top of page
  • Writer's pictureWiseWallet

Investing Made Easy: Essential Investing Steps to Build Your Wealth

Embarking on your investing journey can often feel like navigating uncharted waters. In our previous post, "Wise Investing Essentials for a Better Financial Future," we discussed the compelling reasons to invest for a brighter financial future. Following that, "Mops to Millions: A Janitor's Wise Wealth Journey" shared an inspiring story of investment success achieved by an ordinary person with a very modest income. This guide aims to demystify the process of starting your investment journey, turning abstract concepts into actionable steps.

What? - Getting Started with Investing

  1. Identify Your Investment Goals: Understand why you're investing. Is it for retirement, buying a home, or building wealth? Your goals will influence your investment choices and strategy.

  2. Choose a Stock Broker and Open an Account: Research to find a broker that suits your needs, focusing on fees, available investments, tools, and educational resources. Refer to our blog posts on brokerage reviews for essential guidance.

  3. Deposit Money: Fund your account through a bank transfer, check, or wire transfer.

  4. Select Investments: Begin with cost-effective and diversified ETFs (Exchange-Traded Funds) or index mutual funds

  5. Set Up Recurring Investments: Automate your investment process to consistently invest over time.

  6. Monitor and Rebalance: Regularly review your portfolio to ensure it aligns with your goals. Rebalance as necessary to maintain your desired asset allocation.

So What? - The Importance of Each Step

  1. Investment Goals: Setting clear goals helps tailor your investment strategy to meet your financial objectives, time horizon, and risk tolerance. For instance, if your goal is saving for a down payment on a house in the next five years, you might opt for a more conservative investment strategy, focusing on bonds or short-term investments that offer stability and lower risk, compared to someone saving for retirement 30 years away, who might lean towards a more aggressive strategy, focusing on stocks for greater growth potential.

  2. Choosing a Broker: For newcomers to investing, a beginner-friendly broker can serve as an ideal gateway, offering the tools and resources you need to make informed decisions. Important features to consider include (1) user-friendly platforms that simplify the trading process, (2) educational materials to help you learn the basics of investing, (3) low or no commission fees to reduce costs, and (4) access to customer support that can guide you through any uncertainties or technical issues.

  3. Depositing Money: Funding your account is a crucial step to begin trading. Consider starting with a manageable amount that won't affect your daily finances.

  4. Selecting Investments: Investing in low-cost diversified ETFs or index funds at the outset provides exposure to a wide array of assets, reducing risk through diversification and minimizing fees that can erode returns over time. Diversification is crucial because it helps mitigate the impact of any one investment performing poorly by spreading your money across many different assets. And keeping costs low is important because high fees can significantly diminish your overall investment returns, especially over longer time horizons. With a diversified, low-cost portfolio, you gain broad market exposure without the need for extensive research or active trading, making it an ideal starting point for those new to investing.

  5. Recurring Investments: This discipline of making regular, periodic investments promotes building wealth over time through dollar cost averaging and mitigates the impact of market volatility on your investments. Dollar cost averaging is an investment strategy where you invest the same dollar amount at regular intervals, regardless of the market's ups and downs. This allows you to buy more shares when prices are low and fewer when prices are high, reducing your average cost per share over time. The primary benefits of dollar cost averaging include lowering the overall risk of investing a lump sum at potentially unfavorable points, removing the need to try to time the market, and promoting a disciplined savings habit that can compound significantly over many years.

  6. Monitoring and Rebalancing: For long-term investing success, it's important to periodically review and rebalance your portfolio. Over time, market shifts can cause your initial mix of investments to drift from your target allocations. Monitoring allows you to check if allocations still match your goals and risk tolerance. Rebalancing simply means adjusting holdings to realign with your desired mix by trimming areas that grew overweight and investing in underweight positions. This regular rebalancing helps prevent unintended risk buildups and enhances returns while sticking to your plan. Even a yearly portfolio tune-up can make a big difference.

Now What? - Practical Actions to Take

  • Set Investment Goals: Identify your investment goals. The most common investment goals for newcomers are retirement savings, funding for a home and other major purchases, education funding, building an emergency fund, generating passive income, and wealth building.

  • Select a Broker: Start by comparing leading brokerages like Robinhood for beginner-friendly features, Vanguard for low-cost funds, and Fidelity Investments for comprehensive services. Select one that best suits your needs.

  • Make an Initial Deposit: Decide on an amount you're comfortable with for your initial deposit, considering your current financial situation and investment goals.

  • Select Investments: Research and select a few ETFs or index funds that align with your investment strategy and goals. For those focusing on long-term investments, S&P 500 ETFs, such as SPY (State Street's SPDR S&P 500 ETF Trust), IVV (BlackRock's iShares Core S&P 500 ETF), and VOO (Vanguard's S&P 500 ETF), are excellent choices. These funds track the S&P 500 index, offering diversification across the largest U.S. companies, which is ideal for investors looking to build wealth over time with a well-established mix of high-quality companies.

  • Set up Recurring Investments: Set up automated deposits and investments to ensure you consistently contribute to your portfolio, regardless of market conditions. The cadence of these recurring investments can vary depending on your broker. For example, platforms like Robinhood and Acorns offer the flexibility to set up daily recurring investments. On the other hand, Vanguard and Fidelity Investments support up to weekly recurring investments. Select a cadence that aligns with your financial situation and investment strategy.

Concluding Remarks

Investing can seem daunting for beginners, but by breaking it down into manageable steps, you can embark on your investment journey with confidence. Remember, the goal is not only to start investing but to continue investing wisely over the long-term, focused on growth and financial security. The step-by-step guide outlined above equips you to make informed decisions aligned with your financial goals. By following it methodically, you'll be on your way to building wealth gradually yet purposefully.


bottom of page