People

You need to be investing right now. 6 tips for getting started (even if you don’t have much money)

By Eliza Wireback

Updated October 14, 2019 7:12 AM

FILE - In this Monday, Jan. 11, 2016, file photo, specialist Anthony Rinaldi is silhouetted on a screen at his post on the floor of the New York Stock Exchange. A smoother ride for stock investors sounds like a no-brainer given this year’s big swings for the stock market, but the “low-volatility” funds pitched by the investment industry come with their own risks. (AP Photo/Richard Drew, File) Richard Drew AP

Our parents may be able to rely on company pensions during their twilight years. We millennials most likely won’t be able to, according to Jim Heafner of Heafner Financial. Our parents may also be able to rely on Social Security throughout their retirement, Heafner said. Due to a possible higher age requirement for Social Security, you may be past the age you want to retire when you qualify for it, he added.

“So, investing is important,” he said. Even if you aren’t making a ton of money.

Here’s how to get started.

(1) Start with your work’s 401(k) (and look for matching).

Kris Carroll, of Carroll Financial, says: If you haven’t already, set that up and start getting money into the investment, which will usually either be in the form of a mutual fund or an IRA.

Dawn Baker, of Baker Financial, says: When you put money into your 401(k), many companies will match it. Watch out, though. Some 401(k)s have vesting schedules and others have safe harbors.

If you have a vesting schedule and decide to leave after a couple of years, the matched money may not leave with you; you have to stay with the company for a certain period of time before that money is all yours.

With safe harbors, though, no matter when you leave, the money already matched is yours.

Carroll adds this about matching programs: “When the company was figuring out how much to pay you, that was part of the equation. (Not using the program is) allowing them to underpay you.”

(2) Make sure you have an emergency fund.

Carroll says: Make sure you have an emergency fund – at least three to six months of money through immediately accessible, low-risk avenues. That could be a savings account or an online money market.

(3) Start investing on your own.

Don’t know where to start?

Carroll says: Go to Vanguard. Go to Fidelity. In other words, go to one of the big companies with great educational programs. A lot of people also like morningstar.com because, as a third-party company, it “has no real dog in the fight,” as the other options do.

(4) Look into Roth IRAs, ETFs and indexed mutual funds, even if you don’t have much money to invest.

Heafner says: Roth IRAs. 401(k)s are great, but most are pre-tax, meaning you pay taxes on them when you take money out. Some companies offer Roth 401(k)s — although not most — so check your options out when you set your 401(k) up.

As long as you do it correctly, when you use a Roth IRA, your money is only taxed one time — when you’re putting the money into the account — and the growth isn’t taxed.

But if you want to have a Roth IRA, it’s good to get it when you’re young and likely not making a ton of money; once you reach a certain tax bracket, you can no longer contribute money to a Roth IRA.

Heafner also says: ETFs. They follow an index, such as the stock index or bond index, so they trade like stocks on the stock exchange. You don’t have to pay someone to manage the investment, and it’s low-cost compared to mutual funds.

Carroll says: Indexed mutual funds. Like ETFs, indexed mutual funds are low-cost and diversified and also track an index. Specifically, indexed mutual funds track a market index, such as the S&P 500.

Confused?

ETFs and indexed mutual funds are pretty similar, Patrick Bobbins of Carroll Financial explained, and both can be comprised of stocks, bonds, commodities or other investments. The main differences: How often the price of the investment changes (ETFs change throughout the day, mutual funds change once daily), the amount of taxes you’ll pay (you’ll pay more with indexed mutual funds) and the amount of transparency as far as where your money is going (ETFs are more transparent).

Still confused? Talk to a financial adviser who can explain it in more detail.

(5) Don’t worry about investing in individual stocks.

Heafner says: You’re better off with ETFs, unless you have the time to really educate yourself about particular stocks.

Carroll says: “I think it’s pretty hard to educate yourself on stocks. … Training yourself to be a good stock trader is a lot harder than training yourself to use an index fund or to use your 401(k).”

(6) Don’t worry about the risks (yet).

Heafner says:

“That volatility is a death knell for retirees,” but for young people who have years until they retire, the potential for growth outweighs any risks.

But whatever investments you choose, Baker, Heafner and Carroll all emphasized the importance of having money invested in many different “buckets.”

Feature photo: Charlotte Observer file. Headshots: Courtesy of Kris Carroll, Dawn Baker and Jim Heafner.

This story was originally published August 1, 2016 at 9:07 PM with the headline "You need to be investing right now. 6 tips for getting started (even if you don’t have much money)."