7 Simple Steps To Begin Investing

13 min readMar 1, 2021

Photo by Patrick Weissenberger on Unsplash

You want to start investing but you don’t know how to start. Maybe you’ve seen some videos lately on TikTok or Instagram about people making big money buying stocks. There’s undoubtedly been a lot more attention in the stock market over last few months, ranging from the soaring bull market making everyone rich, to the infamous GameStop craze causing breakdowns across Wall Street Hedge Funds. So, I’m going to walk you through the 7 most fundamental steps in order to feel confident enough to start your own personal finance & investing journey.

Investing is a platform to earn passive income, or letting your money earn money while you sleep, so to speak.

The latest poll indicates that nearly half of American households do not have a significant stake in the stock market, whether that’s owning individual stocks or investing into an investment fund.

Conversely, of the top 10% wealthiest American families, more than 90% of them have money tied to the stock market.

This tells me two things: 1) not enough people are investing in the stock market, and 2) there may be a correlation between investing & wealth, though I imagine one begets the other. Nevertheless, here’s the 7 steps you need to do:

Note: This blog is very long and filled with information about each step. If you want to skip content and read the important stuff, check out this TL;DR version!

Step 1: Stop Convincing Yourself That The Stock Market is Only For the Rich

The amount of terminology that gets thrown around on CNBC and MSNBC regarding investing is designed to be overly complicated just to make people believe that investing is difficult and reserved for the elite and wealthy. High yields, stocks, options, bonds, ETF’s, IPO’s, dividends, shorts, hedge funds, 401k, tax loss, buy, sell, crash, interest rates, federal reserve this and SEC that. The list is endless. While I do encourage you to spend some time to learn about the basics, the unjustifiably complex details are made to keep you away. Let’s cancel that crap. The bottom line: investing has never been easier to start, and the longer you convince yourself that you can’t do it, the more harm you’re causing yourself.

Without investing, the likelihood of having enough funds to live comfortably through retirement are astronomically low, and will only be possible if you are a high-income earner or come across a windfall like an inheritance or similar. Creating passive income will open the door to further enrich your life, and the sooner you start the more you can achieve.

Think of investing like owning a car. There are general car maintenance things you should know about: fluid balances, managing tire pressure, scheduled oil changes, etc. The same goes for investing: you need a fundamental understanding of the different types of investment accounts (to determine which is best for you), types of stocks you can buy (individual companies or bundles of companies), and how your money grows (compounding interest and dividends). But this doesn’t mean you need to know how to fix every little detail of your car; that’s the service you pay a mechanic for. In the same sense, using a Robo-Brokerage like Wealthfront (or Betterment) is like hiring a mechanic to take care of your investments — only they aren’t fixing your transmission, they’re rebalancing your asset allocation.

Step 2: Determine Your Time Horizon

Generally speaking, investing in the stock market requires long-term patience (10+ years) to really see the effects of compounding interest. Short-term investments can also be very successful, but they often require substantially riskier plays. The consensus of risk vs reward applies both to long-term and short-term investment strategies, with the exception being that long-term investments have better opportunities to mitigate risk and overcome short-term losses. More on this later.

The stock market is a place where money transfers from the impatient to the patient.
— Warren Buffett

Time Horizon refers to how long you plan to let your investment accrue profit & gains. The longer your money is invested, the higher your chances at earning more money, thanks to the beauty of compounding interest. Throughout this blog I’ll be focusing specifically on starting an Individual Retirement Account, which typically takes advantage of a long time horizon. (Retirement accounts are inaccessible without incurring an early withdrawal fee until the age of 59 1/2. Certain emergency circumstances may negate the early withdrawal fee.)

Your time horizon is an important factor to consider when creating an investment portfolio, as it will determine the ratio of stocks to bonds you invest in (stocks are high risk, high reward while bonds are low risk, low reward). But let’s not get lost in the details — this is exactly what using a Robo Advisor like Wealthfront will do for you!

The Rule of 72 is a quick calculation you can use to estimate out how long it takes for your money to double. To calculate how long it takes to double your money, divide 72 by the % return you expect to earn. Based on a historic trend over the last ~100 years, the US Stock Market has given approximately an average of 8–10% returns per year. Based on this past trend, we can estimate that it will take between 7–9 years (72/8; 72/9; 72/10) for your money to double. In other words, your money should double approximately every 8 years, or roughly 4 times over the span of 30 years. As you can see, the longer you can invest, the better!

Personal investing is the one game where individual investors can outperform even the best of the best, because individual investors have time on their side. Plus, they don’t have quarterly earnings to report, shareholders to please, and there are no clients to answer to.
— Jimmie Thongkham

Step 3: Determine Your Risk Factor

Risk factor is a way of understanding how well you tolerate risk. The obvious risk with the stock market is clear: a crash could cause you to lose some, most, or all of your money (assuming A, you sell your stocks or B, the company whose stock you own goes bankrupt). Crashes and slides are inevitable, so determining your risk factor will help a Robo Advisor like Wealthfront manage your emotions during tougher times. The higher your risk tolerance is, the greater you can withstand periods of volatility without making erratic changes to your investment strategy.

Whenever the stock market crashes, investors typically get spooked and start to panic sell their investments. Selling stocks during a crash only hinders your long-term growth because of emotion-based decisions as opposed to logical ones. Stocks trade at their lowest value during a crash, so the best course of action would actually be to buy them, not sell! The old adage, “buy low, sell high” should be your mantra during stock market dips.

The time to buy is when there’s blood in the streets.
—18th Century Contrarian Investor, Baron Rothschild

Risk tolerance and time horizon should parallel each other. The longer your time horizon, the higher your risk factor can be. This is due to having a longer period of time for your account to recover from any market crash or slide. Similarly, a shorter time horizon should be met with a lower risk tolerance: you wouldn’t want your hard-earned money to crumble if you’re going to need it soon.

Step 4: Come Up With a Budget Plan

It’s hard to not put budgeting as the 1st step because of the importance a solid budget plan will contribute to personal finance. I often regard it as your first step, but I’m leaving it at step 4 because I believe the pre-planning components of investing are also important factors to contemplate.

Contributing a fixed dollar amount towards your investment portfolio is as important as paying your monthly bills. Once your home, food, and living needs are taken care of, your investments come next. Splurges and vacations should never be prioritized before your investments. A personal retirement account is most likely going to be your only source of income in the golden days, so it needs to be a top priority. (Social Security checks are most likely going to be completely insignificant by the time you and I are retired.)

So… the annual IRA (Individual Retirement Account) contributions are limited to $6,000 per year, which comes out to $500 per month. I recommend starting small and working your way up so you can manage accommodate the expenses easilier. Starting with something as low as $50–$100 per month will help you develop the habit prioritizing regular contributions, which you can always adjust later on. Let’s look at some scenarios:

30 Years of Investing $100 per month with 10% yearly growth: $220k
30 Years of Investing $500 per month with 10% yearly growth: $1,000,000
15 Years of Investing $500 per month with 10% yearly growth: $200k

As you can see, the time is of the essence, so the sooner you start the better!

Step 5: Open a Personal Account

This is the first exciting step after reading through all of the ‘preparation’ steps. I’ve been using Wealthfront to manage my retirement account, and I highly highly highly recommend using them. Another great alternative is Betterment! Whichever platform you choose is your decision, but make sure it’s a low-fee Robo Advisor.

Use this link to get a complete fee reduction on your first $5,000 invested with Wealthfront! Even though their fees are insanely low, any opportunity to lower them is going to result with more money directly in your account. Most investment agencies charge ~ 1% of your total portfolio to manage and rebalance your account. Wealthfront and Betterment only charges 0.25%, and performs equally as good — if not better!

When you set up a Wealthfront account, you’ll be prompted to decide between a Roth IRA or a Traditional IRA. Read up on this blog for a breakdown between each one. TL;DR: if your in a lower tax bracket now, use Roth. If you’re in a higher income bracket now, use Traditional. When in doubt, start both, or check Google for suggestions.

Continue setting up your account by determining your risk tolerance (pro-tip: the younger you are, the higher your risk tolerance can be!) They’ll provide a series of questions and scenarios that will help them evaluate your ideal risk tolerance before curating the ideal portfolio for you. For reference, here’s my portfolio breakdown:

As a 28 year old, I have quite a long time horizon before I can start to withdraw. As such, I’ve got a risk score of 9.5/10. This results in 90% of my portfolio being allocated to stocks and 10% in bonds. Whenever a particular asset class rises or falls from the target allocation percentage, Wealthfront automatically rebalance your portfolio for you. I’ll explain all of this in my next blog (coming soon)! This allows you to begin investing without needing to know all of the details that go into the process. However, I highly encourage you to continue educating yourself as much as possible so you can have a better understanding of the inner workings of the investment world! This is just the beginning!!!

Step 6: Set Up a Recurring Deposit

In continuation of step 4’s budget planning, setting up a recurring deposit will allow you to make monthly or yearly contributions to take advantage of the long time horizon you’ll be investing for. Remember, if your money will double roughly every 7–8 years (assuming 9-10% annual returns) then the more you invest, the more money you’ll double!

A fixed monthly deposit is a good way to keep the immediate contribution relatively low compared to a yearly lump sum. Monthly deposits take advantage of dollar cost averaging at the expense of less money invested immediately. I wrote this blog to highlight the pros and cons of DCA!

Step 7: Wait a Long Time

Now we play the waiting game. This is the hardest part because you won’t be able to reap the benefits of your patience until you turn 59 1/2 years old. Furthermore, in the span of the 20–30 years while your investment grows, the stock market will ride a wild roller coaster. There will be times of incredible growth as well as periods of rapid decline. These ebbs and flows are part of the game, so patience is key and eyes on the prize is critical. Remember, you haven’t lost anything unless you sell. But you won’t need to worry about any of this if you use Wealthfront to manage your portfolio. Their services includes strategized buying, selling, and rebalancing of your investment portfolio to minimize risk and maximize growth.

Between now and when it’s finally time to retire, you can open other investment accounts that aren’t restricted by age. This gives you an opportunity to invest more than the annual maximum, as well as an opportunity to try it all yourself. You can open a personal investment account (non-retirement accounts) with Wealthfront, or you can start one with a stock brokerage (like Robinhood, Webull, Fidelity, Schwab) where you’ll be responsible for your own portfolio. The more you control, the greater your risk exposure is. It goes without saying that higher risk usually means higher reward. You can check out some of my other blogs below for various tips and insights on smart investment strategies.

Financial Disclaimers I Must Disclose

The above text is not financial advice, but rather a platform to present educational information on investment strategies. The information is sourced from books, articles, and encyclopedias. I share this information to a target audience of young adults who want to begin investing, not to seasoned investors speculating how to day trade based off chart analysis. Any investments that you do are of your own risk and responsibility, and you must accept the consequences of investing in the stock market. Past performance does not guarantee future results. Seek the services of a Registered Fiduciary Advisor should you need help with substantial investments.

With that being said…

I love free stocks! But with recent events surrounding Robinhood, I would be seriously remiss to recommend it as the best investing platform available. There are pros and cons of all commission free brokerages that you must weigh before using it. However, I still like it and use it daily and I plan on using it in the future. If you would like a free stock, use this link to earn a free stock for signing up.

And please, spread the word. The more young adults that begin investing in their future, the better. Please leave a comment if you have questions, ideas for a blog, etc., or message me on Instagram @typicalskandinavian.