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YOUR STARTER GUIDE TO INVESTING.

Congrats on investing in yourself! Now that you’ve downloaded our iOS app and you’re ready to get started, here is your go-to guide on how to open up your first brokerage account, search for a mutual fund and invest in a better world. Serious change is in your hands!

CHOOSE YOUR BROKER

In order to buy any stock or mutual funds, you’ll have to use a stockbroker. Depending on your needs, you can choose an online broker or sit down with a real person to help you.

Online brokers typically make it easy to create an account online without any paperwork needed. Also, some online brokers like E*Trade and TradeMonster (not affiliated with Outer Worth) have free IRA accounts with no annual fees and no account minimums. Traditional brokers like Vanguard (not affiliated with Outer Worth) offer IRA accounts with a $1,000 minimum and $20 annual fee.

Here are some factors to help you decide which brokerage is right for you:

  1. If you’re starting with under $2,000, check for “initial minimums” which is the initial investment required to open your account. Also look out for any “additional minimums.”
  2. If you’re going to take advantage of compound interest and invest longterm, make sure your broker offers IRA accounts.
  3. If you like doing things online, make sure your broker has a decent website and app that you feel comfortable using.
  4. If you plan on investing in a socially responsible mutual fund, make sure your brokerage has them available. You can check by searching for a specific fund’s symbol or by filtering through results.

 

Do a search for a brokerage that suits your needs, or ask for peer advice on the Outer Worth Facebook Group page or Twitter.

OPEN YOUR ACCOUNT

Once you’ve decided on your broker, you can open your investment account. Most brokers offer a regular Brokerage account, a Traditional IRA account, Roth IRA account, and a 401k account (among others).

  1. Regular Brokerage Account – Choose this account if you need to keep 100% of your savings handy. But remember that the biggest benefits from compound interest come from leaving your investment untouched for many years.
  2. Roth IRA Account – Choose this account for tax-free withdrawals at retirement. You can withdraw your contributions at any time, but won’t be able to touch your money’s gains until you turn 59 1/5 without a penalty. Often, brokers will offer free “no-fee” Roth IRA accounts to new investors. For a complete list of federal guidelines, click here.
  3. Traditional IRA Account – Choose this account for longterm investing with the ability to claim your tax deductions now. You’ll be taxed when you withdraw your money down the line. Same rule applies about not taking out your earnings, you can only withdraw your prior contribution amount before the age of 59 1/2. Federal guidelines here.
  4. 401k Account – Consider this account if your employer offers a matching program. That’s free money!

 

Once you’re ready to open your account, have your social security number and driver’s license number ready. Most accounts don’t require additional paperwork and can be opened completely online in minutes.

CHOOSE YOUR INVESTMENT

Once you’ve opened your account, transfer in the amount of money you are ready to invest. Check our calculator to compare initial investment amounts. Meanwhile, you can decide what you want to invest in. Mutual funds and ETFs are popular choices for retirement accounts, as they are more diversified and seen as generally more stable than investing in an individual stock.

When choosing an investment, be aware of fees and account minimums. These are the three ways that fees are typically worded:

  1. Exp Ratio – The average exp ratio for mutual funds is 1%, which translates to $10 in annual fees for every $1,000 you invest. Index funds and ETFs average about .5%, which is $5 in annual fees per $1,000 invested. That may seem small, but a higher percentage could eat up thousands in the long run. The lower the percentage, the less you will lose to fees.
  2. Loads – Although you can’t avoid exp ratio fees altogether, you can avoid paying front-load, back-end load, or any type of load fee by sniffing them out. Loads are basically sales charges that get pocketed by the broker and co. You may be able to filter out any load fund results if you do a search for a mutual fund using your broker’s mutual fund screener.
  3. Transaction fee – There are thousands of mutual funds to choose from, and many that do not require a transaction fee. This is especially important if you plan on doing frequent deposits in smaller amounts, rather than one big deposit annually.

 

You can narrow it down based on fees, size/type of the companies represented in the fund (called “holdings”) and how socially responsible the funds are. If you have a financial advisor, ask for recommendations.

Once you’ve made your first deposit, you can keep investing more into this fund in additional deposits. One way to stay on track is by scheduling monthly or annual reminders and auto-deposits through your brokerage.

Woohoo! You could be on your way to becoming a millionaire.

How I Invest.

Young investors share their stories. These are from real people, not financial advisors. Email us to share your story.

“I opened my Roth IRA at Charles Schwab when I was 24. The process is straightforward and easy, not scary at all, and adding money every now and again is doable because that’s where I put extra money I didn’t expect, like a birthday check, tax return, or overtime check. Contributing to the account feels safe, like I’m taking care of business.”

Malia M., 26
Broker: Charles Schwab

“I saved up $200 and opened a Roth IRA account at E*Trade earlier this year. It was free to open it, and then I found a socially responsible fund called TRDFX that allowed for a $200 initial investment. I set reminders for myself because I want to keep adding to it so it can grow bigger. It’s hard not to check it everyday!”

Mark G., 26
Broker: E*Trade

“My dad started a Roth IRA for me at Vanguard when I was in college. Now that I have a job, I can contribute to it once a year and watch it grow. I don’t get 401k matching since I’m a freelancer, so my IRA works out well. It’s gone up a lot, but I try not to check it too often.”

Stephanie C., 29
Broker: Vanguard