As you mature more as a young professional, you may find yourself with some extra money in your back account and you may be wondering if you should ‘invest’ this money. Perhaps your parents mentioned something to that effect, or maybe you read some advice online, or perhaps you feel that just what adults do. Well good for you! You’ve come to the right place to learn more about what young professional investing should look like. It can certainly be a little intimidating if you’re just starting out and there are lots of ways to poorly invest your money. It’s my goal in this article to make you more confident about investing and give you some practice advice for how to start.

Why you should invest

Before we get into the how, let’s first talk about the why. I think it’s important to understand why you’re doing something before starting to do it. If you don’t understand the why, you’re likely to lose focus, give up, or get frustrated. Investing is serious business so we should make sure you’re ready!

A young professional should start investing their money once most of their other financial matters are in order. That means as best you can being out of bad debt (i.e. credit cards), having a handle on good debt (mortgage, student loans, car payments) by making more than the minimum payment and having a plan to be debt free, having an emergency fund set aside and actively contributing to your retirement account (ideal amount is 15% of your salary). Have you met these requirements? Awesome, you may proceed with investing. Or maybe you haven’t yet? It’s important to make sure your basic financial matters are set before you go on taking more risk with your money.

Assuming you’re ready for such an endeavor, the why really comes down to the rate of return on your assets. Simply put, you should seek to get the best return possible for your money, and ensuring it’s working the hardest for you. Keeping your money in a bank account will earn you 0.1% to 1% worth of interest, whereas it could be more like 5-10% in the stock market (of course depending on actual returns). Sure the stock market will have good days and bad days, but historically it’s had more good days vs. bad and you’re more likely to earn more in the stock market vs. a savings account. Over time, the extra return you’ve made in the stock market will eclipse the measly returns you’ve made in a savings account. To really grow your financial net worth, it’s critical to seek higher returns than a savings account.

How you should invest

Wonderful, now that we’ve got the why out of the way, let’s talk about the how. Although it can be quite daunting with the number of options out there, I’ll focus you in on a few recommendations. Firstly, you’ll need a brokerage account. A brokerage account is hosted through a stock-trading platform, and allows you to participate in the stock market by placing orders to buy and sell your stocks. This account will be separate from other bank accounts you may have. I would first recommend checking with your bank to see if they have a brokerage account. Many do (like Wells Fargo or Bank of America) and in my opinion it’s easier to keep your money in one place instead of many. If not, don’t fret; there are plenty of other options too. ETrade, TD Ameritrade or Vanguard are three that I would recommend. There are some cheaper options out there but I personally like keeping my money with what I perceive to be a more reputable company.

Once you’ve decided on your new brokerage service, go ahead and sign up. You’ll be signing up for an individual brokerage account. It should take 10-15 minutes online and you’ll need to have your basic demographic information on file and you’ll provide your Social Security Number (for tax purposes). Although not required, it’ll also allow you to link a bank account, which makes moving money in and out of the account easier. Otherwise you’ll have to mail them a check to deposit money.

Hurray! You’re now all signed up and once you’ve moved some money into the account, you can start investing. Now, my strong personal recommendation is to stick to index funds. An index fund is a fund that invests in a basket of stocks, instead of just buying one stock. Buying one stock is more risky, as it may go up, but it may go down. An index fund however will own a bunch of stocks (50-200 different ones) and therefore the risk is spread over many stocks. Index funds are an easy way to invest your money and typically get as good of a return on your money. Most brokerages will offer index funds, and as you’re searching, search for “index fund”. Be sure to check out the fees that they charge and make compare a few. No sense in paying more for basically the same thing. One example – I was investing in an index fund that was charging 0.8% in fees and found that I could invest in another that only charged 0.18%. Huge difference! I personally am a big fan of Vanguard funds – they are committed to keeping costs low and they invest in the same stocks that the other index funds do.

How you should track and keep investing

Depending on your financial situation, you may just have a few hundred, or a few thousand to invest right now. Totally fine! It’s great that you’ve made it this far and can seek to earn a higher return than just a savings account. Ideally, as life goes on, you’ll find yourself with more money to start investing. I personally like to put my paychecks into buckets: expenses, mortgage, fun, travel, charitable giving, savings and investing. So, that means that each month, I should (assuming I don’t overspend) have a little money set aside to invest. I’m not putting everything in my brokerage account as that would be risky, but I’m putting some amount proportional to my overall budget in. So each month, I’ll move money into my brokerage account, and buy more shares in the index fund I’m invested in. Currently I’m invested in $VTI, which is the Vanguard Total Stock Market fund. It invests in many stocks and only charges 0.04%. It’s return is just a good as any other fund in my opinion, with less risk and less expenses. So, as you’re able, get in the habit of investing a little each month!

To track your investments, it’s best not to check daily and worry about the small ups and downs. Index funds are relatively safe compared to other mutual funds or stocks so you don’t need to worry about frequently buying or selling. If you’re curious though about how your investment compares, your brokerage should offer the tools to help. You can compare it to other similar types of funds or the overall market in general. Remember though that you’re a long-term investor and so the ups and downs shouldn’t bother you!

I hope this was a helpful guide to get you thinking more about investing. I know that for many young professionals, investing is a scary thought. But, keeping your money under your mattress or in a savings account won’t make you rich (in fact you’ll lose money with inflation). Be responsible with how much you invest but learn to take some risk and invest in index funds!