6 steps to kick-start your investment portfolio

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Contrary to just about everything you hear, you don’t have to “learn investing” before doing it. The truth is, you can get started in just a few simple steps.

  1. Time is a great ally when it comes to investing. Starting as soon as possible gives you a big advantage.
  2. You don’t have to learn investing before doing it. The truth is, you can get started investing in just a few simple steps.
    • To get set up: call one of the high-quality, low-fee money management companies, like Vanguard, Fidelity or T. Rowe Price.
    • Tell them about yourself and ask them to tell you what type of account or fund you need, and what minimum investment requirements apply. These companies are extremely knowledgeable and committed to serving their clients (who, in the case of Vanguard, are also their shareholders).
    • They will probably recommend that you start with a comprehensive, diversified, low cost fund that will serve you well as a beginning investor.
    • Keep asking questions until you feel comfortable. When you do, go ahead knowing that you’re in good company with others like you.
  3. Max out your retirement accounts first. We don’t always think of retirement savings when we think about investing, but the fact is, your retirement accounts are the very best place to start, at any age. Your pretax contributions give you a larger pot to grow over time, and your distributions after retirement will likely be taxed at a lower rate—a double benefit!
  • By your retirement accounts, we mean any you have through your job, and those you are able to open individually.
  • Work with your employer’s HR department to be sure you are taking advantage of everything that is available to you.
  • Reach out to one of the high-quality, low-fee money management companies, like Vanguard, Fidelity or T. Rowe Price, for retirement accounts that you can open individually.

4. After you’ve maxed out your retirement accounts, start a taxable investment portfolio.

  • Use money you will not need in the next 5-10 years to create an investment portfolio above and beyond your retirement accounts.
  • Set savings goals for this account and work up to them—say, $25,000, then $40,000 and, eventually, $250,000; it helps to have contribution goals to shoot for.
  • Know the right funds to buy for a taxable investment portfolio. When you are just starting out, choose one or two low-cost, tax-advantaged funds, like the Vanguard Total Stock Market ETF or the Vanguard Small Cap Index ETF, or similar index funds. These passively managed funds do a minimum amount of buying and selling (what the industry calls ‘churning’), which translates into significantly less taxable investment income for you to deal with each year. They also tend to outperform most actively managed mutual funds over time.
  • The right balance for your taxable portfolio will depend on your age. In your early years, the right mix for you will lean towards a higher percentage in growth investments. Over time, however, the right mix for you will transition toward income investments, generally in the range of 80% for growth and income investments combined.
  1. Remember: Owning your own home is one of the smartest financial moves you can make. Although it’s not part of your investment portfolio, owning your home is the #1 wealth builder for most people. So, as you build your investment portfolio, remember to consider investing in home ownership as well.
    • The historical average return of 4% generally keeps you ahead of inflation
    • You save on taxes from the following deductions: real estate property tax, mortgage interest, and insurance costs.
  2. Avoid high-risk investments (e.g. Bitcoin). As a beginning investor, you may be tempted by high-risk investments, such as cryptocurrencies, that offer the possibility to “get rich quick” with one-in-a-lifetime returns.
    • Resist the temptation. These investments are by definition highly speculative and risky. They are only appropriate for you if you can literally afford to lose what you invest!
    • Years from now, when the first 90% of your investment portfolio is solid overall, and you have a balanced portfolio of growth and income investments, plus the right amount of cash (up to 10% depending on your circumstances,) it may become appropriate for you to “play with” the final 10% of your portfolio, and explore more aggressive investments that offer potentially high returns. For now, however, the smart strategy is to start where you are, and steadily build the foundation that makes long-term financial security possible.

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