Quick Question—How Much Money Do You Need to Start Investing?

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If there’s one topic we get a ton of questions around at Create & Cultivate HQ it’s money. We all want to know how to manage it, save it, and make more of it, right? Show me the money! But, in all seriousness, if you really want to see more numbers in your bank account, then you should be investing it. 

But the big follow-up question to that is, how? Unfortunately, many people are afraid to invest or they don't do it because they simply don't know how to get started. So, when we saw this question come through during our recent Money Moves summit, we knew it deserved its own blog post.

“This is an extremely basic and amateur question—how do you start investing? What are the steps to take? I understand the importance of it, how to prioritize, and the different types, but how do I start?” — Money Moves Attendee.

If this sounds like you, you’re not alone. So many women tend to save their cash instead of investing it and while saving is always a good idea, you won’t see your money grow. So to help close the gender investment gap, we asked Lauren Anastasio, CERTIFIED FINANCIAL PLANNER™, SoFi to answer a few simple questions about investing from what you need to know, what you need to do, and how to get started—ASAP! 

Ready, set, grow!

What types of investments are there and which one should I choose? 

While there are many types of investments, the most common are stocks, bonds, and mutual funds.

Stocks are the most volatile but offer the highest potential return. These are ideal for investors with a high-risk tolerance and a long time horizon.

Bonds are a form of fixed-income, that provide interest payments as well as the potential for appreciation. These are less risky and appropriate for shorter time horizons (say 3-5 years).

Mutual funds are pooled investments, which means they can own stocks, bonds, or a combination of the two in one fund and a mutual fund shareholder can have ownership of a portion of that pool. Mutual funds can be either aggressive or conservative so that can be appropriate for a variety of time horizons, and they provide diversification by spreading your risk out across hundreds of different investments. 

You should make investment decisions with your risk tolerance (how comfortable you are with the idea of the volatility and losing money) and your time horizon in mind. The higher your risk tolerance and the longer you plan to be invested, the more aggressive you can be. The lower your risk appetite and shorter time periods available for investing should be done more conservatively. 

What kind of investors are there? How do I determine what kind of investor I am and what suits my lifestyle/needs?

There are many different ways to classify someone’s investment style, but one of the easiest ways to differentiate investors is to split them into two groups—active investors and passive investors.

Active investors typically enjoy investing and following capital markets as a hobby. They like to be actively involved in the day-to-day management of their account, picking and choosing each individual investment.

Passive investors, on the other hand, don’t necessarily have the time, knowledge, or desire to be actively involved in the management of their account and prefer to own long-term, passive investments like mutual funds or ETFs, and in many cases may seek out a managed account solution where someone else is making the investment decisions and responsible for the account’s performance over time. 

Many investors, regardless of experience or intelligence, appreciate the benefits and peace of mind that managed investment accounts offer.

“You should make investment decisions with your risk tolerance (how comfortable you are with the idea of the volatility and losing money) and your time horizon in mind.”

What is the minimum amount of money I need to start investing?

There is no amount too small to get started. You can open an automated investing account, also known as a managed account, with as little as $10 at SoFi. With stock bits, which are fractional shares of stock, you can also pick and choose your own investments by buying less than the face value of a whole share of stock. This means if you want to own Amazon, which trades for about $2300 per share, you can still own Amazon even if you only have $100 or $25 to invest. You can learn more about stock bits and fractional shares on SoFi’s website or by speaking with a SoFi Financial Planner. 

What kind of fees can I expect to pay?

The types of fees you’ll incur on your investments will depend on where and how you’re investing. There are two types of investment accounts you can have; a self-directed account where you pick your own investments and place your own trades, or a managed account where someone else invests on your behalf. Self-directed accounts, or brokerage accounts, do not have ongoing fees, but you will pay a fee with each trade or transaction, this is called a commission. Managed accounts come with a management or advisory fee, typically a small percentage of the dollar amount you have invested.

Many managers will charge anywhere from .25% to 1% or more on assets, which means your fee is calculated based on how much you have invested; the higher your account balance the higher your fees. SoFi offers fee-free investing in our managed automated accounts and commission-free investing in our active accounts. 

How much money will I make on investments?

How much you’ll make on your investments will depend on what you’re invested in and how long you stay invested. Riskier investments often come with higher returns—higher risk, higher reward. Higher risk investments include individual stocks; much can be made or lost with these investments. More conservative investments like bonds also provide a return but typically at a lower average annualized rate and in a more predictable fashion. With either type of investment, your return will be greatest the longer you’re invested due to compounding. As your account becomes larger, you earn returns on your returns, this is why getting invested when you’re young is so beneficial—you have time on your side! 

Do I need a financial advisor to start investing or can I do it myself? 

You do not need to hire a financial advisor in order to start investing. Many platforms, including SoFi, are easy to navigate and novice-friendly. You may benefit from speaking with an advisor before you get started to better understand the terminology, logistics, and ensure you have reasonable expectations. SoFi offers complimentary access to Financial Planners who can help empower you to get started without hiring a money manager. 

“Start slow. For some new ventures in life, we might feel comfortable diving right into the deep end head first, but when it comes to our hard-earned money, that’s rarely the case. ”

Is it a risk to invest in stocks? What are low-risk investments I can make?

There are inherent risks with all investments, and different types of risks, too. Investing is considered to be less risky than gambling, but be aware that you could still lose everything if you don’t mitigate your risks. Stocks are one of the most volatile investments which mean their value can swing greatly from one day to the next. You can lower your risk by investing in less volatile investments, like bonds or treasuries. You could also lower your risk through diversification. You can diversify by buying mutual funds or ETFs, which allow you to spread your risk across hundreds of different stocks or investments. 

How should I diversify my investments and reduce the risk?

To attain a diversified portfolio, it’s important to invest in a variety of asset classes, based on your available capital and risk tolerance. It’s also important to spread investments out within each class. Stocks, bonds, and real estate are among the most common investments and can provide you with a well-diversified portfolio, but you can diversify your portfolio further by putting money into anything that you think will accumulate value over time. For example, people invest in art, wine, or cars. Of course, knowing something about the area you want to invest in, or consulting experts is a smart idea before you get started.

It’s a bear market right now. Can you explain what that means and is it a good time to invest? If so, what investments should I make right now? 

A bear market is when a capital market experiences significant and prolonged price declines. It typically describes a condition in which investment prices fall 20% or more due to pessimism or negative investor sentiment. Bear markets also may accompany general economic downturns such as a recession and can occur in response to non-economic phenomena like natural disasters, war, or as we're seeing now, COVID-19. 

Investing during a bear market gives you the benefit of lower costs like shopping during a sale, you’re paying less for the same product compared to what it may have been priced at recently. This can be an attractive time to invest considering the enticing prices of the investments and the potential to own those investments as the prices bounce back up, but we should always be mindful of how long we are able to be invested before diving in. We never know how long it might take for prices to rebound, it could be weeks or it could be years, so if you do decide to invest make sure it’s only with money you won’t need in the short-term. 

SoFi is a big supporter of financial literacy, especially for women. What advice can you share for women on cultivating confidence around money and investing?

As a Financial Planner at SoFi, many of my conversations are with female members who are looking to invest for the first time. Many of these women are doctors, lawyers, or MBAs, and I’ve found that someone’s level of education or intelligence plays little or no role in their apprehension when it comes to capital markets. I give every woman I speak with three suggestions to tackle their fears when it comes to investing their money.

1. Find an educational resource to tackle the unknown and empower yourself. Whether it’s a podcast, a blog, or a one-on-one conversation with a CFP like myself, obtaining knowledge is powerful. As humans, we naturally fear the things we don’t understand. By familiarizing ourselves with the basics many aspects of investing start to seem quite simple. 
   
   
   

2. Start slow. For some new ventures in life, we might feel comfortable diving right into the deep end head first, but when it comes to our hard-earned money, that’s rarely the case. I recommend everyone start slow, whether that’s with small contributions out of their paycheck to their 401k, or taking a small percentage of cash savings and investing it into the market. This is helpful for a few reasons; we get to learn as we go and discover more questions we didn’t know to ask before we started, and when we start small the ideas of loss or volatility aren’t quite as scary. 
   
   
   

3. Focus on your goals. Thinking about why your investing and staying focused on your end-goal can help mitigate anxiety in the short-term. Markets are volatile and the value of someone’s investment portfolio is going to fluctuate, but if we remind ourselves that we plan to be invested for many years, the day to day volatility is less concerning. If your goal is being able to retire comfortably in 20 years, do yourself a favor and focus on creating good savings habits and don’t worry about the day to day fluctuations of the market.  

For more information or to speak with a SoFi Financial Planner, visit SoFi today!