Making your first investment is a big milestone. Before filling out your first trade ticket, make sure your investment choices line up with your investing timeline and goals. Here’s your step-by-step first investment guide.
Questions to answer before your first investment
1. Are you financially ready to start investing?
Before you start investing, assess your financial situation and ensure you can cover your everyday expenses. If you don’t already have one, making a budget could help you see how much money you have coming in and going out. You can also try Fidelity’s cashflow analysis tool, which has a budget feature.
It's also to your advantage to have emergency savings. Fidelity suggests setting aside $1,000 then building up 3 to 6 months’ worth of expenses, so you have a safety net in case you lose your income or an unexpected expense comes up.
2. What are your financial goals?
Determine your short-term goals (3 years or less) and long-term goals (more than 3 years) before investing. Goals could include saving for a car or wedding, a home, or early or traditional retirement—or any combination. Your goals act as a guide, helping you choose accounts, strategies, and investments that match your timeline and priorities.
For instance, if you’re saving for retirement or education expenses, you might choose tax-advantaged accounts, like an individual retirement account (IRA) and a 529, respectively. Keep in mind that these accounts have contribution limits, withdrawal rules, and potential penalties; a taxable brokerage account has fewer restrictions but won’t offer the same tax benefits.
3. What’s your risk tolerance?
Figure out how comfortable you are with risk. Some people get nervous whenever the markets fluctuate, as markets tend to do. That can lead to panic-selling when the market is down. Locking in your losses when prices are down means you’re faced with deciding when to invest again, and timing the market is impossible even for the most experienced investors. On the other hand, you might have an easier time staying focused on the long game, making you less likely to panic-sell and more willing to ride out a bumpy market.
Wherever you land on this risk-tolerance spectrum will influence which investments you buy and how different investments can work together to create a portfolio designed to fit your needs and comfort level.
4. How hands-on do you want to be?
Investors who prefer to be more hands-off might choose investments like mutual funds or exchange-traded funds (ETFs). These are collections of investments that have a specific objective and may offer built-in diversification, spreading out risk across different investments within one security. A certain flavor called an index fund aims to mimic a market index, such as the S&P 500®. In other cases, a fund manager may decide what to invest in within a particular mutual fund or ETF. Either way, you’re not choosing the underlying investments.
Investors wishing to be more involved may want to research and pick their own stocks.
You’ll also need to choose whether to manage your own investments or get guidance from a financial advisor. There’s also a hybrid option: Low-fee robo advisors use technology to invest your money for you based on your financial situation and risk tolerance.
5. Are you emotionally ready to start investing?
Some would-be investors might feel there are barriers preventing them from buying that first investment. A common one: lacking investing confidence. Fortunately, there are many ways to become a more confident investor. One tactic is to familiarize yourself with key investing terms and strategies by doing some online reading. Understanding the language and the basics can help investing seem less intimidating. Need an idea to start? Fidelity’s interactive investing lessons and Learn to Invest experience aim to demystify investing for beginners.
Here are more hurdles to investing and how to leap over them.How to pick your first investment
1. Consider your investment options
Bonds, ETFs, mutual funds, stocks, and even cryptocurrency could all play a role in helping you reach your financial goals. Each comes with different risks and potential rewards. For instance, stocks may offer higher growth potential but greater volatility, while bonds generally offer more stability with lower returns. Learn more about investment types.
2. Research investments
Every investment you make deserves a close inspection before you commit your cash, so get into research mode. Some factors to consider:
- Performance recently and over a longer period of time.
- Fund ratings, like star ratings from Morningstar, which also gauge performance strength.
- Fund management styles, like active, with a fund manager routinely changing the composition of the fund, or passive, generally with fewer changes. These usually influence the fund’s expense ratio, or fees, with passive management usually costing less because less maintenance work is involved.
Many brokerage firms have helpful tools like stock and fund screeners to help you research investments that could help you meet your goals.
You can also research mutual funds based on strategy, such as zero minimum investment funds, funds that fight inflation, or income generation funds.
3. Compare costs
The less you pay in fees, the more money you have working for you in the market. Investments come with various fees, and trading commissions, expense ratios, and redemption fees can all eat into your returns. Look at what similar investments would cost you, while factoring in possible performance. If you’re considering using an advisor, whether human or robo, compare the investments’ fees and any ongoing annual account management fees.
How to buy your first investment
1. Open an investing account
When choosing an online brokerage firm, look for features like user-friendly platforms, low fees, and investment options that make sense for your goals. Once you’ve chosen one, follow its instructions to open the account type that matches your needs.
2. Fund your account
Add cash to your account in preparation for your first investment. Most brokerages let you link your bank account for quick and convenient funding. Also review whether your account requires a minimum opening balance (not all do), so you can initiate a transfer for the correct amount.
3. Choose your investments
With funds in your account, it’s time to pick investments. This is where you apply that research and comparison. If you’re buying a stock, mutual fund, or ETF, look up the symbol for that investment so you can enter it when you get to that point when filling out your trade ticket.
The “investment strategy” tile can offer guidance if you're looking for investment strategy ideas.
4. Complete your trade
For stocks and ETFs at Fidelity, for example, you specify the account you want to trade in, and then the number of shares or dollar amount you want to purchase. Next you’ll choose between a market order, when you want to immediately buy the investment at the current price, and a limit order, when you want to buy the investment only if it reaches a specific price. For mutual funds, you indicate the dollar amount you want to invest the next time they’re available to buy (they trade only once per day when the market is open). After reviewing your order, make your purchase. Here’s exactly how to trade stocks at Fidelity.
What to do after you buy your first investment
1. Congratulate yourself
Making your first investment is worth celebrating. It’s a key step toward helping reach financial goals that are important to you.
2. Schedule regular check-ins
Checking your investments daily might sound like a good idea, but that strategy could cause needless stress. To save your sanity during the market’s inevitable ups and downs, set a realistic schedule to review investment performance. Consider rebalancing at least annually and rebalance as needed if the portfolio has drifted from your target. Do the same after any major life event, such as marriage, a new child, or divorce. If an investment no longer aligns with your goals and situation, time horizon, or risk tolerance, consider making a change, like selling some or all of that investment and replacing it with new ones. Note that if you sell at a profit, you will create capital gains. If you sell at a loss, you may be able to tax-loss harvest. Consult a tax professional.
3. Consider regular contributions
Setting up recurring investing can be a beneficial habit. Many brokerage firms allow you to schedule regular deposits directly from your bank account on a set day (like on payday). Select your investments (such as mutual funds, ETFs, or individual stocks) and enter the amount and frequency of your recurring investment. Investing the same amount at regular intervals, known as dollar-cost averaging, could help reduce the impact of prices going up and down—and help you benefit from the potential of compounding returns.
Dollar-cost averaging does not assure a profit or protect against a loss in declining markets. For a Periodic Investment Plan strategy to be effective, customers must continue to purchase shares both in market ups and downs.
4. Don’t forget taxes
If you’re investing through a brokerage account, you’ll want to track your investment activity for tax purposes. You won’t pay taxes on certain tax-advantaged accounts like a traditional IRA until you make withdrawals. But you could be taxed on earning dividends (small payments to shareholders) in a brokerage account, earning interest in CDs and money market accounts, or selling investments in a brokerage account. You may also have to pay taxes on any profits you make if you sell your investments (called capital gains). On the flip side, you may be able to do what’s called tax-loss harvesting to help offset any taxable gains by selling investments at a loss.
5. Remember your “why”
When markets fluctuate—and they will—it may be tempting to second-guess your decisions. To avoid remorse, it could help to revisit your original goals and reasons for investing. Keeping your “why” in mind could help you make thoughtful investment decisions no matter what’s happening in the markets on any given day.