Many of us steer clear of investing altogether because we believe it’s too complicated and risky. Would you believe me if I told you that the steps involved in making an investment are no different than buying a new pair of shoes? It’s true! You might not realize it but every time you make a purchase, you go through 6 specific steps that are identical to what you need to do to start investing.
While shopping might seem like more fun, isn’t it even more fun to grow your money rather than spend it?
Who doesn’t want more money? Here are the six steps you currently go through each time you make a purchase. Now you can use what you already know and do to grow your money vs. spend it.
STEP 1: Decide you want or need shoes. There are countless reasons that we decide to buy shoes. We might be pining over a certain pair of shoes, need a staple replacement or have an event coming up. This is no different from investing. You can decide you want to start investing and then you can. It’s as easy as buying a pair of shoes. Eventually, you might want to create a monthly investing budget which is no different than a shopping budget. How much will you put aside to invest each month?
STEP 2: Do your research. Now that you know you want to buy a pair of shoes, it’s time to do your research. What are your options? Which stores have the best price? Maybe some stores offer additional perks or points. What do the reviews say? When we shop for anything, we want to do our research. Shopping for an investment is no different. You’ll want to understand the investment generally, know what fees are involved and read what others are saying about it.
STEP 3: Select your shoes. Once you do your research, it’s time to choose your shoes! With investing or other money goals, choosing can be the most difficult part. We get stuck in the research phase. With shoes, making the selection is not often a problem for very long. Remember, investing is like buying shoes. Yes, research is important but if you ever want to have the shoes, you just have to make the choice.
STEP 4: Decide where to buy the shoes. Based on your research, convenience, where you already do some shopping (brand loyalty) and various other factors, you will decide where you want to buy your shoes. The store for your investments in called a brokerage account. This is the platform from which you can buy and sell investments. You will decide which brokerage firm to use based on similar factors you use to choose a shoe store. If you already have an account with one firm, you will be more likely to continue using them. You might prefer one user interface more than the others or might choose the account with the most favorable fees.
Why is important to select the investments before you choose the brokerage account? Some brokerage accounts offer free trading for certain investments. Depending on what you plan to invest in, one brokerage account might make more sense than the others. This is no different than when you buy shoes. You wouldn’t want to choose a store that doesn’t sell the shoes you want. Even more, you wouldn’t want to choose the store that sells your shoes for the highest price!
STEP 5: Buy the shoes. We often decide how to make a shopping purchase very quickly. Will you pay in cash, use a certain credit card, debit card or even write a check? We typically have our go-to preferred method of payment but sometimes it pays to give this decision a little thought. With investing, you get to choose which way you want to invest as well. There are various options for making a purchase including a market, limit, stop, and stop limit order. If these options are overwhelming, go back to the decision to use cash, credit or debit. Yes, it makes a difference but at the end of the day, it’s much more important that you bought the shoes. The same goes for investing!
STEP 6: See how the shoes turn out. I don’t know about you but when I buy something there is definitely some risk involved. At the time of purchase, I never quite know if this will be something I will wear ALL of the time or something I will only wear every now and then. You’d think after years of shopping I’d get better at this but this is still a risk I take every time I make a purchase. There is also the risk of me staining it, ruining it in the wash, ripping it or losing it altogether which means I never get to wear it again.
Similarly, there are risks involved with investing. You don’t ever truly know whether the investment will go up or down although over the long-term the trend is usually up. You can’t predict how much money you’ll have at any given time. It’s all very exciting! Whatever you do, don’t sell the investment just because the price is going down. For many of us, it’s probably best that we check in once a month or every few months so the ups and downs don’t drive us crazy.
There you have it. The six step you can take to make your first investment. Have questions? I’m always here to help!