Investing for Beginners: A Quick and Easy Guide to Investment

Ramit’s
investing
approach:
Follow
the
Ladder
of
Personal
Finance

There
are
six
steps
you
should
take
to
invest.

Each
rung
of
the
ladder
builds
on
the
previous
one,
so
when
you
finish
the
first,
go
on
to
the
second.
If
you
can’t
get
to
the
sixth
step,
don’t
worry—do
your
best
for
now. 

Here’s
how
it
works:

Rung
#1:
Contribute
to
your
401k

Each
month
you
should
be
contributing
as
much
as
you
need
to
in
order
to
get
the
most
out
of
your

company’s
401k
match.
That
means
if
your
company
offers
a
5%
match,
you
should
be
contributing
AT
LEAST
5%
of
your
monthly
income
to
your
401k
each
month.

A
401k
is
one
of
the
most
powerful
investment
vehicles
at
your
disposal.

Here’s
how
it
works:
Each
time
you
get
your
paycheck,
a
percentage
of
your
pay
is
taken
out
and
put
into
your
401k
pre-tax.

This
means
you’ll
only
pay
taxes
on
it
after
you
withdraw
your
contributions
when
you


retire.

Often,
your
employer
will
match
your
contributions
up
to
a
certain
percentage.

For
example,
imagine
you
make
$150,000
per
year
and
your
company
offers
3%
matching
with
their
401k
plan.
If
you
invested
3%
of
your
salary
(around
$5,000)
into
your
401k,
your
company
would
match
your
amount,
effectively
doubling
your
investment.

Here’s
a
graph
showcasing
this:

This,
my
friends,
is
free
money
(aka
the
best
kind
of
money).

Not
all
companies
offer
a
matching
plan
—
but
it’s
rare
to
find
one
that
doesn’t.
If
your
company
offers
a
match,
you
should
at
least
invest
enough
to
take
full
advantage
of
it.

Where’s
my
401k
money
going?

You
have
the
option
to
choose
your
investments
when
you
put
money
into
a

401k.
However,
most
companies
also
give
you
the
option
to
entrust
your
money
with
a
professional
investing
company.
They’ll
give
you
a
variety
of
investment
options
to
choose
from
and
can
help
answer
any
questions
you
have
about
your
401k.

The
other
great
thing
about
a
401k
is
how
easy
it
is
to
set
up.
You
just
have
to
opt
in
when
your
company’s
HR
department
offers
it.
They’ll
withdraw
only
as
much
as
you
want
them
to
invest
from
your
paycheck.

When
can
I
withdraw
money
from
my
401k?

You
can
take
money
out
of
your
401k
when
you
turn
59
½
years
old.
This
is
the
beginning
of
the
federally
recognized
retirement
age.

Of
course
you
CAN
take
money
out
earlier
—
but
Uncle
Sam
is
going
to
hit
you
with
a
10%
federal
penalty
on
your
funds
along
with
the
taxes
you
have
to
pay
on
the
amount
you
withdraw.

That’s
why
it’s
so
important
to
keep
your
money
in
your
401k
until
you
retire.

If
you
should
ever
decide
to
leave
your
company,
your
money
goes
with
you!
You
just
need
to
remember
to
roll
it
over
into
your
new
company’s
plan.

Rung
#2:
Pay
off
high-interest
debt

Once
you’ve
committed
yourself
to
contributing
at
least
the
employer
match
for
your
401k,
you
need
to
make
sure
you
don’t
have
any
debt.
If
you
don’t,
great!
If
you
do,
that’s
okay.
I
have

4
ways
to
help
you
get
out
of
debt
quickly.

Rung
#3:
Open
a
Roth
IRA

Once
you’ve
started
contributing
to
your
401k
and
eliminated
your
debt,
you
can
start
investing
into
a

Roth
IRA.
Unlike
your
401k,
this
investment
account
allows
you
to
invest
after-tax
money
and
you
collect
no
taxes
on
the
earnings.
There’s
a
maximum
for
how
much
you
can
contribute
to
your
Roth
IRA,

so
stay
up
to
date
on
the
yearly
maximum.

Unlike
a
401k,
a
Roth
IRA
leverages
after-tax
money
to
give
you
an
even
better
deal.
This
means
you
put
already-taxed
income
into
investments
such
as
stocks
or
bonds
and
pay
no
money
when
you
withdraw
it.

When
saving
for
retirement,
your
greatest
advantage
is
time.
You
have
time
to
weather
the
bumps
in
the
market.
And
over
the
years,
those
tax-free
gains
will
prove
an
amazing
deal.

Your
employer
won’t
offer
you
a
Roth
IRA.
To
get
one,
you’ll
have
to
go
through
a
broker.

There
are
a
lot
of
elements
that
can
determine
your
decision,
including
minimum
investment
fees
and
stock
options.

A
few
brokers
we
suggest
are

Charles
Schwab,

Vanguard
(this
is
the
one
I
use),
and

E*TRADE.

NOTE:
Most
brokers
require
a
minimum
amount
for
opening
a
Roth
IRA.
However,
they
might
waive
the
minimum
if
you
set
up
a
regular
automatic
investment
plan.

Where
does
the
money
in
my
Roth
IRA
get
invested?

Once
your
account
is
set
up,
you’ll
have
to
actually
invest
the
money.

Let
me
say
that
again,
once
you
set
up
the
account
and
put
money
into
it,

you
still
need
to
invest
your
money. 

If
you
don’t
purchase
stocks,
bonds,
ETFs,
or
whatever
else,
your
money
will
just
be
sitting
in
a
glorified
savings
account
not
accruing
substantial
interest.

My
suggestion
for
what
you
should
invest
in?
An


index
fund

that
tracks
the
S&P
500
and
is
managed
with
barely
any
fees.

For
more,
read
my

introductory
articles
on
stocks
and
bonds
to
gain
a
better
understanding
of
your
options.
Or,
you
can
watch
my
deep
dive
into
how
you
can
choose
a
Roth
IRA: