How to start investing with $ 25, according to a financial planner


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The adage “It takes money to make money” is no longer valid. No matter your income level, if you can afford to put aside even a little money, you can become an investor. We spoke with Richard Hall, Financial Planner and Wealth Advisor at Pitzl Financial, to get advice for new investors.

Save before investing

Hall’s first suggestion is to create an emergency fund before you start investing. “We generally like our clients to save three to six months” on their living expenses, he said.

If that seems like a lot to keep in a savings account that barely earns interest, you can put some of your emergency reserves in an investment account once you’ve gotten into the habit of saving. Where you want to store your nest egg will depend on your risk tolerance; although investment accounts tend to grow over time, you have some exposure to market downturns.

Focus on saving a little each month

“If your cash expenses are covered,” Hall said, “it’s good to start a regular investing habit.” Even $ 25 per month – an amount most people won’t miss – is a great place to start. “It’s going to add up over time, and it creates a good long-term habit for you,” he said.

When many of us (including me) think about investing, we think of accounts with minimum opening balances of several thousand dollars. This makes it difficult for people without a lot of disposable income to start.

However, with the rise of ETFs (exchange traded funds), you can find many low-cost investment accounts with no minimum balance. For example, a quick search found funds with no minimum investment at Fidelity, Vanguard, and Schwab, and there are undoubtedly additional options.

“Typically, you can set up quite easily for small amounts,” Hall said. He stressed that consistency was more critical than amount. “It’s better to make a good habit than to do something once and forget about it,” he said.

Keep it simple

When you start to invest, Hall suggests keeping your strategy simple.

“You don’t have to do anything too complicated to enter the market,” he said. Instead, “try to be as diverse as possible with as few holdings as possible.”

Hall suggests investing in three different funds first. For example, you can choose a US equity fund, an international equity fund, and a bond fund. Hall suggests a 60/40 ratio between stocks and bonds.

An even simpler approach is to buy a fund that already holds a mix of stocks and bonds. Many investment firms offer balanced funds preloaded with a 60/40 mix. This type of fund has advantages for first-time investors:

  • You just have to find the money to invest in one fund. This is especially useful if you only have a small amount to invest each month. It’s easier to put $ 10 in one fund than $ 3 each in three.
  • You can invest without any problem. If your life is already too busy, a balanced fund takes very little of your crowded free space.
  • The fund manager will balance your investments, so you don’t have to.

Hands-free rebalancing can be the most important benefit of investing in a balanced fund. Balancing involves transferring money between accounts to preserve your asset mix. The process involves transferring money from an outperforming fund to an underperforming fund.

Withdrawing money from a growing account to add money to a shrinking account can seem counterintuitive – so you might be reluctant to do so. But, said Hall, “proper rebalancing has an additive effect on returns.”

“An individual investor falls into mental traps,” he said. “Rebalancing forces people to ignore the emotional behaviors they would fall into and take a more disciplined approach to investing.” Or you can choose a balanced fund and let the fund manager do it for you.

Don’t rely on get rich quick schemes (cough, cryptocurrency, cough)

We all love stories of regular schmos who become millionaires through GameStop day trading, but speculation is a risky and unreliable path to building wealth.

Asked about investing in cryptocurrency, Hall said, “Things have value when people think they have value. I don’t see it as a great place to grow wealth over time. . When you see 50% of the up and down fluctuations, it’s not really a good investment. “

He considers the future of crypto to be too uncertain to make it a good option for building wealth. “If you’re going to put in $ 25, take the $ 25 you were going to use at the casino and put it in crypto instead,” he said. You should probably apply this advice to memes stocks or other high-risk investments.

“We are training to look for the home run,” Hall said. “We see people becoming millionaires overnight.” But he noted that most people with $ 1 million or more in retirement have gotten there by saving regularly and keeping it simple, not chasing the latest hot investment.

When to seek investment assistance

You can easily open an investment account with a low-cost brokerage house if you are starting out small – no professional assistance is required. However, if your motivation for investing is a large amount of money, such as an inheritance, it’s a good idea to seek help making the best investment choices.

“Trying to rebalance to $ 1,000 isn’t that productive,” Hall said. “Half a percent on $ 1,000 is not as noticeable as half a percent on $ 100,000.”

He noted that if you have $ 100,000 or more to invest, your choices may also have tax implications. For example, if you inherit money from an IRA, you have 10 years to withdraw distributions from the account. The timing of the withdrawal will depend on the type of account. If it is a Roth IRA, which has after-tax income, you will do better if you wait until the last year to empty the account because you get 10 years of tax-free growth and don’t have to pay any taxes. tax on money when you take it out.

“People should go and see a [certified financial planner] when it gets uncomfortable or when they have questions, ”Hall said.

Hall’s final advice for the first-time investor: “Keep it simple. Try to make it repetitive. Stick with it. And: “It’s market time, not market timing. “


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