From decoding basic financial terms to navigating the stock market, investing is intimidating enough to make you want to start stuffing money in your mattress and ignore the existence of Wall Street entirely. If this (admittedly unrealistic) sentiment resonates with you, perhaps you can take solace in the fact that you're not alone. According to Clique's Unapologetic Woman Study, "Not having enough money for the future is the #1 concern among both millennial and Gen Z women."
In an effort to help you face your financial fears, we asked a money expert to break down investing for beginners in an approachable way that actually makes sense. Ahead, Priya Malani, co-founder of Stash Wealth, a finance site disrupting the wealth management industry with its millennial-approved approach, explains everything you need to know about investing, including what you can do to get started today, the most common mistake people make, and why Wall Street has it totally backward.
First off, why should we invest our money?
Investing is a way to make your money grow. If your money isn't growing, it's shrinking. For example, if you keep your savings at an online bank (Ally or CapitalOne360 are Stash favorites) earning 1%, you're still losing 2% of your money each year thanks to inflation (a term used to describe the fact that things get more expensive each year by about 3%)—remember your grandparents going on and on about how a gallon of milk used to go 60 cents! This isn't meant to be a scare tactic, it's just math.
The goal of investing is to make your money grow over time. It's not a get-rich-quick scheme. At Stash, we strongly believe in goals-based investing. This means that your goals (and the time frame in which you'd like to accomplish them, e.g., "I want to buy a house in 7 years") should dictate how you invest.
Wall Street has it totally backward. Most financial professionals love to tell you what to invest in before knowing what you're investing for. But that leads to investing for the sake of investing, which is gambling! Buying Bitcoin or even single stocks (Amazon, Telsa, Apple, etc.) is like gambling, not investing. Don't confuse the two!
Rule of thumb: For shorter term goals, your investments should be low risk or no risk. And with longer-term goals (like retirement), your investments can be higher risk.*
What do we need in order to start investing?
You may already be investing and not know it. If you're participating in your company's 401(k), that's an account in which you're investing for a specific financial goal: retirement.
But that's kind of a boring goal. What about all the fun things you may want to do before retirement? Our clients have all kinds of amazing things they're planning for, like buying a house, starting a family, paying for their wedding or kids' college, upgrading their lifestyle, or buying a Tesla.
Thanks to the emergence of a ton of new financial apps, you don't need a ton of money to begin. You can start investing for your goals with very little money—some companies let you open an investment account with as little as $100. Some apps let you start with even less.
Who should invest?
People who want to grow their money now and in the long run. If you're looking for a quick win, that's not investing, that's gambling. You're better off taking your money to Vegas—at least they give you free cocktails.
When should people start investing?
Before you can start investing for your mid- and long-term goals, you need to be doing a few things:
1. Make sure you're maxing your company 401(k) match. (That's free money—take it!)
2. Have an emergency fund, which should be three months' worth of your fixed expenses sitting at an online bank (like Ally or CapitalOne360) in a savings account.
3. You shouldn't have any revolving credit card debt (a balance you can't pay off in full at the end of the month). Otherwise it's like taking one step forward to take two steps backward—it doesn't make any sense!
Are there any easy to use sites or apps you'd recommend to beginners?
I'd encourage you to move away from thinking of investing as beginner/intermediate/advanced. If your investments don't do well, that doesn't mean you're a beginner; it may just mean you don't understand what you're doing (and that's fine—this stuff isn't taught in school!).
There are plenty of people who have been investing for a long time who still don't know what they're doing. A lot of the misconceptions are due to Wall Street sensationalizing investing to make it sound more like gambling. Remember, picking stocks is not investing—it's gambling!
Using apps like Robinhood or Acorns could be a good way to get started. But remember; the absolute first step is to define your goals. Ask yourself, What are am I investing for?
Do you have any general investing tips to share for helping people just starting out?
1. Tune out the noise. Don't watch your investments every single day, or you'll go crazy and be tempted to do something. Our best advice is "Set it and forget it."
2. Automate your investments. Set up your account so that it sends money to your investments on a regular basis, the same way you contribute to your 401(k) every single paycheck. You should do the same thing with your other investments.
3. Ignore your investments. A Fidelity study came out stating that most people's best-performing investment account over the course of their life is their 401(k). Why? Because they forget their password! Crazy but true. Leave your investments alone!
4. Link your investments to your goals. We don't advise investing for the sake of investing or you'll develop a day trader (i.e., gambling) mentality.
What's the most common mistake to avoid when investing?
The biggest mistake the average person makes is mixing emotions and investing. When the markets go down, it gets scary. Most people forget that they're invested based on their mid- and long-term goals; they freak out and are tempted to sell everything and run in the opposite direction. Or they think they suck at investing, which isn't true. You have to be patient when you're investing. Easier said than done, I know.
What's the #1 piece of advice you'd give to someone who wants to start investing now?
Figure out what you're investing for (#goals). This is an especially important conversation for couples to have. In a recent study I read, 43% of couples said the biggest money mistake they made was not talking about it sooner. Have a conversation about your financial goals—it'll likely be an eye-opening conversation, and it's the first step to take if you want to start investing.
*Ed. note: Explanations and analogies are for illustrative purposes only.
Next up: Is the average retirement savings by age approach outdated for millennials?