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A mutual fund pools money from multiple investors in order to purchase a larger, diversified group of assets. Mutual funds are basically managed by a fund manager and investors are charged a fee for the convenience of this diversification. An index measures a group of stocks, bonds, or a market. So index fund is a mutual fund that keeps expenses low and avails more money for the investor instead of hiring an expensive manager to pick stocks.
Determine the Right Investment Account
1. Personal Brokerage Account: A basic and flexible account with few limitations (but also no major tax benefits).
2. Traditional IRA: Retirement accounts that provide tax benefits when contributing funds into the account.
3. Roth IRA: A retirement account that provides tax benefits when withdrawing earnings.
Decide on your Initial Deposit
You can decide the proper amount to deposit into investing accounts based on your income and monthly expenses. However, be sure to invest enough in your initial deposit to cover any minimum investment rules within your broker or fund.
Choose an Online Broker
You basically will either choose a Traditional Online Brokers or Robo-Advisors like Betterment, Acorns, Wealthfront etc.
Decide on Your Preferred Investment Vehicles
Investment vehicles are specific investments that you buy and sell. For example; Individual Stocks, ETFs & Index Funds, Mutual Funds, Bonds.
Develop an Ongoing Strategy and Plan
You can set up a plan to keep depositing funds monthly and rebalancing your investment portfolio annually.
- Annually: Rebalance the portfolio to ensure the weight of equities vs fixed income is in line with set goals.
- Monthly: Deposit money based on an ongoing savings plan that fits your monthly income and expenses.
