How to Start Investing Online

The Step-by-Step Guide to Building Wealth and Avoiding the $75,000 Mistake  

The People's Advisor

Hi, I’m The People’s Advisor. I used to be a financial advisor, but I’ve broken away from my 9-5 with a new purpose: to help the common investor achieve financial independence.

Investing…it’s one of those things you’ve always wanted to do, but you just keep putting it off. It’s kind of like losing weight and getting in shape. You know you should do it, but you don’t. Why?

Maybe you’re confused about how to start investing because it seems difficult and intimidating. It’s not. Anyone can do it. Like Warren Buffet said, “You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ.”
You might think you have to hire a traditional financial advisor to start investing. You don’t. Trust me, I used to be that traditional financial advisor. With today’s automated investment services (like my personal favorite, Betterment), anyone with an internet connection and a few dollars has easy access to sophisticated investment management on their mobile device or computer.

Think investing is time-consuming and expensive? It doesn’t have to be. The busiest person in the world can start building wealth in a low-fee account in minutes. A good automated investment service (aka robo advisor) will continuously monitor your portfolio to find opportunities to rebalance and optimize for tax-efficiency — all with little-to-no work required on your end.
Maybe you think you have to have a big chunk of money to get started. Nope. Any amount can get the ball rolling (especially great news for millennials!), and as you’ll see, that’s what really matters most.
Here’s what it boils down to — the best time to start investing was yesterday, but the next best time is now. It’s not how much you start with. It’s how soon you start. The sooner you start building wealth, the sooner you can meet (and exceed) your financial goals. On the other hand, every day you wait, you’re losing money.

Don’t make a $75,000 mistake.

 

The $75,000 Mistake — A Cautionary Tale

Why is it so important that you start investing and building wealth now? Let’s take a look at three different 25-year-olds who made very different decisions on how to handle their money in their 20s and 30s.

character 1
Meet Charlie. After he graduates college he lands a job for one of the gazillion energy companies in Houston. But he's an artsy, outdoorsy sort of guy and would rather see the world than be trapped in a cubicle. Knowing he wants financial independence sooner rather than later,he decides to take action, opens an account with an automated investment service, and invests just $100 per month starting today.

Assuming an average annual return of 7%, Charlie’s account will snowball to $123,520 by age 55. Pretty nice for investing just $100 a month. And imagine if he decides he’s able to invest a little more…

character 2
This is Charlie's buddy from work, Mike. He isn't sure how to start investing, and he isn't going to ask his parents' financial advisor. Just thinking about sitting across from that mahogany desk makes his heart rate skyrocket. He does what so many others do, makes excuses, and puts off investing for another day. And another day. And another. Next thing you know, Mike waits until he’s 36 to start making the exact same $100 monthly investment that Charlie has been making.

When age 55 rolls around, Mike only has $48,078 to show for it. Ouch. The $75,000 mistake. Tell me, is that a mistake you want to make?

character 3
Meet Eleanor, Charlie's girlfriend. When Eleanor graduates, she takes a marketing job at an ad agency, gets a little real-world experience, and quickly decides she doesn't like having a boss. So she quits and starts her own photography business. While she takes a big financial leap being self-employed, she wants to play it safe with her money. So she decides to just put that $100 per month in a savings account at the bank and watch it “grow.” That's got to be the safest bet, right?

*Cringe.* Bad decision if Eleanor’s looking to build long-term wealth. Have you seen how little the average savings account pays in interest? With some ridiculous rate like .00001% that won’t even cover inflation, she’d only have $36,100 at age 55. That’s about $12,000 less than Mike, who started investing at age 36!

Guess what? There’s the $75,000 mistake again.

how to start investing walter whiteLook, you don’t want to end up like Walter White from Breaking Bad, out in the desert at age 50, cooking meth in your underwear because you didn’t start building wealth early enough. He worked a normal job and lived the average middle-class life. Heck, he even picked up a part-time job at the car wash to try and catch up. But when all was said and done, what did he have left to show for it?

Sure, that’s a bit far-fetched, but is his middle-class horror story really that unbelievable?

Don’t you think it’s time to stop putting it off? You don’t have to be confused about how to start investing. Using my simple 3-step guide, you can have an account set up and ready to go with a robo advisor in about 5 minutes. Name me something else you can do in 5 minutes that will have such a dramatic impact on your life. Let me help you avoid the $75,000 mistake and start building wealth now.

By the way, if you ever have trouble with getting started, feel free to reach out! I’ll personally respond to help you out.

Now let’s move on to the good stuff…

 

How to Start Investing and Building Wealth Online in 3 Simple Steps

 

#1 Choose Your Investment Service

how to start investing choose
First you need to choose what type of service you’re going to use to get started investing online. There are several good financial tools out there that I like and will cover on this site. There’s also a whole lot of junk. But who has the time to pick through all of it (besides a hyper-obsessive finance geek like me)?

You’re busy building a career, hanging out with friends, binging on your favorite HBO shows…you know, all the things that eat up your time. You need a simple, reliable, sophisticated solution to get started investing now. And for that,  I recommend you choose a robo advisor.

What is a robo advisor? Simply put, a it’s a low-fee, automated investment service. These services use advanced financial algorithms designed to provide hassle-free, sophisticated investment management to anyone. While accounting for your risk tolerance, they create portfolios that are continually monitored and rebalanced to remain diversified and tax-efficient. And the great part is that it’s all handled for you online, with a minimal amount of work.

Chew on this…

That’s a heck of a difference, but let’s put that in terms of money. If you invest $50,000 with a traditional financial advisor, you’re paying up to $750 annually. And that’s not even including all of the other fees that usually come with using a financial advisor, like costly mutual funds, trading commissions, and custodial fees. That’s money in their pockets, building their wealth.

However, if you invest that $50,000 with my preferred robo advisor, Betterment, you pay just .25%, or $125 — that’s a savings of $625 each year compared to using a financial advisor. If you invested that $625 at the end of each year, for 30 years at 7% return rate, you’d add about $59,038 to your nest egg! You also won’t pay any trading commissions, custodial fees, or other hidden fees, so that’s even more money in your pocket. Those savings will be used to build your wealth.

Talk about exciting — think of the money you could save…not to mention the money you could make!

Which brings me to my top recommendation for robo advisors: Betterment. Why do I recommend them? First of all, many people searching for information on how to start investing have less to start with than someone visiting a traditional financial advisor. But the beauty of Betterment is that there are no account minimums. You could literally deposit as little as $10 if you wanted.

What about fees? They have some of the most reasonable in the entire industry. And the more you invest, the more you save. Here’s a simple look at Betterment fees:

betterment feesHow does Betterment invest your money? They choose ETFs, or exchange traded funds, that track the index in major asset classes. These trade like stocks, and unlike mutual funds, don’t require active management. They’re also less expensive than mutual funds, which can add 1% or more in other expenses. The result is a lower-cost portfolio designed to better position you for long-term success.

Up to 6 Months Managed Free

Betterment is a passive, automated, long-term solution to investing that is backed by world-class investment committee with decades of combined experience. By combining modern technology with sound investment theory known as Modern Portfolio Theory, Betterment is able to maximize your long-term, after-tax returns.

When you choose Betterment you can stop worrying about learning how to start investing, and instead:

    • Get started with no minimum — Anyone with a bank account and internet access can open an account, making it ideal for young or beginning investors.
    • Invest in a tax-efficient manner — Betterment makes tax-loss harvesting, a technique traditionally offered only on multi-million dollar accounts, available to all taxable accounts.
    • Feel secure with an actively monitored account — Your account is continuously monitored to look for opportunities for portfolio rebalancing.
    • Access your accounts from any device Check your portfolio performance on your smartphone, tablet, or computer with straightforward, elegant reporting.
    • Save more automatically — If you select the Smart Deposit feature, you can set Betterment to invest any money over a specific amount in your bank account.

Over 100,000 people like you are currently entrusting a combined $2.5 billion-plus to Betterment. They launched their service back in May 2010 and have spent the last few years honing their service and continually responding to the needs of clients. They recently added a Smart Deposit feature and the ability to start a SEP IRA for those of you who are self-employed.

Why? Because everyone deserves sophisticated investment service. Don’t you? Choose Betterment now and have your account set up in a matter of minutes!

Want to read more on Betterment? Check out my full review here.

 

#2 Get Your Investment Plan

step 3As Ben Franklin said, “If you fail to plan, you plan to fail.” (And he’s on the $100 bill, so he had to know what he was talking about, right?) Such is the case with investing.

You need an investment plan to ensure that you are saving enough, properly allocating your investments, and investing in a manner that is consistent with your propensity for risk. While this step has typically been handled by a financial advisor, a robo advisor creates a recommended investment plan for you during the signup process.

Keep in mind that there’s no one-size-fits-all investment plan. Your situation is different than mine, different than your neighbor’s, different than anyone else’s. You need an investment plan that is customized to account for your personal financial goals, as well as your individual risk tolerance.

Maybe you’re young and can afford to be more aggressive with your money. Or perhaps you’re nearing retirement age and want to make sure you’re being a bit more conservative with your investments. Either way, your plan should reflect where you’re at in life, as well as the goals you’ve set for yourself. That’s the kind of personalized plan you can get with a robo advisor like Betterment.

How does a robo advisor create your investment plan? At the beginning of the signup process, you’ll first enter your personal information, such as name, address, income, etc. Once you’ve gotten that entered in, it’s time to set your first goal. For example, if you choose retirement, it will ask you the age at which you’d like to retire, and then give you a recommended portfolio allocation based on your response (you can adjust allocation based on your level of acceptable risk after signup).

Once that’s set, simply click “Submit,” and you’re ready for the final step.

 

#3 Automate and Relax

relaxHere comes the best part where you actually start building wealth. All you have to do is link your bank account and make your initial deposit. Then if you choose (and I highly suggest that you do), you can set up monthly deposits to continue building wealth. A support specialist can even help you transfer over old accounts you have with other services to consolidate.

Once your bank account is linked and you’ve made your additional deposit, you can change your portfolio allocation to make it more or less aggressive if you so choose. You can also set other goals, such as creating a safety net, saving for a big item like a home, or simply building wealth in general.

That’s it. You’re all done. Now all you have to do is resist your natural urges and take a step back. What do I mean by that?

You’ve heard of helicopter parents, right? The ones who hover over their children, not allowing them to make those mistakes which lead to growth. Well, I’m going to coin a new term: helicopter investors. You’re going to be tempted to be a helicopter investor, hovering over your new account, wanting to make changes as you see the market fluctuate. Don’t.

Just relax.

People who try to beat the market on a day-to-day basis lose. Period. I’m talking somewhere in the neighborhood of 95% failure rate. The fact is, rather than sweating the short-term market shifts, you have to be confident in the quality of your investments. You can only hover so long before you run out of gas and crash. Being a helicopter investor will do you no good. If you’re constantly changing your investments, you’re in effect timing the market. And that’s how you lose.

Check out this really powerful graph:

The more you hover, the more you lose

The takeaway? The stock market is going to rise and fall, along with your portfolio. Investors who check their portfolios more often will see more of the movement, get freaked out, and be more likely to mess with their portfolio. It’s a good way to ruin your entire strategy.

On the other hand, if you build a sound portfolio then “set it and forget it” as some say, then you’re less likely to stress yourself out. That means you’re more likely to let the robo advisor do it’s thing and help you build wealth.

Removing your emotions from the investment equation is a major key to success. 

Remember, my top recommended robo advisor, Betterment, is backed by an investment committee with decades of experience. The team comprises members with PhDs, CFP® designations, and more. They utilize sound investment theory and practices to set you up with a globally diverse, passive portfolio that is continually rebalancing and harvesting tax losses, to help you steadily build wealth in the long-term.

Yes, you can still check in at any time on your smartphone, tablet, or computer. But do so while keeping the bigger picture in mind. So take a deep breath, maybe open your favorite bottle of wine, and relax. You got the ball rolling…which is more than most people can say at your age.

 

Take Control of Your Financial Future with Betterment

Remember, you can’t control the market. Nobody can. But there are three things you can control that will significantly impact your long-term success:

  1. Maintaining a diversified portfolio
  2. Keeping your investment fees low
  3. Minimizing your taxes

Betterment will create a diversified, low-cost, tax-efficient portfolio tailored to meet your financial goals. Sign up now for up to 6 months managed free!

 

Frequently Asked Questions from Online Investors

Still have questions about how to start investing? Here are the answers to some of the most common questions my readers ask.


How secure is Betterment?

Betterment has multiple measures in place to keep both your information and money secure. They start by using the strongest encryption available on their site and storing your information in a secure facility. Your investments are protected by SIPC insurance, up to $500,000. This insurance also covers up to $250,000 in cash.

Betterment also offers fraud protection, and will work to recover any funds lost as a result of fraudulent activity. Betterment is a Qualified Custodian and therefore under very strict regulations. They are the only company that will hold your money, meaning you do business with them and only them. For more information on account security, visit Betterment.


Is Betterment only for new investors?

Betterment is for all levels of investors looking to build long-term wealth. I recommend the robo advisor for beginning investors because it is quick and easy to get started, inexpensive, and reliable (and has no minimum balance!). However, Betterment has a lot to offer seasoned investors as well. For example, if you have over $100,000, your fee drops to a mere .15%. And if you have $500,000, you get a personal consultation with a financial planning expert. Betterment also supports 401K rollovers and other types of account transfers, meaning you don’t necessarily have to be just starting out to utilize their services.

However, if you are looking to time the market, Betterment is likely not the tool for you.


I have a 401(k) from my previous job. Can Betterment help me with that?

Yes. This is handled by opening an account and then selecting the rollover option. One of Betterment’s support specialists can walk you through the entire process.


What about debt?

It’s advisable to handle your debt as an emergency. In other words, don’t rest until you pay it off. However, in my experience, I find that people that say they are waiting until they pay off their debt to start investing tend to not only put off investing, but put off paying off their debt too. That said, I recommend you get the ball rolling with small monthly investments now, while you get more aggressive paying off your debts.


Can't I just invest in a Vanguard Target Date Fund?

While I love Vanguard, I believe that in many cases a robo advisor like Betterment is a better option for the average person. The main reason is because a Vanguard Target Date Fund really only takes into account your age. There isn’t much customization going on for your financial situation. Whereas a good robo advisor will take into account your income level, your goals, and your risk tolerance. For example, with a Vanguard Target Date Fund, a 25-year-old who makes $40,000 a year with $5,000 in debt would be put into the same target date fund as a 25-year-old making $70,000 a year with $10,000 in savings. Very different financial situations, yet they’d still end up with the same plan.

Keep in mind, when you open a Betterment account, you’ll end up owning Vanguard ETFs. However, you’ll get two advantages: tax loss harvesting and automated portfolio rebalancing, which will likely help your investments perform better in the long run. Not to mention, you have that slick interface that allows you to check in on your investments from your mobile device.


Isn’t it better to stay active with my investments?

While I don’t think it’s a good idea to just leave your investments and not check in on them from time to time, it’s also not a great idea to be overly active. If you’re checking your investments every few minutes the way some people check their Facebook or Instagram accounts, well, you’re going to drive yourself crazy (did you read about helicopter investors under step 3?). Being overly active leads to market timing, which 9-times-out-of-10 leads to losing money.

The beauty of robo advisors like Betterment is that they are being actively managed for you. The algorithms rebalance for you and constantly look for opportunities to try and maximize losses for tax purposes. Meanwhile, the programs are overseen by top investment teams. I’m not saying anyone is perfect, but odds are they are going to do a better job monitoring your accounts than you will.  


 

Congratulations, You Did It!

You stopped wondering how to start investing and just did it. You’ve avoided the $75,000 mistake. Now it’s time to see just how much wealth you can build. Your next step is to sign up for my newsletter and get tips on how you can build more wealth and make the journey easier. Sign up below now!

Disclaimer: I started this site to give general info on how to start investing online. To keep the blog running, I do get small commissions at not additional cost to you when you sign up for some services linked from this site. You can click to read my full disclaimer and disclosure.