Ready to learn how to become an investor, and not just in your retirement accounts? Discover essential terms, to-dos, and more.
Quick takeaways
Investing is just one more tool in your financial goals toolbox, with its own unique purpose. For example, an emergency savings account helps you put aside funds for unplanned expenses—but it doesn’t necessarily have the potential for lots of growth over time. That’s where investing comes in.
Don’t think you’re an investor? Chances are, you might be: Approximately 62% of U.S. adults—that’s 167 million people—own stock, either in individual brokerage accounts, mutual funds, or retirement accounts.
Ready to start investing, or diversify your investing strategy? Here’s some help.
In general, it’s good to have the basics in place for pretty much anything, and that’s true with starting to invest. Key pieces of your financial foundation include an
That review also starts with some basic investing you may already be doing: contributing to your employer-sponsored retirement plan, like a 401(k), if you have one. The first investing goal? Try to work up to getting the full employer match, if you get one.
Putting money in retirement savings such as a 401(k) or an individual retirement account is one way to invest, and it’s pretty common. A brokerage account is, too, but it is different than 401(k)s and IRAs.
A brokerage account is an investment account that allows you to buy and sell investments like stocks, bonds, mutual funds, and ETFs. One key way it’s different from a retirement account is flexibility. Unlike your retirement account, there are no yearly contribution limits, and you can take your money out at any time without early withdrawal penalties. That makes brokerage account a good option for goals outside of retirement—an account to simply try to grow your money, or one that you use to save for long-term plans.
All investing has tax implications; you pay taxes on 401(k) withdrawals in retirement and on Roth accounts before you add them to savings. Brokerage accounts are no different, but It’s when you pay taxes that’s important to understand. In your brokerage account, if you sell investments, receive dividends, or earn interest, you will be taxed on both short-term (one year) and long-term (over a year) gains. (Short-term gains are taxed at income tax rates, long-term gains at capital gains rates.) Your tax advisor and financial professional can help you understand how it will affect your finances from year to year.
An online brokerage firm is one way to invest in a brokerage account. Many of the firms offer fairly similar services, but some key comparisons can help you choose what’s best for you. Those include:
- account fees, including low or none
- minimum balances, if required
- websites or apps with ease of use
- research tools and education
Typically, all it takes to open an account is filling out an online form, linking your bank account to fund the account, and transferring funds from your bank to the brokerage account.
After you’ve opened and funded your brokerage account, you’ll decide what to invest in (called asset classes). Typical asset classes include:
- Stocks: A stock is ownership in a company. Stocks may grow or may lose value over time.
- Bonds: Bonds are loans to a company or government. Their growth is slower than stocks but their risk is lower, too.
- Mutual funds and ETFs: These are bundled collections of many stocks or bonds, which lets you invest in hundreds of companies at once to diversify.
If you’re interested in beginning to invest, you can find options that don’t require lots of funds—and you can start small, too. One idea is an automatic investment to help build consistency and habit. That goes for all sorts of investing goals, from brokerage accounts to payroll deductions for your 401(k) and emergency savings.
And then there’s the old adage: It’s not timing the market, it’s time in the market. It’s less about what your investments do from day to day and more about long-term growth. Checking in on all your investments regularly—monthly or quarterly—helps familiarize you with performance and understand what’s happening. Once you get started, and give your money time to grow, you may find that your investing confidence grows, too.
To check your current investment mix,
