The Five Steps to Start Investing & Building Your Wealth in 2024

So many of us aren’t introduced to investing when we first start out on our financial journey. Sometimes it can feel like the secrets to investing well (and making your money work for you) are gatekept by a select few.

But investing is one of the best ways to build wealth and is surprisingly accessible once you know how to get started.

A personalized strategy that aligns with your goals is the foundation you need to set yourself on the path to building wealth.

Let’s dive in!

Steps to Start Investing Today

Step 1: Establish Your Investment Goals

First things first, define your destination. Whether you're saving for a dream business, dream home, or dream vacation—goals are the fuel for your financial journey.

Clear Goals Provide:

• Guidance – They help you stay focused and take action on specific objectives.
• Motivation – They keep you consistent with saving and investing habits.
• Strategy – They help you decide how much risk to take, where to put your money, and how to track your progress.

Short-term Goals vs. Long-term Goals

Different goals call for different strategies. We recommend breaking your goals down into short versus long-term.

For short-term, think stability. For long term, think growth.

Short-term goals: These goals have a shorter timeline. We like to say a short-term goal is one you’d like to achieve in less than seven years. This could be anything from saving for a vacation to paying off debt. Opt for low-risk investment options—like savings accounts, short-term certificates of deposit (CDs), or high-interest checking accounts like Sequin. Your money stays secure and grows for you, plus you can access it easily.

Long-term goals: The big picture dreams that need time to unfold. These are investments that you won’t need access to for more than seven years. This could include saving for that dream home or setting up for the next generation. With a longer timeline, you can be bolder with investments.

You’ll likely feel the ups and downs of the stock market, but stay the course, it has the potential to outshine any other investment over time. When it comes to investing, time is your biggest ally. Bigger than even the dollars you put in. Like planting seeds; the longer they can grow, the more abundant the harvest.

Don't stress if you can't drop a ton of cash into your investment pot right now. Start small, stay consistent, and let time do its thing.

Step 2: Understand Your Risk Tolerance

Risk tolerance is the level of risk you’re willing to take on.

High risk comes with the potential for high rewards—but it's not everyone's cup of tea because of the ups and downs. Low risk may mean a more stable journey, but the returns might be less predictable.

Deciding what your own risk tolerance is comes down to personal preference and the level of risk you’re comfortable taking.

When making that call ask yourself—what’s my comfort level when it comes to risk? Your decision should take into account your attitudes toward risk, your financial situation, and (of course) your goals.

If you're okay with trading more uncertainty for the potential for higher growth, consider higher-risk investments (eg. individual stocks). If not, go for a safer approach (eg. mutual fund or a CD).

Step 3: Choose the Right Investment Account

Okay so you’ve defined your goals and assessed your risk tolerance, now it’s time to decide which investment account option is right for you.

An investment account is a container or platform that holds your investments.

When choosing your account, look at your current financial situation. Consider your goals, timeframe, and how much risk you're prepared to take.

If you value flexibility, a brokerage account might be your go-to.

Brokerage Accounts

Pros:

• They offer a wide range of investment options. Stocks, bonds, mutual funds, and more. This gives you flexibility.
• They provide the opportunity for higher returns compared to traditional savings accounts because your money is invested.

Cons:

• They aren’t without risk. The value of your investment can change based on the market, which means there’s potential for loss.
• A good option to help with decision fatigue is checking out a Robo-Advisor like Ellevest, Acorns, or Robinhood.

Robo-Advisors

Pros:

• These are digital platforms powered by algorithms that are designed to invest your money.
• They typically select the investments for you and will automatically diversify your portfolio. This can save you the time and research it would take to pick the right stocks or funds for your brokerage account.

Cons:

• You end up having less control over your investments.
• They often come with fees that are lower compared to traditional financial advisors. But are typically higher than the fees associated with a brokerage account.

These tools can help you diversify your investments without making things too complicated.

If you're new to the world of investing, simplicity is your friend. Begin with low-fee options and explore automated strategies if the thought of choosing your own investments feels overwhelming.

Step 4: Learn About Investment Options

Now, you’re ready to explore your investment options and the ways you can optimize your money's potential. Each option brings something different.

Mutual Funds:

Mutual funds are like group savings, where everyone contributes money to a fund that’s purchasing a mix of stocks and bonds. They’re a smart way to spread the risk without having to pick specific stocks yourself.

Index Funds:

Index funds are great because there’s no need to stress about picking individual stocks. They follow a benchmark index, and when you put money in you get a small portion of ownership in all the companies within that index. It's an easy way to roll with the market's performance and pay lower fees.

Individual Stocks:

Buying individual stocks means you're getting shares of a specific company. If that company does well, your investments grow. But you take on the risk of losing money if it doesn’t. Individual stocks offer a more hands-on approach but come with higher risk.

Real Estate Investments:

You're putting your money into properties, or real estate investment trusts. You can make money by renting them out, or if the property value goes up.

Fractional Shares:

Fractional shares let you own a slice without buying the whole pie. Even with a smaller budget, you can own a fraction of a stock by investing based on dollar amount.

Next, decide between passive and active investing based on what fits your goals, preferences, and financial style.

Passive Investing:

Passive strategies (like index funds) often have lower fees and involve less frequent buying and selling. They aim to match the market, which can be a solid strategy, especially for long-term investors.

You set it up, let your money grow over time, and watch it do its thing.

Active Investing:

Active investing is more hands-on. You analyze trends, make strategic moves, and manage your investments.

You’re making decisions to buy and sell, aiming to outperform the market. It requires more time, research, and attention, but the potential rewards can be high.

Step 5: Start Building a Diverse Portfolio

What do we mean when we say diversify?

Don't put all those eggs into one basket. Invest in more than just stocks, and be sure to consider other avenues as well. Diversifying lowers the risk of your portfolio facing extreme ups and downs.

Asset Allocation:

Asset allocation is how you achieve balance in your portfolio. You decide how much money goes where—depending on goals, comfort with risk, and how long you plan to invest.

Consider these different asset classes when diversifying.

Equities:

Stocks – Shares in a company. They can have high returns but also come with uncertainty.

Fixed Income:

Bonds – Loans split up into units and sold. When you invest, they pay you regular interest, giving you more stability than individual stocks.

Cash:

Cash Equivalents – This can include Money Market Funds, Certificates of Deposit (CDs), or U.S. Treasury Bills. These are actual cash and short-term investments you can convert to cash. They give you quick access to funds and can be a great financial safety net.

Alternative Investments:

Real estate, Cryptocurrency, and Peer-to-Peer Loans, and more – These include a range of non-traditional assets. They add diversity to your portfolio but often come with higher risk.

The key to creating a portfolio that matches your risk tolerance is balancing asset classes. Find that harmony between daring and dependable that aligns with your investing goals.

The Key Takeaways to Start Investing

Build an Emergency Fund first. Everyone needs a safety net. This is essential for financial security and should be a part of your financial checklist before you start investing.

Not all goals have the same timeline. Investments for the future are key to building wealth. But it’s a long-term strategy. If you need access to your money sooner (for short-term goals), a high-interest account like Sequin’s high-interest checking account is the way to go.

Investments for the long haul, high-interest accounts for short-term goals.

Take action. Review your current financial goals, assess your risk tolerance, and take action to begin.

Start small by moving $100 into an index fund and then investing it. Or explore alternative low-fee investment options like a Robo Advisor and contribute small amounts each month. Consistency is key to building momentum.

Remember—every step, no matter how small, is a step towards financial security. For more education, tools, and support, join the Sequin membership.