Sincerely, Budgeting in Brooklyn
Dear Budgeting,
Congratulations on starting to think about investing. You don’t say your age, but in theory, you could make investments at any age, and I’m of the belief that it’s never too early to start. If you are under 18, however, you won’t be able to own any investments outright and will have to invest under the supervision of a parent or guardian through a custodial account. But I’m going to assume that you are of legal age, in which case, when should you start investing? Now! I know that investing can seem scary, but it is a great way to acquire wealth. Consider this. If you had invested $500 in just the S&P 500 index at the start of 2021, and never added any additional funds, you’d have over $640 by the end of the year. That’s because the S&P 500 total return for 2021 was 28.7% (including dividends). So how can you get started? The first step is getting over the fear. Now that you know that money can be made in the market, make sure you are comfortable with the amount of money you put into an investment account. Do not invest the money you need to pay your rent, credit cards, or loans. Start small and make a commitment to invest some money each month, whether it’s $50, $100, or $500. You want to think of the money as something you invest for the long term, so you shouldn’t look at these investments as a way to “get rich quick” and pay off a loan, for example. As a new investor, I’d recommend investing passively in funds where your risk is minimal. Index funds, like the S&P 500 or ETFs (exchange-traded funds), which are a basket of stocks or bonds, may be a good place to start. These ETFs should be large-cap diversified ones, some comprised of blue-chip companies included in the S&P 500. With these funds, you aren’t investing in one specific stock, but rather a large number of the highest quality companies from various sectors, so you are less likely to lose a lot of money (which I imagine is your main fear). All you need to do now is open a brokerage account or sign up for an investment app, and get to long-term investing! Good luck! -Kristin
