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How Can I, a Broke Recent Graduate, Start Investing?

This is a guest post by Eric, who keeps a personal finance blog, Narrow Bridge, and an Israel blog, The Israel Situation.  He is a financial analyst and MBA student in Denver, Colorado.

Raging Bull - Wall Street by Sylvain Leprovost on Flickr Your browser may not support display of this image.When I graduated from college and got my first job, I was excited.  For the first time ever, I would have real money.  In my new job I had deductions for insurance and benefits, but no 401(k) or IRA options out of the box for a new manager.  I took my cash and bought lots of fun things like snazzy suits and cool drinks.  I did not, however, buy into my future.

I am in the camp of finance bloggers like Ramit Sethi: I don’t think we should be super cheap and cut our spending to fit our income.  I think we should make more to live the life we want.  One of the easiest ways to do that without stressing is to start with an automatic investment.  I had the first part in place – direct deposit – but did not take the next steps.

Websites like ING Direct make automatic investing really easy.  ING, and other online banking sites, let you schedule automatic transfers ahead of time.  You can transfer funds to a savings account, another bank, or a brokerage firm account.  If you make it automatic, you can do it in a small dose and start your investments.  You don’t need $1000 to start; you only need to make a commitment to invest at a regular interval.  Many people call this “paying yourself first.”

At ShareBuilder, owned by ING, you pay $4 per trade.  If you decide to invest $40 per month, that is only two weeks of coffee or one dinner with the girlfriend/boyfriend, you can build up a portfolio of nearly $500 in your first year.  I am sure you can live without an extra $40 per month.  When I started automatically investing, I started at over $200 per month.  You can also make similar investments with Charles Schwab (where I do my stock trading), Scottrade, E*TRADE, or any other full service or online firm.

The next part is deciding on what to buy.  Stocks, bonds, mutual funds, ETFs, index funds, the list goes on.  As a young person you can take risk, but you don’t want all of your eggs in one basket.  Avoid individual stocks and bonds as they do not offer any diversity.  I suggest avoiding most mutual funds too, as they do not always perform well and often have high fees.  I would look into ETFs and index funds.  Pick one that reflects the market you would rather invest in.  You can buy into a Dow Jones Industrial Fund, NASDAQ index fund, S&P 500, Russell 3000, and so on.  In the long run, the markets always go up.

Now you have your formula and your plan.  As a guy, I like instant replays and recaps.  Here is the recap of a 20-something starter investment plan:

  1. Get paid with direct deposit
  2. Start making automatic investments every payday
  3. Invest in a low fee ETF or Index Fund
  4. Don’t touch it.  Build a portfolio

After a few months or a year, you might decide to invest in a different fund.  That way you are double diversified.  If you are investing purely for retirement, Vanguard is another company that makes investing easy.  Just do not be tempted to give up after a bad day, week, or year.  I don’t even check in on my stocks every day.  If I did, I would be too tempted to make bad trade.  Investments are for the long run.  Short term trades are more like gambling.  After a little while, you will no longer be Poorer than You, you will be richer than most.

If you have any questions, feel free to contact me through my contact form or just leave a comment below.

[Photo Credit]

19 responses to “How Can I, a Broke Recent Graduate, Start Investing?”

  1. Guest Post Featured on Poorer Than You | Narrow Bridge

    […] Stephanie at Poorer Than You put up a guest post I wrote this morning.  Please head over and check out How Can I, A Broke Recent Graduate, Start Investing. […]

  2. 7.22.09 featured blogs of the day – Student Bloggers

    […] you a recent graduate with no money? Then, there is still time to invest in some money. [Poorer than […]

  3. Chandler

    How do you know which ones to invest in? I have tried sharebuilder but all that stuff is so confusing to me so i just look at it and give up. I don’t want to make a bad investment.

    1. Stephanie

      Chandler: like Eric said in this post, you want to look for index funds, or “exchange traded funds” (ETFs) that track an index. Why? Because that way you’re not just investing in one stock, or a few stocks, but in hundreds. If you’re looking for more information on investing, especially index funds, this book may help you understand it all: The Bogleheads’ Guide to Investing

    2. Ace | Investing for Dummies

      Wow.This is really interesting.This sounds like a risk for a newbie like me.I’ll do my research first about Isharebuilder.Thank you sharing “The Bogleheads’ Guide to Investing”

  4. Eric

    I would take Stephanie’s advice and look at ETFs or Index Funds. Do a little research into which fund you are interested in. To start, the most diverse funds are probably the best. Look into S&P 500 or Russell 2000 or Russell 3000 funds. Those give you a very diversified exposure.

  5. Stefan |

    I think i have seen that image you use, that bull, a lot in China as a statue. Possible?

    1. Eric

      It is actually generally used as the logo for Meryl Lynch. It is supposed to represent a “bull market” for investing.

  6. Ruri@Free article submission

    In my opinion ING Direct is more saving than Investment. However, I don’t really know the type of investments other than real estate investment.

    1. Eric

      Investment options at ING include certificates of deposit (CDs) or anything through their Sharebuilder division. Normal checking and savings accounts are not as much investment accounts as cash holding accounts, but with a good interest rate even savings can be considered investing.

  7. Anon @ Tradesmarter

    How can you say savings can be considered investing even if there is a high IR? savings are the opposite of investments

  8. Eric

    I would say that investing is just a form of savings and that spending is the opposite of both. Saving and investing are both forms of building assets for the future through different vehicles. Is a CD an investment or savings? What if you could get a higher savings rate than CD rate? What if you could beat the market with a savings account? Choosing where to put your assets is an investment decision.

    Do you disagree? What would you say the difference is?

  9. Anon @ Tradesmarter

    I see what you mean. Ultimately its a grey area and difficult to define what is an investment and what isnt – as you mentioned building on any assets for the future is arguably investment.
    I suppose when i consider using the term ‘investing’ i would always consider considered conventional investment to have a risk premium of at least losing some of your initial outlay if not all. Whereas savings is a tool to manage your portfolio and a hedge to existing investments

  10. Eric

    Just be careful not to get stuck in the conventional way of thinking. We can all do great things if we break the mold.

  11. Christani @ chocolate gift baskets

    I did, I would be too tempted to make bad trade. Investments are for the long run. Short term trades are more like gambling. After a little while, you will no longer be Poorer than You, you will be richer than most.

  12. Biba

    Some good thinking! I think, before anyone starts investing in DowJones and alike one must do thourough reaserch and and try few trading strategies. Trying free demo accounts can also help since you can practice without risking any of your money until you gain confidence.

  13. Michael Burns

    I understand you know the priciples of money management. On my blog I have video’s, audio and articles on the money management system of T Harv Eker. Perhaps you’ve heard of him. Come check it out. One tip, it is not about making more money. The secret is how you Manage your money.

  14. Bill Nast

    Totally agree with the concept of investing automatically at regular intervals and with low cost investing. Princeton University professor–and author of the classic book A Random Walk Down Wall Street–Burton Malkiel supports this heavily as well.

    I would add some helpful research such as that that shows investing in small cap value tends to outperform market averages over time without adding much risk.

  15. Michael

    Great post, low cost index tracking funds seem to be the best decision for millennial. follows along the same themes

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