Investing does not have to be complicated. Yeah, sure, like anything else, you can definitely make it complicated if you want. But there’s no good reason to. You can be an effective investor with very little effort, but the most important step is getting started. This post is all about how you can open a brokerage account, buy funds, and get started investing!
Opening a Brokerage Account
First thing’s first; we have to create an account where we can get started investing our money. If you’re investing through a 401(k) or similar retirement account, your employer will tell you who your investment manager is and how to get an account set up and how to begin making contributions. This information should be made readily available to you, but ask your HR representative if it’s unclear.
To begin investing in an IRA or anything outside of an employer sponsored plan, you need to first create a brokerage account with a bank or an investment management company. This could be a firm like Charles Schwab or TD Ameritrade, but I personally use and enthusiastically recommend Vanguard. They pioneered index funds and were among the first to reduce and then eliminate transaction fees, and they generally have a stellar reputation for all products related to personal investing.
While it’s usually most advantageous to prioritize investing through your 401(k) plan because of the tax advantages and company match, I would still encourage everyone to open your own brokerage account. Even if you contribute minimally at first, it’s just one more way for you to work towards your longer term financial goals. An IRA or brokerage account is the perfect place to park extra money, like cash from tax returns, that you want to put to work and otherwise couldn’t be contributed to an employer sponsored plan.
The Vanguard site for personal investors makes it very easy to open an account and fund it directly from your personal checking account, and you can be up and ready to invest in as little as three days. Vanguard does also give you the option of opening multiple types of accounts. For example, I opened a personal brokerage account, and then separately opened a Traditional IRA account.
Recently, Vanguard changed their brokerage platform to now allow you to invest flat dollar amounts, even if those dollar amounts include fractional shares. In the past, you would have to calculate the exact number of shares you could purchase and then transfer that amount of money to your brokerage account, which I found could be a bit of a hassle, especially if I had yet to be properly caffeinated that morning. This is such a streamlined and user-friendly update that it now takes even less time to invest!
Buy Funds
Now that you’ve got your account opened and funded, you need to actually put your money to work by buying stocks. You could buy shares of an individual stock, like Google or Apple, but we’re all about smart investing for the long term so we can be rich, powerful, and secure. So that means we’re buying index funds, baby!
An index fund trades under a single ticker symbol (like VTI or VTSAX), but it’s actually a collection of a bunch of companies. An index fund like VTI, the Vanguard Total Stock Market Index fund, is made up of literally every stock in the stock market. The idea behind a total stock market index fund is that over time, as history has shown us, the overall market will go up. Whereas if you put all of your money into a single company, or even a handful of companies, there’s a chance that company could go bankrupt and dissolve, or dramatically underperform, putting your principal investment severely at risk.
Another reason I own a lot of VTI is because it has one of the lowest expense ratios of any index fund, at only .03%. Fund managers will charge a fee to oversee the individual stocks in any given index fund, and sometimes those fees can be exceedingly high, especially when you consider actively managed funds very rarely outperform the market in the short term, and never outperform the market in the long run.
Paying high expense ratios is basically like giving money to guys (yes, mostly guys) sitting on Wall Street making guesses as to what will happen in the future. I don’t know about you, but financing male mediocrity is not something I’m interested in doing. So buy the funds with low expense ratios and keep more of your money where it belongs – in your own pocket!
Keeping in mind that every financial services website looks a little different, to actually buy shares of VTI, you want to look for the transaction buttons on your account homepage, and then buy or trade funds or ETFs. On Vanguard, there’s a drop down menu for Transactions, and then to trade shares of VTI, you’ll select the option to Trade a Vanguard ETF. From there you’ll fill out the order form, which includes choosing the Buy option, inputting the ticker symbol (VTI), and then entering how many shares or what dollar amount you would like to buy. Use Market for your Order Type, which just means that you’ll pay the price of the ETF when you submit the order (the other order types are more relevant for speculative trading, where stock prices can fluctuate wildly in the matter of seconds… or when you’re dealing with huge amounts of money and even a small percentage change can cost you a pretty penny). Preview your order form, make sure everything looks good, and then when you’re ready to go, just hit submit. You can check the status of your order and you should get an email moments later confirming your purchase.
And boom! You’re an investor!