By Alexis Cheney – @akcheney
Two weeks ago, just the word “investing” caused me anxiety. Although friends and family told me time and again that placing my paychecks in a savings account barely surmounts shoving it under my mattress, the thought of investing my savings overwhelmed me. How – exactly – do I invest? What – exactly – should I invest in? How much of my savings should I invest?
Tired of cowering in the financial dark and ready to make my money grow, I finally bit the bullet. I made a FREE appointment with a Financial Solutions Advisor (who, for anonymity’s sake, we’ll call Mike) at Bank of America (pictured below). Meeting with Mike gave me enough information to make my first investment and left me feeling empowered.
I told Mike that as a recent college grad with the goal of attending graduate school in the next two to three years, I intend to use the money I invest to pay for my masters degree. Since I will need to spend this money relatively soon, he suggested that I choose a low-risk investment known as a mutual fund. A mutual fund is a collection of between 30 to 100 stocks, bonds, or other securities that professional analysts manage. Investors in mutual funds (such as yours truly) do NOT actually own the actual securities composing the fund. They merely own a slice of the fund. Mutual funds best serve small investors (i.e. those who would like to invest as little as $2,000) since they allow investors to diversify their portfolio, which would otherwise be challenging, if not impossible, given the high price of stocks.
After advising me that a mutual fund is a good fit for my needs, Mike gave me the following tips on how much money to invest in and choose a mutual fund:
- Set aside six months worth of living expenses in a savings account. This means, do NOT invest this safeguard in the case that the stock market crashes. The rest of your assets is fair game for investment in mutual funds.
- Research mutual funds. Mike suggested researching mutual funds by reading Yahoo Finance, CNBC, and CNN Money. “If you read all of the resources on CNN Money,” Mike said, “You could be sitting in my chair!”.
- Decide on a mutual fund in which to invest. Ivy Investments and Fidelity Investments provide ratings on mutual funds. I decided to invest in a technology mutual fund that had a high MorningStar rating and also did not cost anything to purchase. Every mutual fund has its own four digit symbol.
- Set up a brokerage account. A brokerage account is an arrangement between an investor and a firm in which the investor deposits in an account with a firm and the firm invests those deposits according to the investor’s instructions. I chose to set up a brokerage account with Merrill Edge given its partnership with Bank of America. Mike sent me the link to set up my brokerage account and then an Investment Consultant at Merrill Edge called me and showed me how to use the brokerage account interface.
- Invest in a mutual fund! Based on the amount of money you need to save for six months worth of living expenses, choose a quantity of money to invest in a mutual fund. Investing in the mutual fund is as easy as clicking the trade button and entering the four digit symbol of the fund. A helpful tip is to buy the mutual fund when its price is low. The brokerage interface allows investors to track the price of the mutual fund over month and year long period. The account even can automatically purchase the fund when it hits a price that you set so that you do not need to check its price every day.
Track the mutual fund. It’s easy via phone applications or by going online!
The whole process of meeting with a financial advisor and choosing a mutual fund in which to invest took no more than two hours. Although investing in a mutual fund is a small and easy step, it can help you reach big financial goals, such as affording graduate school.