How to Start Investing
To start investing, choose the account first, then the amount, then the schedule, and only then what to buy. The order matters because the first three decisions are ones you control completely and the fourth is the one everybody argues about.
Almost every guide to this starts with what to buy. That is the fourth decision, and the three in front of it are the ones you actually control.
How it works
Investing is buying a share of something productive and holding it while it produces. That is different from trading, where the horizon is bars and the chart is the evidence.
Here the chart is almost irrelevant. The things that decide the outcome are the account, the amount, the schedule and the fee — and none of those is on it.
Decision one: the account
The same fund in two accounts is not the same investment.
A tax-sheltered account — a pension, an ISA, a 401k or an IRA depending on where you live — usually means growth and income are not taxed as they arrive. A general brokerage account usually means they are.
Over decades that compounds exactly the way a fee does, and it is frequently larger than the fee difference people spend weeks choosing between.
The rule is short: fill the sheltered account first. The specific limits and rules differ by country and change from year to year, so check the current ones for yours — but the ordering almost never changes.
Decision two: the amount
Whatever you can continue. Not the largest number you can manage once.
The arithmetic that matters here is not the return, it is the time, and the time only accrues if the contributions keep arriving.
$10,000 at 7% a year: ten years is $19,672, twenty is $38,697, thirty is $76,123, forty is $149,745.
The last decade adds more than the first three combined. That is the whole case for starting with a small amount now rather than a large one later.
Decision three: the schedule
Pick a date and an amount and automate it.
This is not about getting a better price. It is about removing the decision — the one that gets made worst, most often, and always at the moment the news is loudest.
A schedule also survives you being busy, bored or frightened, which is more than can be said for any view about valuations.
Decision four: what to buy
Only now, and the honest default is a broad, low-cost index fund.
Because the fee is the part you control. $10,000 at 7% for thirty years ends at $75,485 with a 0.03% fee and $61,641 with a 0.75% one. $13,844 of difference — 18% of the pot — from a single number on a factsheet.
Everything else on the factsheet is a claim. The expense ratio is a fact.
The fall you have to plan for
The S&P 500 fell 56.8% from its October 2007 peak to March 2009 and did not close above that peak again until March 2013.
Nothing is wrong in that picture — no holding failed, the schedule kept running, and the ending value is higher than the start. It simply took a long time.
Decide now what you will do when it happens, because the answer decided in advance is “keep buying” and the answer decided during it rarely is.
A worked example
Open the sheltered account first. That is the highest-value hour in this whole page.
Set an amount you can keep paying — smaller than feels impressive.
Automate the date.
Buy one broad low-cost fund and check the expense ratio before anything else on the page.
Then write down that you will not sell in a fall of more than half — the S&P 500 fell 56.8% from October 2007 to March 2009 — and put it somewhere you will find it.
What you can safely ignore for the first year
The four decisions above are the whole job. Everything below is genuinely interesting and none of it changes your outcome yet.
Which broad fund. Two funds tracking similar broad indexes at similar fees will not produce materially different results over your first year, and the hours spent choosing between them are the most common way people avoid opening the account.
Market forecasts. They are entertainment on a horizon of decades, and the technical and fundamental page sets out why a view about value cannot tell you when.
Individual companies. Picking them is a different activity with a different failure mode, and the stocks page covers what it adds — company-specific risk and a calendar of announcements.
Rebalancing. It matters once you hold several things in deliberate proportions, which is a problem for later and is on the portfolio page when it arrives.
Coming back to all of it in a year is the correct plan. The account, the amount and the schedule will have done more by then than any of these could have.
The original data
Across our study of 24,971 trading videos, 273 have start investing, how to invest or investing for beginners in the title. The median one gets 46,144 views, 51% never pass 50,000, and the median length is 13.7 minutes.
The corpus carries description text for only three of those 273, which is far too thin to say anything about, and this page does not.
Set it beside the trading side of the same study. 273 videos here at a 46,144 median, against 960 on day trading at 16,075 and 471 on moving average convergence divergence (MACD) at 3,645. Under a third as much material as day trading, and a better-watched median than either.
When it fails
You started with decision four
Choosing the fund before the account is the standard mistake, and it costs more than any fund choice within the same category ever will.
The amount was unsustainable
A large contribution that stops after four months loses to a small one that does not. The compounding table above only pays if the years accumulate.
You waited for a better entry
The question: The market just fell 20%. Start now, or wait?
There is no version of this chart where the right moment is obvious from inside it. That is precisely what the schedule is for.
You sold during the fall
Selling at the trough is the one reliable way a long-horizon holding loses money. The recovery belongs to whoever was still there.
It went nowhere and you concluded it was broken
Flat years are normal. The smooth 7% in the arithmetic is an average of decades, not a description of any one of them.
Related
Index funds is the default answer to decision four, with the fee arithmetic in full.
ETFs is the wrapper you will most likely buy it in.
And building a portfolio is what comes after one fund stops being enough.
Most people start this backwards — they pick what to buy first and work out the account afterward. Fixing the order costs nothing, and it avoids a long stretch of fiddling with things that were never going to matter.
— Michael Whitman
This page is educational, not financial advice. Test every idea on your own charts before risking money.