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Investing & Retirement

How to Start Investing: A Beginner’s Guide

Chris Hogan talks about investing basics on his podcast.

8 Minute Read

I can’t begin to tell you how many folks I’ve talked to all over the country who want to start investing, but just have no idea where to begin.

I get it. There’s a lot of information out there to process and try to understand. Plus, starting anything for the first time can be intimidating—especially when it’s something that can have long-term effects on your finances.

Hear me say this: Anyone can invest—including you. And it’s okay if you have a ton of questions.

Because investing is extremely personal, I always encourage folks to find a qualified investment professional in their area who can help them create a retirement plan that’s right for them. And I will tell you the same thing! But to help you get started, here’s an inside look at my investing philosophy.

When Should I Start Investing?

Your income is your most important wealth-building tool. As long as it’s tied up in monthly debt payments, you can’t build wealth. It’s like trying to fill a bucket with water when there’s a hole on the bottom—it just doesn’t work!

Your income is your most important wealth-building tool. As long as it’s tied up in monthly debt payments, you can’t build wealth.

So, I want you to wait to invest until you’re debt-free and have three to six months of expenses saved in an emergency fund. Once that happens, you’re ready for the next step: investing 15% of your income.

Be confident about your retirement. Find an investing pro in your area today. 

What Is the Best Age to Start Investing?

Regardless of your age, you want to be financially ready to invest as soon as you can. That’s because the sooner you begin investing, the more time your money has to grow.

Take Jane, for example. If Jane is debt-free and has her full emergency fund in place, she should be investing 15% of her income. If she started investing $500 a month ($6,000 per year) at the age of 25, she could have between $3.1 million and $5.8 million by the time she’s 65 based on a 10–12% rate of return! Now if Jane waits until she’s 35 to start investing that $500 a month, she could have between $1.1 million and $1.7 million at age 65. Waiting 10 years could cost you millions of dollars at retirement—let that sink in! 

And don’t get hung up on rate of return here. Even with an 8% return, Jane could have a $1.7 million nest egg by 65 if she started investing at age 25. That’s nothing to sneeze at! Remember, time and compound growth are your friends. Make the most of them!

What Should I Invest My Money In?

As you start to invest, I recommend investing in mutual funds. Mutual funds are a diversified and smart option because they allow you to spread your investment among many companies—from the largest and most stable, to the new and fast-growing. This helps you avoid the risks that come with rolling the dice on single stocks.

Mutual funds have teams of managers who choose companies for the fund to invest in, based on the fund type. Even better, it’s easy to invest in mutual funds through a 401(k) or a Roth IRA.

One of the biggest myths out there is that millionaires take big risks with their money in order to become wealthy. That couldn’t be further from the truth! We recently talked to 10,000 millionaires to learn more about how they built wealth, and guess how many of them said single stocks were one of their top three wealth-building tools. The answer? Zero. Not a single one!

In fact, the most common path to wealth creation among the millionaires we studied was—you guessed it—investing in growth stock mutual funds through their employer-sponsored plans like a 401(k). And there’s no reason why you can’t do the same.

You can learn more about how to use mutual funds to build wealth in my new book, Everyday Millionaires.

How to Start Investing in Three Steps

Learning to invest doesn’t have to be complicated. Here are three simple steps to help you get started!

1. Start Investing in a 401(k)

Taking control of your finances is more about behavior than math. Consistency over time is the key to building a healthy nest egg. You’re running a marathon here, not a sprint.

If your company offers a matching contribution, start with their 401(k) plan. A 401(k) is an employer-sponsored savings plan that allows workers to contribute a portion of their income into a retirement savings account. I suggest contributing up to the employer’s match. For instance, if your company matches contributions up to 4%, invest that percentage to take advantage of the match—that’s free money, people!

Taking control of your finances is more about behavior than math. Consistency over time is the key to building a healthy nest egg.

Good news—contributions to a 401(k) are made through automatic payroll deductions, making saving easy. And 401(k) plans also come with tax benefits. Traditional 401(k) contributions are made with pre-tax dollars, meaning you won’t pay taxes on the money until you withdraw the funds.

However, some companies now offer Roth 401(k) plans. With a Roth 401(k), you contribute after-tax dollars, which means you won’t owe taxes when you withdraw your funds in retirement. I recommend saving through a Roth 401(k) over a traditional 401(k) if it’s available. But if a traditional 401(k) plan is all that’s offered, it’s still a great way to start investing.

2. Contribute to a Roth IRA

Remember, the goal of Baby Step 4 is to invest 15% of your household income. You might not get to the full 15% with a 401(k) alone. That’s why I recommend maxing out a Roth IRA once you’re contributing to a 401(k) up to your employer’s match.

A Roth IRA (Individual Retirement Arrangement), like a Roth 401(k), is a retirement savings account that allows you to pay taxes on the money you put into it up front.

I absolutely love the Roth IRA! Whenever you hear the word “Roth,” I want your ears to perk up. First, the money you invest in your Roth IRA grows tax-free. Second, you won’t owe taxes when you withdraw your money in retirement. So, if your account grows by hundreds of thousands of dollars over time, all that money is yours free and clear when it’s time to use it in retirement! Talk about a win!

As of 2020, the total amount you can contribute to either a Roth IRA or an IRA is $6,000—or $7,000 if you’re age 50 or older.1 A financial advisor can help you sort out all the details to make sure you understand your options.

If you invest directly through a financial advisor or investing firm, you can automate your monthly Roth IRA savings. This will require an extra step in paperwork, but it’s worth the time you take to ensure that you’re putting money away consistently. Slow and steady wins the race. Once you’ve maxed out your Roth IRA at the annual limit, go back to your 401(k) and invest the remaining amount until you reach 15% of your income.

If those aren’t options available to you, or if you need another avenue to get 15% of your income invested, put your money in a taxable investment account—preferably mutual funds—and leave it alone.

3. Find an Investment Professional

You’ll have questions when you start investing—it’s inevitable. Which are the best funds to choose? How do I manage my 401(k) or set up a Roth IRA? That’s why it’s important to reach out to a financial consultant. An experienced financial advisor can show you how to start investing and empower you to make the best decisions possible for your retirement savings.

The right financial advisor will:

  • Educate you on investment choices so you stay in the driver’s seat
  • Empower you to make the right choices with the investing options they provide
  • Offer a client-first approach
  • Commit to a long-term approach to investing

As you start investing and working with a pro, keep this in mind: Never invest in anything you don’t understand. It’s your money! Ask as many questions as you need to, and take charge of your own investing education.

Start Investing Today!

Starting your investing journey can be daunting. But that’s where having an expert to guide you is helpful.

So, work with an experienced investment professional who can help you understand where your money is going. This is your financial future we’re talking about!

SmartVestor Pros are a group of financial professionals who want to super-serve their clients. They’re committed to educating and empowering you to create a confident plan for your retirement.

Reach out to a SmartVestor Pro today!

About Chris Hogan

Chris Hogan is a #1 national bestselling author, dynamic speaker and financial expert. For more than a decade, Hogan has served at Ramsey Solutions, spreading a message of hope to audiences across the country as a financial coach and Ramsey Personality. Hogan challenges and equips people to take control of their money and reach their financial goals, using The Chris Hogan Show, his national TV appearances, and live events across the nation. His second book, Everyday Millionaires: How Ordinary People Built Extraordinary Wealth—and How You Can Too is based on the largest study of net-worth millionaires ever conducted. You can follow Hogan on Twitter and Instagram at @ChrisHogan360 and online at chrishogan360.com or facebook.com/chrishogan360.

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