As part of a life-skills program for young, single mothers, I was asked to teach a class on how to get on top of your finances. I distilled my advice into a series of tips, tricks and hacks that would help all young people take control of their spending and saving. This month, I’d like to close the loop with my best strategies for novice investors.
First, some caveats. Before you even think about investing in the stock market, take stock of your overall finances. For starters, you should seed an emergency fund that will eventually cover at least three to six months’ worth of your expenses. Stash that money in a safe place, such as a bank account or money market fund, where you can get your hands on it in a hurry if necessary. The same goes for money you’re saving for short-term goals, such as next year’s vacation or a down payment on a house. You don’t want to risk money that you’re going to need in fewer than five years.
And getting rid of high-interest-rate debt should be a top priority. Paying off the balance on a credit card that charges you, say, 20% is the equivalent of earning 20% on your money.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
But for longer-term goals — notably retirement — the stock market is the place to be. And the younger you are, the more you should tilt toward stocks to take advantage of your greatest asset: time. The time-tested route to investing success is to follow these four steps: Start soon, start small, invest steadily and keep it simple.
Investing strategies part 1: Workplace retirement plans
Start with your workplace retirement plan, such as a 401(k), which gives you a triple leg up on investing. First, you can take advantage of automatic enrollment, which allows your employer to deduct money from your paycheck before you even see it and before it has a chance to burn a hole in your pocket.
Second, if your employer matches your contribution, that’s free money that you don’t have to come up with yourself.
Third, you can adjust your contribution to an amount you can afford. You should try to contribute enough to capture the full free-money match, but you can always start with less — especially if you are paying off debt or saving for a short-term goal — and increase the amount over time. Don’t be afraid to start small, even if it’s $50 or $100 per month.
Finally, once you get into the automatic-savings habit, you can invest steadily over time without even thinking about it. (Note: If you don’t have a workplace retirement plan, you can accomplish the same goals by opening an IRA.)
Investing strategies part 2: Spreading the risk
Not only does your retirement plan make it easy to set up an investment program, it also simplifies the investments themselves. The best strategy for novice investors is to spread your risk by owning shares in the entire U.S. stock market, which also gives you a shot at the market’s historical 10% annual return. You can do that by investing in an index fund, such as Vanguard Total Stock Market Index Fund (VTSMX).
In a retirement account, you will probably also have access to a target-date retirement fund, which automatically allocates your money to the appropriate mix of investments based on your age and years until retirement.
Once you have a broad market base, you can, if you wish, use a portion of your money to branch out into other investments or open an account outside your retirement plan. In any case, don’t get carried away by the latest market trend, fad or cause, whether cryptocurrency, artificial intelligence or any other investment du jour. Your ultimate goal should be to provide for your own financial security, which gives you the luxury of using your money however you choose.
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
Related content
-
Bullish IPO: Should You Buy BLSH Stock?Wall Street is buzzing about the Bullish IPO, with the Peter Thiel-backed crypto company set to start trading today, August 13, under the ticker "BLSH."
-
How the 2025 Child Tax Credit Rules Impact Single ParentsTax Credits New changes to family tax credits, like the Child Tax Credit, will impact the eligibility of some households.
-
A Taxable Brokerage Account May Be What Your Retirement Is MissingYou can supplement your retirement nest egg or save for other goals with a taxable brokerage account.
-
What to Know About Multisector ETFsMultisector bond funds allow investors to pick and choose among a wide array of assets.
-
How to Guard Against the New Generation of Fraud and Identity TheftIdentity Theft Fraud and identity theft are getting more sophisticated and harder to spot. Stay ahead of the scammers with our advice.
-
You Need to Have This Financial Talk With Your SpouseWomen are poised to inherit significant wealth from their husbands. Here's how they can prepare for it.
-
Three Ways to Find Deals in Your Investments This YearLooking for ways to save because of tariffs? Don't forget to look for deals in your investments. Here are three expert tips for making a little extra this year.
-
Sibling Bonds May Wax and Wane: Here's How To Safeguard ThemSibling Bonds May Wax and Wane: Here's How To Safeguard Them
-
A Contrarian Approach Pays Off for This Small-Cap FundSmall-cap stocks have been hit hard by tariff worries, but this T. Rowe Price fund has outperformed thanks to its manager's against-the-tide approach.
-
The Best Stocks of the CenturyAs we near the 25-year mark, we looked at which stocks have returned the most. Here are the 10 best stocks of the century so far.
