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Investing in Your 20s: Getting Familiar with Stocks

By: iTHINK Financial | Mar 09, 2018

A Four-Step Guide to Investing in Stocks for Retirement

While you can’t become a broker in one day, you can definitely learn the ins and outs of the stock market and dip your feet into investing with a little bit of time and dedication.

In our previous post on investing in your 20s, we brushed on investing in stocks for your retirement. Here we’ll dive a little deeper, get to the nitty and gritty and lay out four simple steps on how to start investing.

 

Step 1: Pick Your Investment Type

The first step is to choose your investment type with special thought and care. Even though life may be all about taking risks, the benefits don’t always outweigh them—especially in the case of investing in stocks.

With individual stocks, the odds aren’t in your favor. The chances of you choosing the right stock with the right company and hitting the jackpot are pretty slim.

On the other hand, stock mutual funds or exchange-traded funds, or ETFs, are like the bubble wrap in a shipping box and give you some risk padding with a diversified portfolio to arrive safely at retirement.

So, which should you choose? Let’s take a closer look at these three investment types:
 

Mutual Funds

Mutual funds give you a hands-off approach to investing. Your money is pooled together with other investors, and typically a professional will buy a collection of stocks, bonds or other securities to create a diversified portfolio.
 

Exchange-traded Funds

ETFs track a stock market index, such as the Standard & Poor’s 500, or S&P’s 500, and replicate it. For example, if you choose to invest in a Vanguard S&P’s 500 ETF, Vanguard will follow the stocks in the S&P’s 500 and invest in the same exact ones.
 

Individual Stocks

If you’re ready to buckle down and devote time to study the market, you can invest in individual stocks. But keep in mind, less than 14% of families invest in individual stocks. With individual stocks, you can go after a specific company and buy a single share or multiple shares of their stock. However, it takes some time to build a diversified portfolio with a ton of individual stocks.

 

Step 2: Figure out Your Budget

Mutual funds have a minimum of $1,000 or more, so if you’re looking to start on a smaller budget, investing in ETFs is your golden ticket. ETFs trade like stock meaning you pay per share rather than pay a minimum. Share prices can range anywhere from $10 to $100.

However, if you choose to go the individual stock route, we recommend finding a broker that offers fractional shares (pieces of stocks), so you don’t have to put all your eggs in one basket. 

 

Step 3: Choose How to Invest 

Like we mentioned in our previous post on investing in your 20s, if you’re younger and have more than 10 to 15 years until retirement, you should think about dedicating a large portion of your portfolio to stocks. For example, if you’re 30 years old, you might have an 80/20 ratio: 80% invested in stocks and 20% invested in bonds.

But, if you’re taking much larger risks and investing in individual stocks, it’s recommended to only allocate 10% toward stocks because your portfolio isn’t as diversified as mutual funds or ETFs.

Step 4: Open a Retirement Account

If you have a 401(k) plan through your employer, you might already be investing in stocks.

But, if you don’t have a 401(k) or you’re looking to diversify your portfolio, reach out to an online broker to invest in mutual funds, ETFs or individual stocks. Your broker can help you get an individual retirement account, as known as an IRA, or a taxable brokerage account if you already have a retirement account.

 

Need Extra Help?

Looking for one-on-one help or someone to walk you through the process? Contact a financial institution with investment services to guide you through the process and lead you to financially-stable, relaxing retirement in the sun.

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