rainy day! Even if you don’t use your emergency fund, it will still be working for you, earning some extra cash, and increasing your net worth. Win win.

Be aware of fees

From maintenance to transactions, depending on the kind of investment that you are making,  you can be charged any number of fees. And while these percentages may seem small at first, over time they can really add up and decrease the value of your overall investments, so it’s important to be aware of the fees that you can anticipate from your mutual funds or brokerages.

For this reason, some people opt to be “DIY” investors rather than working with a broker. But you may find that paying a brokerage fee is totally worth the convenience of having someone manage your investments for you. As long as you are aware of the fees that you are paying and they align with your financial goals and values, that’s all that matters.

You can see all of the fees in your investment portfolio, and spot ways to optimize, with Personal Capital’s Fee Analyzer.

Auto pay is your investing BFF

As a new grad, I know you’re busy: you’re trying to balance your post-grad job, living on your own, having a social life, dating, going to Pilates, building a skincare routine, and a whole lot more. Trust me, I know that you don’t have a lot of time to dedicate to investing right now, and sometimes things can fall off your plate – especially when you’re holding like, twelve spinning plates.

That’s where auto-pay comes in. Automatic transfers allow you to put your investing on “autopilot” so that you continue to contribute to your investment accounts, all without any additional time, effort, or mental energy on your part.

Plus, by putting your investments on auto-pay, the money will be automatically taken out of your account so that you never have the temptation to spend it on something that doesn’t align with your long-term financial goals.

This is the perfect option for investing in your HYSA, 401(k), or IRA, and can be set up in a matter of minutes online or by phone. If you are choosing to have a taxable brokerage account, you can also set a monthly amount that you would like to invest. Easy peasy.

Investing is a long-term game

I’m sure that you have probably heard about people who “made it big” on Wall Street, as well as people who have “lost it all.” While there is certainly risk involved with investing, don’t let that hold you back from proactively investing.

The reality is that investing is a long-term game, and many successful investors are those who invest in a diversified portfolio and hold onto their investments for years through the highs and the lows of the market.

Be conscious of where you get your investing information

Thanks to Reddit boards and Twitter threads, there is more information available about investing than ever before, and while that can be a blessing, it can also be a curse when the information that is being spread is reactionary, taken out of context, or just plain wrong.

Unfortunately, not everyone on the internet has your best interest at heart when it comes to investing, so make sure that you are turning to credible, trusted sources.

As for me, Personal Capital is the tool I check daily for tracking my net worth and my progress towards goals like retirement, debt payoff, and (yes!) saving that first $100k.

Get Started with Personal Capital’s Free Financial Tools

Personal Capital compensates Tori Dunlap of Her First $100k (“Author”) for providing the content contained in this article. Compensation not to exceed $500. Author is not a client of Personal Capital Advisors Corporation. Additionally, in a separate referral arrangement between Author and Personal Capital Corporation (“PCC”), Author is paid $70 and $150 for each person who uses Author’s webpage (www.HerFirst100k.com) to register with Personal Capital and links at least $100,000 in investable assets to Personal Capital’s Free Financial Dashboard. As a result of these arrangements, Author may financially benefit from referring potential clients to Personal Capital and/or be incentivized to present blog content that is favorable to PCC. No fees or other amounts will be charged to investors by Author or Personal Capital as a result of the Referral Arrangement. Investors that are referred to PCC and subsequently subscribe for investment advisory services provided by PCC’s affiliated adviser, Personal Capital Advisors Corporation (“PCAC”) will not pay increased management fees or other similar compensation to Author, PCC or PCAC as a result of this arrangement. The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money. Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

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