woman online searching for getting started with investing

This month, I’ve been fielding all of your most burning questions about getting started with investing, and there are a wide range! Everything from ‘where the heck do I even start’ to more strategic questions like ‘should I pay extra for investment advice for my 401(k)?’ In this blog post, I navigate them all! What questions do you have that I didn’t address yet? Leave a comment and ask me anything!

Question 1:
Literally where do I get started with investing?

A: I’m going to assume you mean two things: I need direction on what the first step *and* where do I actually/physically go to start investing?

  • When it comes to investing, you shouldn’t just jump in unless you have a solid wealth foundation. For example, you need to make sure you don’t have any high-interest debt and you need an Emergency Funds first. You also shouldn’t invest any cash that you will need to use within the next 2 years—keep in cash for your short-term goals. Go get my Free Roadmap here, to make sure you have those two things set up first.
  • Once you have that solid foundation, and you’re ready to begin investing, you can start with a financial advisor or a robo-advisor.
    • Hiring a financial advisor has many benefits but it does come at a higher price point. If you’re just starting out, you can expect to pay an ongoing fee (i.e. 1% on assets available for management) plus a subscription if your assets aren’t quite built up yet. You can check out our services and fees here. If you choose to work with a human, they should take the reins, ask you all the right questions, create a financial plan & guide you every step of the way on your investing journey.
    • If you’re not looking for that one-on-one professional guidance just yet and are trying to save money wherever you can, then you may want to look into a robo-advisor. There are still fees, but not as expensive. My one requirement of you is to look for one that does a good job of asking you upfront about your time horizon, goals and risk tolerance. Be weary of apps that gamify investing and don’t ask you any questions about your goals!
  • If you decide to go with a robo-advisor, then you need to ask yourself some questions:
    • How much do I have to invest?
    • What are my goals?
    • What is my time horizon (when do I need to use this money in the future?)
  • For the sake of simplicity (because everyone’s situation and goals are unique), let’s go ahead and assume that you want to start saving for a new home in 5 years a traditional retirement at 59.5 years old. Let’s also assume you are at least 10 years away from turning 59.5 years old and do not get offered a 401(k) at work.
    • For the new home in 5 years, you should open up a regular non-retirement investment account, sometimes called a “brokerage” account, in your name or a joint account with your spouse.
      • You should decide on how much to fund it with up-front, i.e. $1,000 and how much to contribute to it on a monthly basis, i.e. $100/mo.
      • Remember that you’re saving for the down payment (around 15-20% of home price), not the entire cost of the home.
      • Because this is not a long-time horizon, you want to choose an investment strategy that is balanced (aka around half in stocks and half in fixed income.)
    • For the retirement account, you can choose from a Roth IRA or a Traditional IRA.
      • You can only contribute up to $6,000 total per year for both.
        • i.e. $3k to Roth, $3k to Trad. Or $6k to Roth. But NOT $6k to each.
      • In general, a Roth IRA is a good option if your income is relatively low right now and you expect it to increase in the future.
      • They both have pros and cons and limitations and that is enough information to fill up an entirely different blog post.
      • Because this is a long-term time horizon (over 10 years away), you want the scale to tip towards stock. Depending on your risk tolerance and official time horizon, you should shoot for at least 70% of your investments to be in stock.
    • If the robo-advisor is good at what they do, they will offer you some suitable investment options that contain a diversified approach through ETFs or mutual funds.

Question 2:
How and where to start? Also can I just take like $5k and buy stock? What apps are good?

A: Yes, you can just take $5,000 and invest it with a robo-advisor or a human advisor. How you are investing should work in tandem with a financial plan that has all of your financial factors considered, including your specific goals, time horizon and risk tolerance. In general, make sure your primary strategy, whatever combination of stocks and bonds, is well diversified.

As far as apps go, Google and research a robo-advisor that takes into consideration your goals, time horizon and risk tolerance. There are so many out there, but not all are created equal! Don’t invest any cash that you think you may need in the next 2 years. For more information on how to choose an investment strategy (stocks vs. fixed income), see question 1.

Question 3:
Should I only rely on my employers’ 401k?

A: 401(k)’s have a lot of benefits, the main ones being:

  • Potential company match (never leave any match on the table)
  • Automatic contributions (doesn’t even hit your paycheck)
  • Optional automatic contribution increases
  • Higher annual contribution limit if your income is higher (better potential for reducing taxable income.)
  • Shelter from liability lawsuits

But, there are some features that may make it less suitable:

  • Higher management and administration fees than a robo-advisor
  • Very limited investment options (unless it’s company stock, you typically cannot invest in individual stocks. But also there are typically not as many mutual funds or ETF’s to choose from.)
  • By only utilizing your 401(k), you could miss out on potentially better tax savings through a different retirement account.

If your income is low, you may benefit from a Roth IRA more. If this is the case, then I typically recommend contributing to your 401(k) up to the company match and then channeling additional savings to an outside Roth IRA (or to a 401(k) Roth IRA, if you have the option.)

If you have other goals to fund before you’re 59.5 years old (i.e. early retirement, new home, travel) then you may want to put some of your savings into a non-retirement account (one that doesn’t have penalties if you need the money before you turn 59.5 years old.)

In summary, use your 401(k) to contribute at least up to your employer’s match. After that, it depends on your income and other goals. Here are two extreme examples with generic recommendations:

  • Single household income of $70,000/year:
    • Contribute up to company match
    • Divert any extra savings towards a Roth IRA (up to $6,000/yr) and non-retirement account (whatever you can afford/depends on goal)
  • Total household income of $230,000/year:
    • Work towards contributing up to max ($21,500 for 2022) to reduce your taxable income.
    • Simultaneously, start and contribute to a non-retirement account for other goals before you turn 59.5. Reduce spending if you can’t afford this—take inventory of your recurring expenses and create a budget in order to carve out additional savings.
danielle giving financial advice in her home office

Question 4:
Should I take more control over how my 401k is invested or let experts do it? I do 5% per paycheck.

A: If you have access to a 401(k), first and foremost make sure you are contributing *at least* up to the company match that is being offered. A company match is a true form of free money! A 401(k) cannot be managed by outside advisors, but sometimes you can pay extra for them to assign you an advisor through their platform, i.e. Fidelity will assign you an in-house advisor.

If you are just getting started with investing, I would save your money and just use a Target-Date Fund that the 401(k) provides as an investment option. This is an actively managed mutual fund that tweaks your investments to make it more and more conservative as you approach retirement.

If you need next-level financial planning though, your chosen advisor can still give you customized recommendations on your 401(k) that you can implement yourself, even though they can’t manage it. If you ever leave that job, then you can roll it into a Traditional IRA wherever you choose.

Question 5:
What app do you recommend for those of us who are just getting started with investing (there are so many!?)

A: You might have to kiss a few frogs before you find your prince! Try getting started with a few robo-advisors that are highly rated, ask your friends which ones they like and do some light YouTube researching from trusted sources to learn the pros and cons of each of them.

As I’ve said before, the most important factor is whether they take into consideration your goals, time horizon and risk tolerance. If they do not do this, and they just rush you into importing your cash, be very weary!

Question 6:
How much to start when you don’t have 401k/too high pay for IRA?

A: Start a non-retirement account. Fund it, nickname it “retirement” and invest it for the long-term. Then decide on an amount you can afford to contribute to it each month and set up automatic monthly contributions. Make sure it gets automatically invested when you contribute to it. Keep this account separate from your “intermediate bucket” non-retirement account which will be for goals 2-10 years away because this will be invested in a more balanced approach than your long-term retirement account.

If your spouse as access to a 401(k), then funnel all your pre-tax savings into their plan for reducing your taxable income.

Question 7:
The thought of stocks & investing gives me the worst anxiety and I don’t like risks w/money. How do I overcome this?

A: I understand. Just getting started with investing can be scary as hell. However, keeping large amounts of cash over a long period of time is just as risky because your purchasing power is being reduced by inflation each year. Especially in high-inflationary periods like we’re in now.

All investing involves risk, but remember that you can choose just how much risk you want to take on, i.e., you don’t have to be in 100% stocks.

And remember, it’s easy to think of the stock market as nothing but a volatile risky game of poker, but these are companies at the end of the day. Not just any companies—top companies in the world who have met a lot of requirements and thresholds to be able to have the public invest in them. The likelihood of ALL of them going bankrupt are very slim.

A diversified, risk-appropriate and time-horizon-appropriate investment strategy is the easiest way to make your money work for your over the long term.

What’s your investing blind spot and how can I help? If you’re still just getting started with investing, leave a question below or email me at hi@daniellenava.com. You can also catch my Q&A Lives on Monday nights at 8pmCST and get a direct answer on the spot.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss.