GET STARTED: What do I really need to know?

Investing Basics

Let’s cut to the chase – what do I need to know to do this right? Here are some tips and best practices when it comes to saving and investing. They aren’t necessarily right for everyone, but they are a good starting point for your financial journey.

Many people struggle to set money aside for the future. If all of your income goes to current household expenses and bills, it might seem like there’s no way to invest for the long-term. You know it’s important, so you’ll need to either increase your income or reduce your expenses. One good starting point is to focus on paying off any credit card debt. Once the debt is paid, your monthly payment can then turn into a monthly investment.

It can also help to look at investing as an expense you have to pay, just like any other monthly bill. Investing small amounts regularly, even $50, can really add up over time.


Saving and Investing
Investing even small amounts adds up over time.

One of the keys to achieving financial goals is to invest regularly, every month, rain or shine.  Mutual funds make this easy. You can invest small amounts in mutual funds regularly, and you don’t have to analyze and choose which securities to buy (that’s what the fund’s managers do).

Funds offer different options to suit your objective. Some funds are low-risk, designed for meeting near-term goals. Others give you a chance to earn higher returns over the long run but have more risk.

Want to learn more? Check out our Goals page and how to Invest Affordably.

If you’re just starting with investing, make sure you have an adequate emergency fund first. An emergency fund is simply a few months’ worth of income held in a low risk mutual fund. It will help prevent a job loss, medical bills, or unexpected repairs from blowing up your financial life or sending you deep into debt. 

You can build up an emergency fund slowly with regular monthly investments. Once you have about three months’ worth of income in it, you can shift that monthly investment to new goals, such as retirement, college, or purchasing a home.

Want to learn more?  Check out our Establishing an Emergency Fund page.


Emergency Fund First
The biggest financial risk may be not being able to handle emergencies

Yes, because 401(k) plans (or 403(b) plans in the public sector) boost your retirement savings. A 401(k) Plan is a regular, disciplined way to invest. Your contributions reduce your taxable income, so you pay less income tax while you save for retirement. And many employers match contributions up to a specific amount or percentage. This is essentially free money, no strings attached.

There are many types of 401(k)s, and often a variety of investment options, so you’ll want to understand the details of your company’s plan. Once you have an established account, Deciding What to Do with Your 401(k) can help you figure out your next steps when you leave a job.

Everyone likes a deal. But when it comes to investing, there’s no way to know whether the price today will be higher or lower than tomorrow, next week, or next month. Instead of waiting for a “good” price, divide your total investment into equal amounts and invest over time. You’ll automatically buy more shares when the price is relatively low, and fewer shares when the price is relatively high. It’s called “dollar cost averaging”.

Here’s an example: You decide to buy $200 of a mutual fund over two months. The first month, the price is $20 so you buy five shares. The next month, the price is $25 so you buy four shares. By getting more shares at $20 than at $25, you keep your average cost down.

Dollar cost averaging cannot guarantee a gain or protect against a loss in a declining market. Because dollar cost averaging involves continuous investment in securities, regardless of their changing price levels, you should consider your financial ability to maintain the program over the long term.

The best answer may be “not much”.  You don’t need to make changes to your investing plan every time the market changes – in fact, doing so can do more harm than good. Unless you have a major life event like a new baby, a divorce or an inheritance, reviewing your investments annually is typically good enough. During your annual review, consider the following:

  • If you’ve met a goal, shift your regular investing to a new goal.
  • If there are only a few years before you’ll need to withdraw a big amount, move that money into a lower-risk fund.
  • See if changes in the value of your funds have shifted your investment mix too much. If the stock market went up a lot, you might have a higher percentage of your money in stocks than you want, and not enough in lower-risk bonds. You’ll want to “rebalance” to get your asset mix back in line. You can learn more about how to do this online in Asset Allocation Modeling.


Stay Focused on Your Goals
Reacting to market movements can do more harm than good.

You can make investing easy by setting up regular, automatic contributions to add to your funds.  You won’t have to remember to write a check or transfer money online, and you will buy more of a fund when its price is relatively low, and less when the price is relatively high – that’s called “dollar-cost averaging” and it's a smart way to invest.

Dollar cost averaging cannot guarantee a gain or protect against a loss in a declining market. Because dollar cost averaging involves continuous investment in securities, regardless of their changing price levels, you should consider your financial ability to maintain the program over the long term.

Want to learn more?  Check out the Account Help section for how-tos.