Investing for Beginners: It’s a Marathon, Not a Sprint

Hearing the word investing can feel overwhelming, but it’s hard to ignore nowadays. 

Between the confusing terms and acronyms, the news about the stock market ups and downs, and maybe that one family member who lost a bunch of money day trading, it’s easy to feel wary. But whether you’re Gen Z entering the workforce, a Millennial trying to build wealth, or Gen X preparing for retirement, investing is one of THE most powerful tools you have to grow your money over time.

And you DON’T have to be an expert to get started! We’ll show you how easy it is for beginners to get started in investing, and why it’s for the long haul. 

First Things First: Investing is Not Day Trading

There’s a huge difference between investing and day trading. When I was in college, I used to think they were the same and had shied away from it because of all the horror stories I had heard about people losing money. Now, more people are in the know but in case you don’t, here’s the gist:

Day trading is like sprinting, since it involves buying and selling stocks quickly, typically on the same day, hoping to make fast gains. But here’s the catch…most people lose money doing this. It requires constant attention, deep market knowledge, and is notoriously risky. You have to have a strong stomach for it. Oh yea, and it’s also like a full-time job.

Long-term investing is more like running a marathon. You’re not trying to get rich overnight. You’re putting your money into assets like index funds, stocks, or retirement accounts and letting them grow for years. The longer the better! And this can and should go on for decades. It’s consistent, patient, and historically reliable.

Is Investing Still Safe Even in This Economy?

It’s completely valid to feel wary about putting your money in the stock market right now. There’s inflation, interest rate hikes, and pretty scary headlines about market declines so it’s natural to be cautious. 

But here’s the thing: market volatility is normal. The stock market has always gone through ups and downs, but historically, it trends upwards over time. If you look at the big picture, investing in a diversified portfolio (like an index fund that tracks the S&P 500) is still considered one of the safest and most effective ways to build wealth.

Your risk tolerance will also be a major factor in how you can tailor your investment strategy. If you’re younger and have plenty of time on your side, you might take on more risk knowing that you’ll ride out the bumps along the way. If you’re more conservative, you can lean towards bonds or balanced funds. 

And don’t worry if these terms don’t mean anything to you yet, there will be a glossary below. Plus, before starting any portfolio, you’ll get asked questions that reveal your risk tolerance even if you don’t know what it is now. 

Just know that the most important thing is to actually start. Even if it’s just $25 a month. Consistency will beat perfection and that’s what long-term investing is all about.

Why Saving Alone Isn’t Enough

People think they can rely on savings accounts to get them through retirement but with inflation eating away the value of the dollar, it’s definitely not enough. Banking on Social Security? That’s not enough to live on either, as it’s only meant to supplement your income not replace it all. 

Here’s why saving won’t be enough: if you put all your money in a high-yield savings account earning 4% while inflation is rising at 3% (sometimes more), you’re barely staying ahead. You’ll always be playing defense, instead of offense. 

So that’s why investing is SO important! It gives your money the chance to outpace inflation, so that your dollars are actually growing in value over time instead of losing it.

Why Compound Interest is so Magical

Compound interest is the ultimate weapon for investors. It’s earning interest on your interest, so the earlier people start, the more can be earned. 

Here’s an example:

You start investing at age 25 and put in $200/month with an average annual return of 7%. By the time you turn 65, the money would’ve grown to almost $480,000 through compound interest and you only had to contribute $96,000 out of pocket. But if you waited until age 35 to start, then it’d only grow to $226,705.89.

That’s the power of time! And that’s why you keep hearing “time in the market beats timing the market.” You don’t need to be rich to build wealth, you just have to start early (now) and stay consistent.

How to Start Investing Even if You Don’t Know How

If you’re ready to start but still feel confused on where to begin, try these steps:

1. Start with your 401(k) if you have one

A 401(k) is tax-advantaged retirement plan sponsored by your employer. Many offer matching contributions, which means free money so take advantage of it! A common employer match is 50% match up to 6% of an employee’s pay. So for every dollar you contribute, the employer contributes 50 cents up to 6% of your salary.

Let’s say you earn a $75,000 salary and you contribute 6% which is $4,500. Your employer will match 50% of that $4,500 which is $2,250. That $2,250 is the free money! And your total contribution is now $6,750.

Understand what your employer’s match is, and contribute enough to get that free money.

2. Open a Roth IRA or Traditional IRA

These tax-advantaged accounts are AMAZING for retirement. There’s a reason why there’s a $7,000 a year contribution amount because they’re that good. $8,000 a year if you’re over age 50. These accounts are only available to individuals earning less than $150,000/year and married filing jointly couples earning less than $236,000/year.

Popular platforms to open an IRA are Fidelity, Vanguard, Charles Schwab, Betterment, and Wealthfront.

3. Use a robo-advisor or app

This option is great for after you’ve gotten your 401(k) and Roth or Traditional IRA set up. Platforms like Stash, Betterment, Fidelity Go, and SoFi make it easy to start investing with little money and guided assistance.

4. Prefer to DIY? Open a brokerage account.

If you feel like you’d rather do-it-yourself to have more control over your investments, you can open brokerage accounts on the same platforms you can open an IRA. Popular platforms to open a brokerage account are Fidelity, Vanguard, Charles Schwab, Betterment, and Wealthfront. Max out your 401(k) and IRAs before contributing to an investment robo-advisor/app or brokerage account.

5. As for what to invest in, stick to index funds or ETFs instead of individual stocks:

Index funds and ETFs (exchange-traded funds) are bundles of investments that track the market and offer built-in diversification with low fees. Instead of investing in just one company, you’re investing in hundreds, sometimes thousands, within their holdings.

For example, VOO is a Vanguard S&P 500 ETF that tracks the S&P 500, a stock market index tracking the performance of the top 500 companies listed on the exchange in the United States. The top 5 holdings in this ETF is Apple, Microsoft, NVIDIA, Amazon, and Meta (Facebook). Buying 1 share of VOO will get you investments into these 5 companies and more versus just buying Apple or Microsoft alone. That’s why these “bundles” make it easier to spread out investment risk, because if one company doesn’t do well, there are others to support.

6. Set it and forget it!

Just like a high-yield savings account, you should automate your contributes to investments so you’re consistently adding money to your portfolio without having to think about it. This is also called DCA, dollar cost averaging, investing your money

Investment Lingo To Know

If you need a little cheat sheet to remember what certain investment terms mean, here you go:

• Stock: Small ownership slice of a company (like a small pizza slice in a pie). When that company does well, your stock will usually go up in value. And if the company doesn’t do well, then there’s the risk of losing money.
  
• Bond: A loan you give to a company or government that they’ll pay back with interest. It’s typically lower risk than stocks, but with lower returns.
  
• ETF (Exchange-Traded Fund): A collection of investments/assets (like stocks or bonds) that you can buy and sell like stock. It has built-in diversification and are great for beginners.
  
• Index Fund: A type of fund that mimics the performance of a specific market index, the like the S&P 500. It’s passive, low-cost, and great for long-term investing.
  
• Diversification: A strategy that spreads your investments across different asset types (stocks, bonds, etc.) to reduce risk. Similar to the term “not putting all your eggs in one basket.”
  
• Roth IRA: A retirement account where you contribute post-tax dollars, your money grows tax-free, and you don’t have to pay taxes when you withdraw it later
  
• 401(k): A retirement plan offered by many employers, most of the time with a company match
  
• Brokerage Account: An account you open with an investment firm (e.g. Fidelity and Vanguard) to buy and sell investments. These types of accounts don’t have the tax perks of retirement accounts (Roth IRA/401(k) but is a great additional tool for your financial goals
  
• Compound interest: Earning interest on your interest. It has a snowball effect, where the more it rolls, the bigger it grows. Over time, your money can grow into significant amounts due to magic of compounding interest.
  
• Asset Allocation: This how your investment portfolio is divided among the different asset classes like stocks, bonds, or cash. Your allocation depends on your age, goals, and risk tolerance.
  
• Risk Tolerance: This defines how comfortable you are with market ups and downs. Everyone’s risk tolerance is different and can change as we get older! 
• Dividend: A portion of a company’s profits paid to shareholders, usually quarterly. Not all stocks pay this, but those that do can provide a steady income stream.
  
• Capital Gains: When you sell an investment for more than you paid for it, you earn a profit, which is capital gain. Long-term capital gains on investments held over a year are typically taxed at a lower rate than short-term ones.
  
• Dollar-Cost Averaging or DCA: An investing strategy where you invest a set amount of money at regular intervals, no matter what the market is doing. This reduces market volatility impact.

The Money Move

You don’t need to be an expert on Wall Street or have a ton of money to be a successful investor. Just patience, consistency, a long-term mindset, and the understanding that investing is a marathon, and not a sprint. Don’t chase quick wins but build sustainable habits that your future self will be super happy for.

Start wherever you are and invest what you can. Then let time and the magic of compound interest do the rest for you! Time in the market beats timing the market!