Have You Gotten Your Financial House In Order?
Before setting up an investment plan it is important to implement some key financial tasks first.
Please review our blog post before beginning: Should I Start Investing Now?
Decide What Type of Investment Account You Want
There are a variety of types of investment accounts available depending on your objective.
To help determine your objective you want to review your risk tolerance.
A future blog post will address these, but for now here is a good summary: Investment Account Types.
Decide Where to Open the Investment Account
Just like you would use a bank to open a checking account you need to find a custodian for your investment assets. The best place to open an investment account when just starting out is one of the big name, low cost national firms. These are inexpensive options that offer a wide range of non-proprietary investment options. Most will allow you to set an account up online and fund it in minutes.
In no particular order I would recommend:
Choose Your Investments
There are two primary asset classes to invest in when just starting out.
Equities (Stocks) are for growth. Fixed Income (Bonds) are for stability and income.
How much to put in each? A very basic rule of thumb is to take your age and subtract from 100. That is the percentage you should allocate to stocks. As an example a 30 year old would have 70% in stocks while a 70 year old would have 30% in stocks.
It is very important to be diversified. This means your assets are spread out across a lot of different areas so you don’t have too much risk in one company. The easiest way to do this is to buy index funds. Index funds are products that replicate whole stock or bond markets by buying all the investments in one fund. Many people only look at the US to invest but to be truly diversified you should invest globally.
The most simple way to proceed is to buy a Target Date Fund. With Target Date Funds you choose a fund that aligns to your retirement date. The fund manages according to that objective. The best I’ve seen are Vanguard Target Date Funds as they diversify you across all asset classes and continually rebalance.
If you want a little more hands on you could buy four ETFs. One for US stocks, one for international stocks, one for US bonds, one for international bonds.
Vanguard offers 4 ETFs that accomplish this and has a tool to choose how much to allocate to each.
The funds can be bought at most custodians.
- Vanguard Total Stock Market ETF (VTI)
- Vanguard Total International Stock ETF (VXUS)
- Vanguard Total Bond Market ETF (BND)
- Vanguard Total International Bond ETF (BNDX)
Please note these are not to be construed as personalized advice or recommendations. They are intended to be the starting point for researching your investment portfolio.
Need More Help?
Investing can be overwhelming for some people. It’s complicated. If you don’t want to pursue the DIY route please read our blog: How to Find and Choose a Financial Advisor.
Brian Berkenhoff, CFA