Want to start investing but not sure where to start? We’ve all been there! Fortunately, I had the chance to chat with Joe Vietri, senior vice president and head of the branch network at Charles Schwab — which was just named one of GOBankingRates’ 2018 Best Brokers — to get his advice on investing basics. From how to choose a broker, to how much of your income you should really be investing, here’s why (and how!) you should start investing now.
What are the most important things someone should think about when picking out an investment broker?
We always recommend everybody do their homework. It’s all going to come down to what you are trying to accomplish, and looking at the various investment firms in terms of the capabilities they have, and the various products and services they offer. I don’t think there’s anybody out there who does everything for everybody.
Access is also important to consider. How do you want to access that firm? Do you want a highly digital experience? Do you want a high-touch experience where you have local access, and you can sit down with somebody? Or do you want a hybrid between the two?
Investing seems really complicated to a lot of people! What are the top things to keep in mind?
I think the operative word there is that it does seem complicated. It doesn’t have to be that way. We’ve actually developed what we call investing principles here at Charles Schwab, and they fall into three themes.
The first is how you get established in terms of setting goals and creating a financial plan. Figure out what it is you’re trying to accomplish, what your goals are and what your circumstances are, and then work with a professional — or online, you can do it yourself — to create a financial plan. Your plan is really your road map to help you determine where you’re going.
Second is acting on the plan, or actually getting invested. How do you choose the investments that are right? Part of that is the timing. We’re big believers in starting as early as you can within the market, and taking advantage of the power of compounding, which we call the eighth wonder of the world. Also in this “getting invested” bucket is how you actually construct a portfolio that is diversified. We’re big believers in diversification, especially for long-term investing. You should also [plan] your investments around minimizing your taxes — taxes have an impact on your overall return — and your ability to potentially protect your portfolio.
Third, you don’t just put it on autopilot, you’ve got to stay engaged. And you’ve got to figure out if you are staying on track and re-balance your portfolio. See where you are relative to your plan, and what’s changed in terms of your personal situations.
Is there a secret ratio or golden nugget of advice for how much to invest compared to saving or spending?
It’s really going to depend on your plan and what your objectives are. We’re all unique, we all have different things we are trying to achieve, different levels of risk and we’re at different ages. So I can’t give you an exact formula, but we do have some guidelines.
If someone is in their twenties — they just graduated from college, they get their first job — you can pretty much safely say 10 to 15 percent of their pre-tax income should be put toward investing. If you are in your thirties, it’s probably closer to 15 or 20 percent, if you’re in your forties, say 25 to 35 percent, and then it really starts to jack up as you get closer and closer to your ultimate goal, which for most people is saving for retirement.
If you’re over 50 and you’re just getting started, you can do it — but it’s pretty big numbers. It’s well over 60 percent of your income you should be stashing away in order to reach that retirement objective.
The main thing is to be disciplined, and there are ways you can do this that can actually make it easier. Everything is automated these days, and you can do automatic payroll deduction and take advantage of retirement saving vehicles through your employer like 401k’s.
Related: The Best Investment Brokers
What are the biggest investing mistakes people make? And please tell me there’s some way to avoid them!
I think it really boils down to emotions at the end of the day. People tend to panic when the market is down and they get irrational, and they make irrational decisions in the short-term. Don’t let the day-to-day noise or fluctuations with the market spook you out of the market. If we could all time the market and sell at the highest-high’s and buy at the lowest-lows, we’d all be geniuses. It’s just not possible, and it’s not practical. Some people think they can trick the market or time the market. You might be able to get it right one or two times, but over the long-run it’s not worth it. That’s why we always say time in the market is much more valuable than timing the market.
More on Investing Strategy
- The Best Apps for First-Time Investors
- 25 Money Experts Share the Best Way to Invest $1,000
- 10 Safe Investments With High Returns
- Watch: We Know Warren Buffett’s Best Investing Secret, Do You?
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