How to Invest Your First $1,000 - YouTube

So you know you need to invest in order to have any shot at becoming wealthy, but you

have no idea where to begin.

Maybe you’ve read articles or watched videos giving you general advice on what to do without

telling you any actual steps.

Well today, I’m going to walk you through the process of investing for the first time.

There are many ways to invest but I’ll be going over one of the best types of investments

for beginners, index funds.

Index funds are a popular form of long-term investment for beginners because they’re

easy to invest in, are well-diversified, have very low fees, and can provide a good return

on your money.

An index fund is simply a collection of stocks and bonds that follow a certain market.

Stocks represent ownership in a company and bonds represent debt that a Company must repay.

By investing in an index fund, you own a tiny fraction of a variety of stocks and bonds.

Why is this good?

Because you get to own a wide range of stocks and bonds instead of putting all your eggs

in one basket.

Index funds are great for many reasons, but here’s the problem.

There are literally thousands of different index funds to choose from so how can you

possibly know which one to choose?

Thankfully, there’s an easy answer called target date funds.

A target date fund is basically an index fund that creates a balanced portfolio of stocks

and bonds for you based on how far you are from wanting to take your money out of the

account.

How it works is simple.

First, you choose a year in the future and put your money in the account.

The fund will start you out with mostly stocks and gradually shift from stocks to bonds as

you get closer to the year you chose.

The reason it does this is because stocks tend to increase in value much more than bonds

over the long-term but will fluctuate in value quite a bit.

On the other hand, bonds don’t increase in value as much as stocks, but they’re

much more stable than stocks in the short-term.

In other words, the target date fund becomes less and less risky as you get closer to your

chosen date.

Now let’s get into the actual steps you need to take to invest in these funds.

First, you’ll need to create an account at an investment firm.

There are many great options to choose from such as Fidelity and Charles Schwab but I

personally like Vanguard because they specialize in index funds.

Once you’ve decided on the right firm for you, signing up is typically a matter of going

through their online account application.

Be prepared to provide personal information such as your address and social security number

because they must report it to the IRS just like with any other financial institution.

You will also likely be asked to link your investment account to your bank account so

be prepared for that too.

During the signup process, you’ll be asked what kind of account you would like to open.

The main options we’ll be looking at are the brokerage account and the retirement account.

Unless you’re investing for retirement or college, a brokerage account is pretty much

your only option.

A brokerage account simply holds stocks and bonds, but if you’re investing for retirement,

you’ll be choosing between a Traditional IRA and a Roth IRA.

IRA stands for individual retirement account which is a special type of account made specifically

for retirement.

It has special tax advantages compared to a brokerage account with the drawback that

you can’t take out your money until retirement age.

With a Traditional IRA, you don’t have to pay taxes on money you put into the account,

but you have to pay taxes when you take the money out later.

With a Roth IRA, you can only put money that you’ve already paid taxes on into the account,

but you can withdraw money from the account tax-free in retirement.

There are certain limits to who can use a Roth IRA that I will put in the description

below, but generally if you make less than $120,000 a year, or $189,000 if you are married

filing jointly, you’ll be able to use this account.

A Traditional IRA and a Roth IRA are both great options, and you can’t really go wrong

with either.

My opinion is that the Roth IRA is better because once you put money in the account,

you don’t have to worry about paying taxes on it in the future.

One final thing to know about IRA’s is that you can only contribute a maximum of $5,500

a year or $6,500 a year if you’re over age 50.

Now that you’ve created an account, all that’s left is to put money into the account

and choose your investments.

Navigate to the page that lets you buy and sell mutual funds.

The page is usually named something along the lines of “buy and sell mutual funds”

but if you are investing in an IRA, the page you are looking for might be worded as “contribute

to an IRA.”

Then, you’ll need to search for the index fund of your choice.

You’re going to see a lot of options but if you’re looking for a good investment,

you’re almost always making a good choice by choosing a target date index fund with

a year close to the year you would like to take your money out.

This means that if you’re planning to take money out in the year 2065, choose the Target

Date 2065 Index Fund.

Some investment firms offer both an index and a non-index target date fund.

Both have their advantages but go with the index-version if you enjoy paying much less

in fees.

Once you choose your fund, just enter how much you’d like to invest and finish up

the process.

And there you have it!

You are now officially an investor in stocks and bonds so sit back and let your fund do

its work.

Remember that these things go up and down in value all the time but they should be growing

over the long-term so continue to contribute when you can and try not to let declines stress

you out.

Let me know in the comments below what you thought of this video, and if you’re new

to this channel, subscribe for more videos!