Investing can be an overwhelming task to get started on. There’s so much noise out there; on the internet, TV, even on TikTok. There are thousands of books, tens of thousands of financial gurus that you could listen to along with plenty of family, friends, colleagues that’ll offer advice, whether it be solicited or unsolicited. I hear time and time again from young professionals that investing is just too much and they put it off because they don’t know how or where to start. This is really a shame because so much wealth is generated through the stock market and the longer you’re in it, typically the more you can make (reinvesting dividends on top of long term growth). 

If this description fits you as being someone who would like to start investing but has no idea how, please read on! I’d love to dispel any myths and break down exactly how to get into investing in a safe and minimal ongoing effort manner!

Why index funds

Firstly, I’ll just spoil the ending here but I’m going to suggest you invest mostly in index funds. It’s what I do, I’ve got 95% ish of my investments in low cost index funds. They are quite boring, don’t often make the news, and I won’t get rich overnight (and neither will you). However, they offer me a mindless investment strategy in which I don’t have to think about or check the price of, and I sleep good at night knowing my money is in an appropriately safe place. 

What is an index fund? It’s simply a basket of individual stocks, a large basket the contains most of the stocks on the stock market. There are different flavors but it’s a directionally accurate statement to say that an index fund means you’re buying most of the stock market. 

Why buy most of the stock market? Because it’s tough to pick winners. Individual stocks behave with a mind of their own, and even if you do a ton of research and have a great hypothesis and see that hypothesis prove true when the company reports results; the stock can still do something different than what you’d expect. I have tried to pick winning stocks several times in my investing career and it just DOESN’T work consistently. For every winner I pick, I end up picking a loser too. At the end of the year when I compare my results, my boring, mindless index fund has done just as good, often better. So, even someone like me who reads investing news all the time, has multiple spreadsheets tracking stocks, and checks the market every morning at 9:30am when it opens, I keep 95% of my investing money in an index fund. Imagine going to a horse track to bet on the horses. Picking the winner is hard but if you bet on all the horses you’ll for sure pick the winner. Of course my gambling friends will point out this isn’t a perfect example as the odds and payouts of getting the field < betting the winner blah blah blah but hopefully you get the picture. 

Did I convince you? If not please head over to Reddit’s WallStreetBets forum where I trust you’ll find an endless stream of ‘hot tips’ from ‘experts’ that’ll gladly give you individual stocks to pick from. If I have convinced you, please read on for how to actually invest. 

Step 1 Assess your Finances

Before jumping in and buying index funds, it’s wise to get a sense of your current finances. Are you in debt up to your eyeballs with high interest loans? Are you contributing to your retirement and other tax advantaged accounts? Do you have an emergency fund set aside for a rainy day? 

If the answer is ‘no’, I’d recommend hitting pause on investing in index funds until the answers are more yes. 

Why? It’s important to have a good financial foundation in place, often times credit card interest rates are higher than your likely returns in the market and not taking advantage of tax advantaged accounts is a little like leaving free money on the table.

Step 2 Open a brokerage account

Not to further complicate things but back to retirement, there is a tax favorable retirement account you can open on your own. It’s called an IRA (individual retirement account) and you can contribute up to $5,500/year into a roth IRA (unless you’re a high income earner) and that’ll and that money will grow tax free and you won’t pay tax when you pull it out when you retire (59.5 years old is the earliest penalty free age aside from things like education or your first house). Not a bad deal. If you don’t have an IRA, make less than the income cap and can contribute and don’t foresee yourself needing the money until you’re 59, an IRA might be right for you. If not or if you already have one, I’d recommend opening a traditional brokerage account. 

Head to your choice of a brokerage account. Your bank might have one (ie Bank of America has MerillLynch), or there are online brokerages easy to open. TDAmeritrade, eTrade, Vanguard are all solid options. I recommend Vanguard to my friends as they often have the lowest fees and are committed to keeping fees low. 

The process will take 15-30 minutes and you’ll open a NON-retirement brokerage account. This means you can pull your money out prior to age 59 when you need it. You’ll put in your demographic information as well as your social security number for tax purposes. If and when you sell or earn dividends, you will be responsible for paying taxes BTW. 

Step 3 Fund the brokerage account

Once your account is setup you’ll need to put money into the account. You can be old fashioned and write a check and mail the check, or you can use an electronic transfer from your bank account. I recognize now as I write this many of my readers might have never written a check! I do electronic transfers, much easier and as safe as Venmo, Zelle, or the crypto exchanges I use. 

You’ll move money from a checking or savings account into this brokerage account. You can setup a one-time transfer or a recurring transfer. Future state I’m a fan of recurring transfer (I like automating my saving/investing so I don’t forget and remain accountable to myself) but you can get started with a one-time and adjust later. 

Step 4 Buy index funds

Once the money clears (might be instantaneous or take 1-3 days), you’ll be able to invest. There are lots of index funds out there, a quick Google search or browsing your brokerage’s listing of funds to invest in will give you options. The two things I look at are: historical performance and fees. For historical performance make sure it’s averaging around 8% (or higher) over a long term time period. For fees, the lower the better. Index funds that I’m in are like <0.2% and yours should be too. 

I personally am in Vanguards Total Stock Market Index fund ($VTI) but there are lots of good options out there. 

Step 5 Rinse, repeat, forget

From here it’s a rinse and repeat scenario. Add more money, buy more index funds. The stock market will have good days and bad days, and your money will rise and fall in value. The real secret is to set and forget it, historically index funds have returned 8% year over year (note its an average so not all years will be 8%). Don’t worry too much about the ups and downs, investing should be a longer-term time frame! 

Granted, I don’t have a crystal ball and who knows what the economy or stock market will do in the future but I personally like index funds because they feel like a safer (ie diversified) way to invest in the stock market in a way I don’t have to think about and in a way that won’t eat me up with fees! 

If you’re a young professional who’s not investing, give serious consideration to doing so moving forward!