Hey fellow Millennials! Here’s where I’m going to discuss “How to Start Investing for Millennials”.
Because after the day to day grind in the workforce, you want to make sure your money is working hard for YOU!
And investing is one of the easiest ways to do this.
If you don’t know how investing works, please learn about it because it can help build extra income while you sleep!
It’s almost passive income.
And I say almost because some methods require a little more upkeep than others.
But before we start, I hope you have an emergency fund already.
I get that you’re eager to learn how to grow your money passively but an emergency fund is essential.
You never know what life brings you so having some liquid money to fall back on could be a lifesaver.
Now, where were we? Oh right, getting started with investing.
I like to think of investing in two main categories: short-term and long-term.
Short-term meaning less than 5 years and long-term meaning more than 5 years.
A common example of long-term investing would be a piece of property you buy and keep (or rent out) for several years before selling it to obtain the profits.
But most millennials don’t have that kind of money to start (or at least I don’t.) If you’re one of the few millennials who have parents/friends/family to help you buy property to invest in. Good for you!
My approach is a little different, considering the amount of starting funds I have access to.
**Disclaimer**: I am NOT a financial advisor so please invest at your own risk.
The four types below are what I consider short-term investing and they will be discussed in the following sections.
- Savings Accounts
- Money Market Accounts
- CDs (Certificate of Deposits)
- Stocks that don’t have dividends
Savings/Money Market Accounts
These two accounts are relatively similar but usually Money Market Accounts have higher rates (around 2.35% – at the time of this post).
Think of Money Market Accounts as a mix of savings and checking accounts. Most people don’t use them as you have savings account for the interest and checking accounts to pay the bills.
Money Market Accounts are still subject to the withdrawal limitation of 6 withdrawals a month (same as savings) AND they don’t allow for much check writing. It’s around 3 checks per month give or take.
So why would you open a MMA (Money Market Account)?
It’s mainly for the interest rates.
If you don’t have a good access to credit unions who can offer 2.00% interest rates or higher, a MMA account would be a good second choice.
Think about it. Banks are offering 0.01% and that’s incredibly low while MMA accounts are offering 200 times that much.
It seems like a no-brainer to me.
CDs (Certificate of Deposits)
What is a CD?
How it works is very similar to how a savings account works (almost).
You have an incentive to leave your money at the bank. It’s the interest the bank gives you!
Even if it is a small amount.
So banks also give you an incentive to open a CD account as well.
For a CD, you agree to leave your money at the bank for a certain duration of time AND you won’t take it out during this time.
In return for this amount, the bank will give you a higher rate than most savings accounts. (And I say most because some of the internet banks and credit unions are offering interest rates that are pretty close.)
Also, the neat thing about CDs is that you can create something called a “CD ladder” where you open multiple CDs and when they mature, you can put those funds into another CD.
Say that again?
Yep, it’s a little confusing so let’s break down.
Let’s say you have 5k to invest.
The ladder can be built any number of ways but for the sake of simplicity, say you opened 5 CD accounts with this 5k. Each one will have a different ending date.
- CD 1, 1k in a 1 Year CD
- CD 2, 1k in a 2 Year CD
- CD 3, 1k in a 3 Year CD
- CD 4, 1k in a 4 Year CD
- CD 5, 1k in a 5 Year CD
After CD1 matures, use those funds and open another 5 Year CD.
After CD2 matures, use those funds to open yet another 5 Year CD.
And you can do the same with CD3, 4, and 5.
It sounds like a lot of work but you are taking advantage of the high interest rates with each type of CD.
Stocks that Don’t Pay Dividends
This is my favorite section because the potential for earnings is much higher.
How do you earn money from stocks?
There are 2 main ways.
One is through buying and selling of stocks and the other is through dividends (which is similar to having interest but through owning a stock).
For stocks that actually pay out dividends, I would consider them more of a long term hold (after all, the longer you hold, the more dividends you gain from it).
Plus, the stocks that usually pay out dividends are larger and stable companies. So you wouldn’t need to worry about these companies going under while you hold them for several years.
Think of Starbucks, Apple, Wells Fargo, AT&T, McDonalds, etc. The respective stock symbols are: AAPL, WFC, T, MCD.
I bought some Apple stock 6 years ago and am still holding because it pays a dividend of 1.54%.
But this section is about the stocks that DON’T pay dividends.
They could still be stocks of stable companies but the idea here is to buy low and sell high. Or at least buy low and sell enough to cover your cost of buying it.
I’ll give a real life example. I bought OLED (who was a growing company making OLED screens) several years ago around $45/share.
It didn’t pay dividends but I saw the potential it had because they were going to make screens that were more energy efficient and brighter.
A better version of the screens at the time (I think it was LCDs?).
Plus, there were rumors that they were going to partner up with Samsung for the TV screens.
OLED is now well over $100/share and I sold a few to cover my original cost of $45/share. Now I’m holding onto free shares essentially.
If the price dips again because of some bad news I may want to buy some additional shares.
How do you find these stocks?
OLED was brought to my attention by a friend who was interested in technology screens.
But for the other stocks I buy, I usually hear about them in the news or it’s a technology company I have been following.
For those that want to get more technical you could run some numbers, charts, scans to pick stocks.
I’ll save that detail for another day.
The easiest way is to pay attention what your friends and families are buying. A new company or product? See if they are public.
Do you have an industry you are interested in? What companies do you like?
It’s easier than you think to pick stocks but of course, there’s a risk that the stock you pick isn’t a good one.
Well how do you know? You don’t. If the price consistently dipping then you just have to take that loss before you lose all of your money.
It’s never 100% guaranteed that you will make money.
Stocks are risky for a reason. If you want 100%, then stay away from stocks and stick to the other methods for growing your money.
If you are willing to try, I would recommend opening a stock brokerage account with TD Ameritrade or Etrade.
These two brokers are ones I personally use.
TD Ameritrade because their mobile app is handy and easy to use. There’s a lot you can do with it. Charts, price alerts, watch lists, etc.
They also allow demo accounts if you want to paper trade for awhile before using real money.
They also offer free trades if you deposit 3k or more into an account and you get 500 free trades for 60 days. After 60 days, trade commissions are $6.95/trade but if you contact customer support, you can negotiate the commission down.
I originally had Etrade because one of the startup companies I worked for used Etrade for the stock options they gave to their employees.
After leaving that company, I still kept the account.
I love Etrade’s interface on their platform and I been with them long enough that any ACH transfers I initiate to use is available almost immediately (with TD Ameritrade I have to wait for funds to clear).
What it’s lacking though is the charts on their platform. If you don’t use charts, Etrade will work just fine for you.
Setting up an account with either one of these brokers is pretty straight-forward.
You fill out an online application and you may have to prove your identity. Then you send money into the account to invest and search for a stock or stocks to buy.
I hope this was helpful! If you have questions, don’t hesitate to reach out.
Which one of these investing methods are you currently using or plan to use?
Leave a comment below!