Investing 101 // How to Start Investing


Last month I shared with you an article about what you can invest your money in, and in the feature before that I explained why investing is so important. Today, as promised, I will walk you through exactly HOW to choose the right investments for you and HOW to open up an investment account.

One of the most frequent questions I receive about investing is “How do I actually select the right investments for me?” With all the options available to us these days, choosing the right investment can be an overwhelming endeavor. Of course, the criteria for making the right choice for you comes down to:

• your personal risk appetite
• the purpose of your money
• your age
• and time frame of your ultimate investment goal.

Why are mutual funds are a good investing option?
If you are investing for a long-term goal such as retirement, a good place to start would be by investing in mutual funds. To review, when you invest in a mutual fund, that mutual fund invests in a lot of different stocks, bonds, or money market investments. Since most mutual funds have a team of fund managers doing the actual research and selecting individual stocks or bonds that make up the mutual fund portfolio, most of the hard work will already be done for you. In other words, a mutual fund is a shortcut to diversifying your money across many types of stocks or bonds with very little work done on your end.

What mutual fund or funds should you invest in?
Well, the good news is, thanks to technology, there is another shortcut to choosing the right mutual fund for your money. Lifecycle mutual funds, also known as “age-based” or “target-date” funds, are mutual funds that help you to invest your money depending upon your risk tolerance, age, time frame of the goal, etc. These types of mutual funds can be great for first time investors; within just one mutual fund, you will have broad diversification between various types of mutual funds: large cap mutual funds, small cap mutual funds, international mutual funds, etc. And within each of those mutual funds, you will own lots of individual stocks or bonds depending on the type of mutual fund. Think of it as a fund of funds!

Lifecycle or target-date mutual funds offer a great way to gain exposure to many investment types. Select the appropriate lifecycle or target-date mutual fund based on when you want or plan to retire, and from there the fund will automatically adjust its allocation mix from more aggressive in the beginning, to more conservative as you get closer to the target date. For example, if you are in your twenties and select “target date 2045” fund, your mutual fund allocation will start out more heavily weighted toward aggressive types of mutual funds at first, and then scale to more conservative types of mutual funds as you get closer to 2045. If you are in your forties or fifties and select “target date 2020” fund, the mutual fund allocation will be more conservative. Remember, the more time you have, the more risk you can take on to potentially grow your money faster overtime.

This is definitely a more automated approach to investing, and of course, there are fees involved, but it can be a great way to start investing and to make sure you are diversified right from the start.

There are many mutual fund companies offering lifecycle/target-date mutual funds; Vanguard, Fidelity, and T. Rowe Price are just a few. You can log onto their websites and use their friendly search engines to find the right lifecycle/target-date fund for you based on your specific criteria. If you have trouble finding the right one, you can call their sales department and talk to a representative who should be able to help you out further.

How do I get started and open an account?
Okay, now that you know about a type of mutual fund to actually invest in, it is time to open an investment account. Again, you can use online financial institutions (ING sharebuilder, E*TRADE, Ameritrade, Fidelity, Vanguard, etc.) to open up an investment account. Some account types include a brokerage account, Traditional IRA, Roth IRA, or other type of retirement accounts. I suggest you do some research and find the most convenient, user-friendly platform, and then open your account with that institution.

Here are the steps for how to open up an investment account:

• Decide on the type of account to open, and then fill out the online application.
• Decide on how you will fund your account – one time transfer, monthly contribution, etc. I suggest you transfer the amount needed to make an initial purchase into the mutual fund you want (most have minimums of at least $1000).
• Select the lifecycle/target-date mutual fund you want to purchase and go through the steps to buy the mutual fund.
• Next, set up an automatic monthly transfer into the account to ensure you are investing regularly (i.e. $50 every month).
• After that, set up an automatic purchase into the mutual fund so that every time you add new money into your account it will get invested into the mutual fund. Otherwise, your money will sit in cash.
• Every year, review your account and make sure you are constantly adding more money into the account and ultimately investing for your future.

Hopefully by now, you should have an understanding about the why, what and how of investing. Again, I understand how overwhelming and complex investing can seem, but with a little education and research you can start feeling more confident and begin investing for your future. Investing for your goals and financial future is up to you. Don’t rely on anyone else to do it for you. Instead, take the time to become educated and start investing for your future today!

Investing in Mutual Funds involves risk, including loss of principal. Investors should consider the investment objectives, risks, charges and expenses of a mutual fund carefully before investing. The prospectus contains this and other important information about the Mutual Fund Company and investment company. You can obtain a prospectus from your financial representative. Read carefully before investing.

This post was contributed by Brittney Castro, CFP® professional and creator of Brittney Castro is not affiliated with Brittney A. Castro is a registered representative with and securities offered through LPL Financial, Member FINRA/SIPC. California Insurance License #0F33895. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.