You Don’t Need to Know How to Pick Stocks to Start Investing (But You Should Know These 3 Things!)
HOW TO START INVESTING (NO STOCK-PICKING REQUIRED)
Did you know that you 110% DO NOT need to know how to pick stocks to start investing?
That’s right. That is not knowledge that you need to have so if it’s something that doesn’t interest you, that makes two of us.
I talk about investing all the time, I talk about how important it is, what a difference it’s made in my life, and why I think you stop waiting and take the plunge, but recently it dawned on me that you might think you need to know how to pick stocks to invest.
And that’s not true.
There are, however, 3 things you do need to know to get started.
1) HOW MUCH TO PUT IN YOUR SAVINGS
Have you heard the term, “Never invest money you can’t afford to lose?” Well, consider this that money.
Think of your savings and your investments as two different things. Your savings, or what I like to call your Emergency Fund, is money you don’t want to invest because it should be saved somewhere safe for exactly that: emergencies.
Having an Emergency Fund of savings is one of my favorite ways to reduce the risk of investing. Even if the absolute worst-case scenario happened with your investments and you lost all your money, with proper planning around your savings, you’ll be fine because you’ve already set aside this money to fall back on if you need it.
But the big question is, “Well, Jess, how much should I have in my savings?”
And, the answer, like many things with money is: it depends.
Specifically, it depends on you and your preferences.
I like to ask people this question: If you suddenly lost all forms of income overnight, how many months of runway would you feel comfortable with to get back on your feet?
For me, if I suddenly lost everything, I’d want about 6 months to find a job. But for other people, 3 months feels safe.
It’s a deeply personal question and one you’ll need to reflect on and decide for yourself.
And, once you’ve answered it, you’ll need to calculate your total monthly expenses and multiply that by however many months you’ve decided on - and that’s how you calculate what you’d be comfortable with in your savings.
If you aren’t sure what your monthly expenses are, you can grab my free budget template to easily find out.
2) HOW MUCH YOU CAN AFFORD TO INVEST
The second thing you’ll need to know to get started investing is how much you can afford to invest - both now, and on an ongoing basis.
This is important because if you’re planning to use investing as the long-term wealth-building strategy that it is and not the get-rich-quick lie that some people sell, you will need to invest on a regular, consistent basis.
To do that, you’re going to need to know how much you can afford to invest.
The way I do this in my own life is like this.
I look at everything I have to pay every month - all my recurring bills like mortgage, electric, water, etc. - and all my recurring payments to things I need for my business like my website platform and my podcast hosting and everything else, and then I add in all the other random things I buy like dinners out, and coffees at the beach, etc.
Once I have the total for my monthly expenses, I look at what I make each month and I subtract my monthly expenses from what I’m making each month to see what’s left over.
And that’s the number I use to invest every month.
My budget template is a helpful tool to help you calculate this because it provides a place for you to list all your expenses in one spot, and has instructions on how to calculate what you’ve got left over after all your bills are paid for the month (and after you’ve had all your fun!).
3) HOW TO FIND SOMEONE TO INVEST FOR YOU
The third thing you need to know to get started investing (if you don’t want to pick your own stocks) is how to find someone to invest for you.
I know this can be scary - especially with all the wild financial stories you hear on the news all the time about scams, etc.
But that’s why one of the few financial terms I think everyone should know is fiduciary.
According to consumerfinance.gov, a fiduciary is “someone who manages money [...] for someone else. When you’re named a fiduciary and accept the role, you must – by law – manage the person’s money [...] for their benefit, not yours.”
This is important because let’s say you hire someone to manage your money for you that is NOT a fiduciary. This person could potentially use your money in a way that benefits themselves more than it might benefit you. A fiduciary, by law, cannot do that.
Last I checked, the fiduciaries I reviewed were charging a fraction of a percent on the amount of money they manage for you (0.25% to be exact), which means the more they grow your money, the more money they make, too - a nice incentive for them to perform well on your behalf.
In case you’re wondering what their fee would look like in a dollar amount, let’s say you’ve got them managing $100,000 for you. For a year of management, you’d pay about $250, which comes to around $20 a month.
To me that’s well worth it to have my money invested, to not have to personally pick stocks or keep up with the market or even look at my investments unless I really want to - and, most importantly, to know that I have a professional managing my money on my behalf and that they’re legally required to act in my best interest, and not their own.
HOW I PICK A FIDUCIARY
Choosing a fiduciary is something that a lot of people get tripped up on, so here are the 3 steps I use to do it:
1. I do an online search for “fiduciaries with lowest management fees for [year]”
2. I find 3 with the lowest management fees and I compare aspects that are important to me between them.
3. I call them to make sure they link seamlessly with my bank account.
You might be wondering why ‘performance’ didn’t make my list of criteria and it’s because no one has a crystal ball and I believe, across the board, most fiduciaries will perform the same. To me, what’s most important, is low management fees, good reviews, and easy access to my money through a phone app and no withdrawal fees.
The last thing I’ll say about fiduciaries is that, sometimes, fiduciaries will offer an even lower-cost “robo-advisor” option. This scares some people, but in many cases, I prefer this for two reasons: 1) it costs me less money, and 2) using a robo-advisor removes potential human emotion and human error from investing… it’s purely based on data and trends.
THE BIG PICTURE
If one of the reasons you’ve put off investing or you don’t feel confident in the investing you’re doing is because you believe you need to know how to pick stocks… you don’t! And I hope that feels like great news because it is!
All you need to know is how much to keep in your savings, how much you can afford to invest now and on an ongoing basis, and how to find someone to invest for you.
NEXT STEPS
If you need help calculating how much to keep in your savings and how much you can afford to invest, I encourage you to grab my free budget template to help you run your numbers.
It provides a one-stop-shop for you to get your expenses listed in one place, making it easy to see your monthly costs (which will help you figure out what you need in your Emergency Fund), and what’s left over each month (which is what you can afford to invest).
Once you have that information, all you have to do is a little research on fiduciaries, and you’re good to go!
No stock-picking needed ;)
I hope you feel empowered to take action today to move one step closer to investing – with confidence! Investing is powerful. It’s life-changing. And it kills me to watch people put off using it to its full potential since it’s confusing – because it doesn’t have to be.
Keep it simple. And watch your life transform.
I’m rooting for you!
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