3 Simple Steps To Start Investing, According to Ramit Sethi
Ramit Sethi is an American author and podcaster, best known for his “I Will Teach You To Be Rich” book and franchise. He regularly shares personal finance tips with his social media audience and podcast listeners.
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In a recent post, Sethi shared the advice he gives to family members and friends who aren’t sure how to start investing. Here are his three steps.
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The first step, Sethi said, is to pick whom you want to invest your money with — Vanguard, Fidelity or Charles Schwab. These are three of the main investment management companies in the U.S.
These companies offer different types of investment funds that you can put your money into. Some funds group stocks by category — for example, technology or healthcare companies — or by how risky the investments might be.
After choosing an investment company, you should find a target-date fund that matches the year you plan to retire. For example, if you plan to retire at 65 and will be 65 in 2050, look for the “Vanguard Target Retirement 2050 Fund.” Target-date funds are designed to adjust their investment mix as you get closer to retirement. They start with a more aggressive mix of stocks and gradually become more conservative by adding bonds and other stable investments.
“The target date fund will automatically get more conservative over time — that’s what you want,” Sethi explained.
Generally, people are more eager to invest in riskier assets when they’re younger since they still have many working years ahead of them, and it’s still possible to recover from a few bad investments. When you get older, the general advice is to focus on stable investments and not risk your nest egg too much.
Because a target-date fund automatically adjusts for you, you don’t have to worry about moving your investments to safer assets as you age. Also, your investments are automatically diversified. This means you’re less likely to lose all of your money if some of the companies that make up the fund lose their value.
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The final step is to start investing a fixed amount of money every month. Sethi recommends setting up an automatic transfer from your bank account to your investment account. This way, you can consistently invest a portion of your paycheck without having to think about it each time.
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