A start-up guide for investment newbies

I had a friend tell me the other day that she didn’t even know where to start when it comes to investing. I’ll admit that it can seem like a daunting task. She was afraid that she was going to ask a “stupid” question or be overwhelmed by the amount of information that an adviser would throw at her. If there any readers out there like her, I’m here to help.

If you’re a millennial, or anyone else new to investing, think of the following as a checklist for getting started in investing: 

Budget

You should have a good understanding of how you spend your money. There are so many free apps to help you categorize and track your spending that you should have no problem marking this off your list. It may feel strange at first watching every transaction, but it is how you learn to budget and will become second nature once you get the hang of it. Remember to always pay yourself first. This means if you’re saving for something or want to put money towards investments, do that before you create the rest of your budget. 

Emergency fund

You need to have money on hand for when life happens. Inevitably, your car will breakdown or your air conditioner will stop working. You need cash to cover those potentially unexpected large expenses.

I recommend keeping this money in a savings account. It will earn interest and you will hopefully be less tempted to spend it if it’s not in your checking account. You will hear that advisers recommend having three to six months’ of living expenses as your emergency fund in case you lose your job.

However, that is just an average. The right amount for you will be what makes you feel comfortable. So ask yourself the question, “What amount of money set aside will let me sleep soundly at night?” 

Life events

Many of you are in the middle of big life changes. You might be buying a house, planning a wedding or having a baby. If one of these events is in your near future, I wouldn’t recommend investing the money that you will need for a down payment you will need for these occasions. In general, refrain from investing if you know that you will need the money within a year. A year makes it hard to guess whether the market will be up or down at the time you need those funds or what the tax impact could potentially be. 

Investments

Two of most common questions that I hear are “how much do I need to start investing?” and “do you have a minimum?” Many financial advisers do have a minimum that you need in order to start working with them. However, there are always exceptions and many who do not.

If your parents are working with an adviser, he or she will often work with you as well because you’re considered part of their household. Or that firm might have a designated person who works with millennials like myself. 

How much you need to start investing is a tricky question. Technically, to invest in many mutual funds, you need as little as $50. I believe the equally important question that is what type of account you should open. Can you invest in a Roth IRA still? Are you maximizing the match for you 401(k)? These are all the questions a financial adviser will have for you. 

Ask questions

Remember that everyone’s financial situation is unique. Don’t hesitate to ask questions. You are paying for advice and deserve to know what you’re getting into. If it sounds too good to be true, then it probably is. And finally, always remember that it is never too early to start investing!

Jennifer Pagliara is a financial adviser with CapWealth Advisors.