Maybe you got a $1,400 stimulus check for each member of your family, or perhaps you got a bonus, tax refund or sold some old gold jewelry. In any case, don’t squander that cash — make it work for you!
Many women know that they should be investing, but don’t know where to begin. Below is everything you need to get started investing, including a look at the steps you should take before you get started as well as what you should keep in mind once you do:
- Purchase term life insurance
- Purchase disability insurance
- Buy renter's or home insurance
- Build an emergency fund
- Pay down high-interest debt
- Open a retirement account
Done with those steps? You're ready to invest. Here's the best way to get started >>
Before you invest $1,000+
Investing is the engine of wealth building. But before turning your attention to building your wealth, you need to make sure you’re building on a solid foundation of financial health. Make sure you’ve crossed each of the items below off of your list before you begin investing, so that you can feel secure in the knowledge that you’ve protected yourself and your family.
1. Purchase term life insurance
By purchasing life insurance, you can rest assured knowing that your loved ones (whether your kids, your significant other, your dependent parents, etc.) would be taken care of if anything were to happen to you. For this reason alone, life insurance is worth the expense. It’s something that all parents should have in place.
Not sure where to find the right policy? We recommend Bestow. Through Bestow, you can apply for affordable life insurance online without needing to complete a medical exam or bloodwork. A healthy 30-year-old non-smoker can get a $50,000 10-year term life insurance policy for as little as $7.50 per month.*
2. Purchase disability insurance
Like life insurance, disability insurance is all about protecting yourself from the unknown. After all, what good is it to start investing if you get injured, can’t work, and need to sell that investment just to make ends meet? Disability insurance is designed to replace a portion of your income when you can’t work due to illness or injury.
Usually, it covers up to 60% of your pre-tax salary. Many employers offer long- and short-term disability insurance at extremely affordable rates. If your employer doesn’t offer disability insurance or you are self-employed, that doesn’t mean you’re out of luck—you can purchase a private plan.
Breeze is one provider you might consider, and who we recommend. Plans start as low as $9 per month for those between the ages of 18 and 60, with monthly benefits ranging from $500 to $20,000.
3. Buy renters or homeowners insurance
Once you’ve got life insurance to protect your loved ones and disability insurance to protect your ability to make a living even when you can’t work, your final insurance-related step is to make sure that you are protecting your home. That’s where homeowners and/or renters insurance comes in.
If you own your home, purchasing homeowners insurance is a must. Literally: If you have a mortgage, your lender probably requires you to carry insurance. But even if it’s not required, it’s a good idea. We recommend using Gabi to find a homeowners insurance policy that matches your needs.
Rent instead of own? Renters insurance is there to help you repair or replace items that become damaged during a fire, flood, theft, or other covered event. And at rates starting as low as $9 per month, it’s a no brainer. My number on pick for renters insurance is Lemonade, which lets you find a policy in as little as 90 seconds, completely online.
4. Build an emergency fund
No matter how well you think you can plan and prepare, life is full of unexpected emergencies. Get a flat tire on your way to work? Kids need braces? Fido gets into the Halloween chocolate and needs an emergency trip to the vet? There are simply so many things that can go wrong—and most of them cost money to fix.
That’s where an emergency fund comes into play. You should aim to have at least three to six months’ worth of expenses set aside for emergencies in a savings account before you start investing. That way, you know the money is always there for you when you need it.
When choosing a bank for your emergency fund, it never hurts to put your money where you know you’ll earn as much interest as possible (even if it’s not that much). We recommend CIT bank which consistently offers high-interest rates and easy-to-use online services.
5. Pay down any high-interest debt
If you have any high-interest debt in the form of a credit card, personal loan, car loan, etc., then it probably makes sense for you to pay down that debt before you begin investing.
Why? Because paying down your balance means you are paying less in the form of interest each month. This can add up to big-time savings in the long run. While investing offers you the potential to earn money, there are no guarantees, especially in the short-term. But when you pay down your debt, you immediately receive a guaranteed savings in the form of interest that you no longer need to pay. And with credit cards charging interest rates of anywhere from 15% to 30% or more (maximum rates vary by state), it’s tough to beat those guaranteed returns.
Plus, the less debt you have, the easier it is to improve your credit score, which qualifies you for lower interest rates for a car, college or home loan — saving you even more money.
6. Open a retirement account
The last step to take before you actually get started investing is to open your investment account. Here’s a look at the most common options you can choose from.
Employer sponsored retirement accounts
Many employers offer-sponsored retirement savings plans, which can be a great way to start investing. These include traditional and Roth 401(k)s, SIMPLE IRAs, 403(b)s and some other types of accounts.
Why are employer-sponsored accounts a good choice? First, they come with tax benefits which can add up to significant savings over the years. And second, many employers offer a company match. This means that your company matches a portion of your contributions each year, typically up to a set dollar amount or a certain percentage of your income.
If your employer offers any kind of match, you should definitely be investing enough through your plan to capture at least that match. After all, it’s free money!
Pros: Tax benefits; employer match; target-date funds make investing easy
Cons: Your money is locked up until you hit retirement age, with few exceptions
Other retirement accounts
Don’t have access to an employer-sponsored plan, or already contributing the maximum amount that you can? You might want to open a non-employer sponsored retirement account, such as a Roth or Traditional IRA. While these accounts won’t come with an employer match, they do still carry many of the same tax benefits as employer-sponsored plans.
Pros: Tax benefits
Cons: Again, your money is locked away until you hit retirement age, with few exceptions
A brokerage account
If you want to start investing for a reason other than retirement, then you will need to consider opening a brokerage account where you can build a portfolio and withdraw your money without penalty.
There are many different companies for you to choose from in this regard. Two of our favorites are Betterment and Ellevest. Both are robo-advisors that rely on computers and algorithms to generate investment portfolios for users in a cost-effective way. This makes it easy to get started and even easier to continue investing over the long run, since you don’t need to actively think about the investments you’re making.
Pros: You have control; you can access your money whenever you want without penalties; you can invest for goals beside retirement
Cons: No tax benefits; gains are subject to capital gains tax; depending on the platform, you may be charged by the trade
Best way to invest $1,000+
All set with all of the steps listed above? Then you can feel pretty comfortable getting started with investing!
But when we say investing, we don’t mean putting all of your money into a hot stock like Gamestop or Tesla, or another asset like Bitcoin, that are skyrocketing. That isn’t investing; that’s speculation, and it is a very risky place to park all of your assets. Yes, you might get lucky every now and then and double or even triple your money in as little as a day. But you’re more likely to lose everything.
When we talk about investing, what we mean is building a balanced, well-diversified portfolio that offers you both stability and growth. Your goals should be to maximize your potential for return while minimizing your risk. That’s what good investing is all about.
Before you get started, you want to ask yourself:
- What are your investment goals? Nobody’s goals are the same, so you need to make sure you understand why you want to start investing in the first place. Do you simply want to protect your money from inflation? Do you want to begin accruing wealth that you can pass on to your kids? Are you working toward financial independence? Something else entirely? There are no wrong answers here.
- What’s your investment timeline? How long do you have before you think you will need your money? Five years? Ten years? Twenty? Forty? Your investment timeline will impact how much risk you take on in your investments. Generally speaking, the longer your investment timeline, the more risk you can afford to take on because you have plenty of time to make up for market swings.
- What’s your risk tolerance? Just as important as your investment timeline is your risk tolerance. How much volatility can you stomach with your investments? If you woke up tomorrow and found that your accounts had lost thirty percent of their value, how would you respond? Would you panic and sell, or would you be able to control your emotions and ride out the downturn?
Your answers to all of these questions should inform your personal investment strategy, which includes the type of account you are investing in as well as specific investments you make.
Our recommendation: use a robo-advisor
While it’s certainly possible for you to build and maintain your own investment portfolio, the simple fact is that this tends to be best left to the professionals, or at least those who have some experience with investing. There are simply so many factors to consider, that it’s pretty easy to get overwhelmed and possibly make a mistake, especially when you’re first getting started.
Instead of going it alone, I recommend using a robo-advisor like Betterment or Ellevest, for a simple reason: They take a lot of the guesswork out of investing and make it easy to do. The easier it is, the more likely you’ll be to make investing a long-term habit, which is exactly how you will actually grow your wealth.
After all, not too many single moms have the time at the end of the day after doing everything else on their list to sit down and design a portfolio. If you do, and you want to get your hands dirty building a portfolio from scratch, that’s great! But for everyone else, robo-advisors are a great alternative that offer a number of benefits:
- Low fees: While opening an account won’t be free, the fees tend to be a lot cheaper than working with a human advisor. Many popular robo-advisors charge fees as low as $1 per month.
- Customized portfolios: Robo-advisors work by taking information about you (such as your age, investment timeline, risk tolerance, etc.) and using that information to automatically generate a portfolio that suits your needs.
- Instant diversification: Portfolios designed by robo-advisors typically consist of low-fee exchange-traded funds (ETFs). Each of these funds can hold anywhere from dozens to hundred of different investments, making them an excellent means of gaining instant diversification.
- Automatic rebalancing: If you were to manage your own portfolio, you would need to revisit it from time to time to rebalance your holdings. This gets especially important as you get closer to needing your money, when you will typically begin transitioning from an aggressive asset allocation to a conservative asset allocation. Robo-advisors do this automatically.
- Set-it and forget-it: Most robo-advisors allow you to set up recurring deposits. By automating your investments and taking the thought out of it, you increase your odds of sticking with it.
How about you? Did you ever receive a nice financial windfall? What did you do with it? Share in the comments!
*Quote generated on Bestow.com April, 2021