Congratulations! Now it’s time to learn how to handle money without going crazy. Automatic investments are the only and most profitable way you could ever earn money.
Let’s clear up all necessary stuff first of all. You must have a brokerage account. Companies such as Fidelity, Schwab, or Vanguard do not charge any kind of fees at all. Just download an app and insert your social security number.
Here comes the interesting part!
You choose what you are going to buy. Index funds such as VTI or FXAIX distribute your money evenly between hundreds of companies. You literally bet on the economy as a whole rather than some individual stock. Much easier than becoming a next Warren Buffet.
Now, let’s set up automatic contributions. You link your bank account, and brokerage takes money off your account every time payday arrives. Twenty-five dollars per week sounds nice to begin with. Yes, that’s exactly how much it should be.
Almost every app has this feature. Fidelity lets you to invest money in mutual funds automatically. Same applies to Schwab. Once you set it up, you forget about it for many months.
Regardless of whether the market goes up or down, your money still buy shares. This process is called dollar cost averaging and eliminates any temptation to time anything. Market cannot be timed. Well, no, in fact, only those guys from CNBC with fancy charts can do it.
Some other things worth remembering.
Roth IRA is just great for a young person. You pay taxes on the money you put into it now, but your earnings grow tax-free forever. You can make it simultaneously with your ordinary brokerage account. The yearly contribution limit is seven thousand dollars in 2024, but it looks like a huge sum in the light of compounding.
Let it alone. Yes, this is the main idea – time works for you. There’s nothing worse than checking your portfolio daily as if you were boiling water.
Set it. Forget it. Maybe check it once in three months.
The market is going down sooner or later. It is obvious. But during this time your automatic investing will buy additional shares on sale. And yes, that’s definitely a good thing, provided that you can wait.
You are eighteen or nineteen years old. There are decades of compounding ahead of you. Even small sums of money now are worth much more than big amounts of money in ten years. Mathematics is not sentimental.
Go and create your account now. Not tomorrow, not in a week because you will have much more time then. Now. 😎