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You probably know that investing is an important part of a wealth-building strategy, but did you know that the earlier you start investing, the more successful you’re likely to be?
That’s because investment returns are compounding–you earn interest not only on your original investment but also on the interest that your investment has already earned.
In this blog post, I’ll outline a step-by-step plan for investing, tailored specifically for young adults in 2024.
Although investing comes in many forms, the plan below is a simple option for new investors who want to get started with a small investment.
Disclaimer: I love discussing and writing about investing, but I am not a financial professional. I do not have a formal financial education, nor am I a financial advisor or portfolio manager. This is not financial, investing, or tax advice. The information on this website is for informational and recreational purposes only. Investment products discussed are for illustrative purposes. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. Do your own due diligence. Past performance does not guarantee future returns.
Step 1: Set financial goals
The first step in investing is determining your goals.
This will help you take control of your financial future, and serve as a motivator to keep with your plan.
Categorize your financial goals based on their time horizon:
- Short-term goals: These are goals you want to achieve within the next 1-3 years, such as building an emergency fund, paying off credit card debt, or saving for a vacation.
- Medium-term goals: These goals typically span 3-5 years and may include saving for a down payment on a house, funding further education, or purchasing a car.
- Long-term goals: These are goals that you aim to achieve in 5 or more years, such as retirement savings, investment in a business, or creating a sizable investment portfolio.
When you diversify your investments later on in your plan, you’ll want to have investments that satisfy each of these goals.
Be specific about your goals.
Don’t just say–
“I want to save for a trip to Paris.”
Instead, figure out how much you need for your trip and quantify it.
A better goal would be–
“I want to save $2700 for my trip to Paris consisting of $1500 for my flight, $700 for my hotel, and $500 for spending money.”
The shorter the term of the goal, the more specific you should be.
Step 2: Put aside funds to invest
A crucial step in investing is determining how much money you have and would like to invest.
Before you decide how much to invest, consider upcoming payments due and purchases you’re planning to make. Make sure you do not invest more than you can afford.
At first, set aside a very small amount to invest.
This will allow you to get a feel for what investing is like, and solidify your investment strategy before setting aside more funds.
I also recommend deciding how much you would like to set aside each month as a recurring investment.
For example, if you can set aside an extra $50 per month to set towards investing (or $600 per year), you’ll be able to accelerate your savings and see enhanced benefits from compounding returns.
Step 3: Decide what kind of investments to purchase
There are so many kinds of investments, making the decision of what to buy extremely challenging.
When I started investing, I started with a simple combination of 80% Index ETFs and 20% stocks.
Index ETFs (exchange-traded funds) seek to replicate the performance of a specific market index, such as the S&P 500, Nasdaq 100, or Dow Jones Industrial Average. These ETFs are designed to track the price movements and returns of their underlying index as closely as possible.
They offer inherent diversification by holding a variety of assets within a single fund, which helps spread risk.
Two examples of ETFs are SPY and QQQ. SPY tracks the S&P 500 index, and QQQ tracks the NASDAQ.
On the other hand, stocks represent ownership shares in individual companies.
Stocks are riskier than ETFs because their value can fluctuate based on company performance, market conditions, and investor sentiment. They will often have greater fluctuations in price than ETFs.
When choosing stocks to invest in, pick a variety of different companies in various industries. Research companies by reading financial news articles and base your investment decisions on the company’s future outlook rather than past performance.
Note: Although cryptocurrency is an attractive asset, I do not recommend it for new investors due to their complex nature and uncertain outlook.
Step 4: Sign up for a brokerage account and transfer funds
Once you’ve set aside funds for investing and have a good sense of which ETFs and stocks you’re interested in, it’s time to choose and set up a brokerage account.
There are several options of brokerage accounts to choose from, but for new, young investors, I recommend Robinhood. I’ve found that it’s the easiest platform to get started on.
Investing is easy on Robinhood because you can buy and sell investments right from your phone without any fees.
If you’re interested in investing with Robinhood, sign up using this referral link, and connect your bank account to receive a free stock valued between $5 and $200.
Step 5: Make investments
Now that you’re set up with a brokerage account, it’s time to buy your investments.
If you’re using Robinhood, this process is easy. Simply search for the symbol of the ETF or stock you’re looking to purchase, click the “trade” button, and select buy.
Once you’ve bought an investment, the asset will show up on your homepage below the graph for easy access. Your combined investments will also be added to the graph on your homepage.
Remember that regular trading hours are 9:30am ET to 4pm ET. Additionally, Robinhood has some pre and post-trading hours. If you put in a trade outside of these times, your trade will go through at the next available trading time.
Step 6: Monitor your investments
The most important part of investing is to be patient.
Investments fluctuate. It’s normal to see spikes on some days and dips on others.
Don’t be alarmed if you do not see significant financial gains or even see losses for the first day, week, or month.
Investing isn’t an overnight “get-rich-quick” strategy. Although nothing is ever guaranteed, history shows that the market has a history of going up slowly and steadily over time.
Additionally, although it might be tempting to buy and sell on a short-term basis, I like to keep my funds in specific investments for at least one year. This is due to tax implications on short-term versus long-term capital gains.
If you’re interested in reading more about the tax implications of investing, this is a great article to learn more.
Final thoughts
Investing for young adults in 2024 requires a combination of knowledge, discipline, and long-term vision.
By following this step-by-step guide, you can take control of your financial future, build wealth, and achieve your dreams.
Remember, the key to successful investing lies in starting early, staying informed, and staying committed to your goals.
