How long does it take to start investing?

Posted by Maneesh Sethi :: August 26, 2007 @ 10:58 pm

How long does it take? An hour or two. All you have to do is open an account at any number of places and put some money in. This article will teach how to open your first investment account.

First things first: you need to see how much money you have. How much liquid, expendable income do you have right now? Check your savings and checking accounts, under your mattress, and in your coin jar. All you need is a few hundred bucks to get a good investment account set up, but obviously the more the better. Keep in mind, this money that you are investing is extra money that you do not need and won't need for a while. Expect your money to stay invested for years to capitalize on compound interest.

Ok, so now you've accounted for your available money. You need to now decide how you will invest your money. For young people, there are a lot of choices: stocks, mutual funds, bonds, index funds, lending at Lending Club, and lots of other options. How you decide to allocate your money depends on your willingness to be risky and the amount of your available money. This site has an awesome asset allocation calculator (needs java) that might help you get started: http://www.smartmoney.com/oneasset/. There are plenty of other great tools on the Web for determining how to invest.

I have a relatively high risk tolerance and I am fairly young, so I split my money between stocks and index funds. When choosing stocks, I choose companies I know. For example, I know technology, so I’ve chosen mostly tech companies. You might want to check out the S&P 500 Index Fund.

Next, you need to open an investment account. For stocks and funds, I use companies that have low fees and can easily handle direct monthly deposits. Once you've created an account, transfer over your available money and purchase your choice of stocks and funds in the proportions you determined earlier. To maximize your diversification, you might also want to create an account at Lending Club and lend directly to others. On Lending Club, you can set your own risk/return preferences to determine your asset allocation.

That's actually all it takes to get started investing. Like I said, it takes only a few hours. These few hours might be the most productive hours of your life, though, because the earlier you start saving, the more money you will make.

One important thing that you should immediately do is set up a system to directly deposit a portion of your paycheck into your investment account. If the money gets there without you ever touching it, you are much more likely to continue investing.

This is the first step to building a future for yourself. Good luck!