After reading the first post in our investing series, you now know what is available to you in terms of what you can invest in. The question next is, how do you even get started?
How to Choose an Advisor
First, you’ll need to choose an investment firm. There are traditional investment firms available (i.e. Merrill Lynch, Fidelity, Vanguard, E*Trade, etc.) and there are now also plenty of robo advising firms (i.e. Wealthfront, Betterment, Acorns, Ellevest, etc.). There are also some hybrid type places that you can invest with (i.e. Fidelity is a traditional investment firm, but they have a specific type of account you can open called a FidelityGO account that is robo advising).
The steps to open an account are pretty much the same at all investment firms, you select the kind of account you would like, answer questions, pick your investment strategy (or a robo advisor will pick it for you and you agree or adjust), deposit your funds, and start investing! Keep in mind that every investment account will charge a fee to use their platform to invest. No one really likes paying fees of course, but remember, there’s no such thing as a free lunch.
Once you’ve chosen your investment firm and you open the account, you will likely be asked to answer a plethora of questions.
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Is the account just for you or maybe you and your significant other?
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How much income do you make?
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What do you do for work?
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What is your net worth?
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How much do you have in liquid assets? (Liquid assets are assets that already are in cash form or can be converted to cash quickly.)
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How long are you planning on saving for?
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How much risk are you comfortable with?
This is information needed for compliance reasons (so their lawyers don’t yell at them!). They will take all of that information and give you a recommendation of how you should invest the money in your account (% of stocks v. % of bonds). All of this information that you have provided them will justify their recommendation.
Which did you choose: Robo Advisor or Traditional Broker?
Robo Advisor:
If you are investing with a robo advisor then there really aren’t next steps for you except to deposit your money! They will pick the stocks, bonds, ETFs, mutual funds, etc. for you and start investing right away. Every time you add cash to your account, they will automatically invest it for you keeping the same percentages of stocks v. bonds.
Traditional:
If you are investing on your own, then you’ll need to deposit cash and once that cash is in the account it’s time to start trading. You’ll need to pick the various stocks/bonds/ETFs/mutual funds that you want to invest in, go to the trade tab that all investment websites have, choose the number of shares of each investment that you want, select if you want a market or limit order (more on that later, but most will want a market order – meaning as soon as you click submit the system is going to buy the number of shares you requested at whatever price they are in the market at that exact moment, sometimes a few moments later). Keep in mind that if you are trading on your own, then every time you add cash to your account you will have to trade and buy the investments that you want.
What do I do when I want to use my money?
You’ve been saving for years now and are ready to take the money out of your investment account for that big purchase (or small purchase) that you’ve planned for. How do you access your money? I usually like to suggest to everyone that once you know you need money out of your investment account, give it a week’s time before you can expect it to hit your bank account.
How it works:
Robo Advising:
Go into the settings on your account and select “withdraw” or “transfer”.
Traditional:
Visit the trade tab again and this time select to sell your investments (you can choose which investments to sell).
Congratulations! You have just sold your investments. You will receive cash in return and hopefully at a profit from the initial price you purchased the shares at! It is however important to note that just because you want to sell them doesn’t always mean that someone out there wants to buy them. Because of this, trades take 3 days to settle (if you have ever heard the phrase “T + 2” that’s what it’s in reference to – trade date plus 2 days). Once the money is in cash in your account, you can transfer it to your checking account. Or, for example, if you are using these funds to pay for a down payment on a home, you can wire funds directly to the mortgage company. You usually have two ways in which to send the money to yourself, either by wire (there’s a cost for this one) or by ACH (stands for automated clearing house and takes about 2 days longer than a wire).
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