How to Start Investing: A Step-by-Step for Beginners

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Robo Advisors are the future of investing. There’s no longer a need to have a financial advisor build you a portfolio out of mutual funds that they get a commission from. We can now rely on software algorithms that create investment portfolios based on our investing time horizon and risk tolerance. You can learn how to start investing without a financial advisor today.
how to start investing a step-by-step for beginners

How to Start Investing: A Step-by-Step for Beginners

In this article I’m going to teach you how to start investing in less than 10 minutes. We’ll go step-by-step through the process of:

  1. Creating Your Robo Advisor Account
  2. Building Your Investment Portfolio
  3. Setting Up Automatic Withdrawals From Your Checking/Savings Account

A lot of people were reaching out to me after publishing 30 Ways to Invest Your Stimulus Check asking how to start investing, and more specifically, how to set up a Robo Advisor account and use it. I figured that going through the process step-by-step with pictures would be an easy to follow tutorial and should help people feel more comfortable with getting started.

The best Robo Advisor out there right now is M1 Finance, so I’ll be using their platform throughout the tutorial. I believe this not only because I use the platform myself, it has 0% commission fees, and has an incredibly intuitive user interface, but because it also won Investopedia’s 2019 Best Robo Advisor Award.

So, let’s get started!

Creating Your Robo Advisor Account

First things first, you’ll want to start out by clicking this link: M1 Finance Home Page

Smarter Investing: M1Finance.com

Get Started

Click on the “Get Started” button:

Use m1 finance to learn how to start investing

Enter your email, create a password, and click “Sign Up Now”:

(Make sure to write down your email and password)

sign up for m1 finance

Choose “Continue”:

a great investment starts with pie

Hit “Continue”:

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Create Your First Pie

Now we’re at the page where you’ll create your first pie. Since these decisions can be changed later, for the sake of simplicity, we’re just going to scroll down to “Popular funds” and “Popular Expert Pies” and choose:

  • Vanguard Total Stock Market
  • Vanguard Total Bond Market
  • Moderately Aggressive

Tap “Continue”:

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how to invest in a vanguard total stock market

Each fund that we chose became a portion of our portfolio.

What that means in this instance is that if we invested $100 in this Pie then $34 would be invested in the Vanguard Total Stock Market fund, $33 would be invested in the Vanguard Total Bond Market fund, and $33 would be invested into the Moderately Aggressive professional managed Pie.

Press “Continue”:

m1 finance pie investing

M1 Finance then calculates how much money you would have made if you had invested $10,000 in the Pie we just created 5 years ago. It’s cool to see that this investment would still have gained almost 15% even after the large market correction in early 2020.

Choose “Continue”:

a $10,000 investment resulted in gains on $1,470

Hit “Continue”:

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Enter Contact Information

In order to verify your identity, type in your phone number and make sure “Text message” is chosen under “Receive code by:”.

Tap “Continue”:

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You’ll receive a text message from M1 Finance that includes a 6-digit confirmation code. Enter that code in the “Confirmation Code” line.

Hit “Continue”:

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Enter in your name and address.

Choose “Continue”:

personal finance basics

Enter your date of birth, employment status, and if applicable, your employer and occupation.

Hit “Continue”:

managing your money

Answer KYC Questions

All financial related businesses that handle other people’s money are required to collect KYC (Know Your Customer) information.

Tap “Continue”:

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Click the bubble that describes how much money you plan on making this year. For example, if you plan on making $42,000 this year then click the “>$25k to $50k” bubble. That means you plan on making in between $25,000 and $50,000.

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Click the bubble that describes your net worth. Your net worth is the sum of all your assets minus your liabilities.

Some examples of assets are:

  • Cash in your bank accounts
  • 401(k) and IRA balances
  • The equity in your house and cars
    • To calculate equity in your house or car, take how much you could sell it for and subtract the amount left on your loan. For example, if you have a car that you could sell for $10,000 and only have $8,000 left to pay off on the loan, then you would have $2,000 worth of equity in your car.

Some examples of liabilities are:

  • Student loans
  • Credit card debt

If you have $40,000 worth of equity in your home, $25,000 in your 401(k), $5,000 in cash, and $15,000 in student loans then your net worth is $55,000 (40,000 + 25,000 + 5,000 – 15,000 = 55,000). In this case you would choose the “>$50k to $100k” bubble.

If you have $20,000 in cash, but $30,000 in student loans, then your net worth is -$10,000 (20,000 – 30,000 = -10,000). If you have negative net worth, then you should click the “$0 to $50k” bubble.

increase your total net worth

Click the bubble that describes your liquid net worth.

Your liquid net worth is how much cash you have in your bank accounts plus any other assets you own that can be quickly converted into cash. In other words, it’s the total of your cash plus stocks and bonds that aren’t held in a retirement account like a 401(k) or IRA.

For 90%+ of people in the world, you’re going to choose the “$0 to $50k” bubble.

know your liquid net worth

Click the bubble that best describes your investing experience. If this is the first brokerage account you’ve ever opened, then you should choose the “None” or “Limited” bubble.

investing experience

Click the bubble that best describes your risk tolerance. Risk tolerance usually goes hand-in-hand with how long you have until retirement. Therefore, risk tolerance is usually defined by your age. Here’s my simple risk tolerance breakdown by age:

  • Low:  More than 60 years old
  • Medium: 45-59 years old
  • High: Less than 45 years old
learn how to start investing based on your risk tolerance

Click the bubble that best describes your investment horizon. Unless you’re approaching retirement in the next 8 years then you should choose “Long (8 years or more)”.

understand your investment horizon

Click the bubble that best describes how important liquidity is to you.

We touched on liquidity during the discussion on liquid net worth. Liquidity, once again, is how quickly something can be converted into cash. So, a person who’s very close to retirement may want their cash more accessible (more liquid) while a 30 year old who isn’t planning on retiring for another couple of decades doesn’t care if their investments are liquid because they don’t need the cash yet.

This question closely mimics the risk tolerance question, so the breakdown will look the similar and will also be based on your age:

  • Very Important:  More than 60 years old
  • Somewhat Important: 45-59 years old
  • Not Important: Less than 45 years old
liquidity is important

Click the “Blog article” bubble:

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Type in your social security number.

Tap “Continue”:

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Check all the boxes that apply.

Choose “Continue”:

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Review all your information.

Hit “Confirm”:

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Link Your Bank Account

If you want to learn how to start investing, then you’ll need money in your M1 Finance investment account. In order to do that, you’ll need to connect your bank account.

Click “Connect Instantly” (if your bank doesn’t show up then click “Connect Manually”):

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Type in your bank name on the “Search for your bank” line and choose your bank:

how to set up a brokerage account

Plaid is the company that revolutionized online bank transfer integrations. They created an encrypted way for people to sign into their online bank accounts while on other websites. Almost every bank uses them now. If you want to learn more then go to: https://plaid.com/financial-institutions/

Click “Continue

how to start investing for beginners

Enter your username and password that you normally type in to get into your online banking.

Click “Submit”:

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Choose which one of your email addresses you would like the security code sent to.

Tap “Continue”:

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Open your email inbox (IN A NEW TAB) that the security code was sent to. You should have a new email from a “noreply” address. If you don’t see it then be sure to check your Spam and Junk folders.

Open the email and you’ll see a 6-digit code:

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Type in the 6-digit code.

Click “Submit”

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Help Tip: If it prompts you to send your security code to your email address again then click “Continue” again, look at the new code from your email inbox again, and type it in and click “Submit” again.

As a result, you should now be able to see your bank account balance.

Hit “Continue”:

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The next screen will ask you if you would like to make an initial deposit. Click “Skip, I’ll do this later”.

Congratulations! You have now created your Robo Advisor account! You can now skip directly to the “Building Your Investment Portfolio” section and have even more fun!

How to Manually Connect Your Bank Account

If your bank link fails, then you’ll have to connect your bank account the old fashion way. Bear in mind that this will take 1-3 business days.

Click “Connect manually”:

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Type in your bank’s name, choose whether the account you’re connecting is a checking or savings, and then type in your account’s routing number and account number (routing and account numbers can be found on your checks)

Click “Submit”:

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In order to verify that the bank account your connecting is actually yours, M1 Finance is going to deposit small amounts (like $0.08 and $0.32) within the next 1-3 business days.

If you can correctly guess how much was deposited into the account, then they can safely assume you have access to that bank account and it’s yours.

Also, 1-3 business days may seem like a long time, but remember that we’re setting up an investment account. Our time horizon is decades and not business days. As a result, we have nothing but time!

Press “Continue”:

how to start investing a step by step guide

Click “Skip, I’ll do this later”:

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After 1-3 business days, you should see two deposits hit your bank account that look like this:

bank deposits are key

Go to m1finance.com and log into your M1 Finance account:

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Type in your email and password that you created at the very beginning.

Hit “Log In”:

retirement planning for beginners

Choose the “Bank Connection” tab:

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Hit “Verify bank”:

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Type in the two amounts you received in your bank account.

Click “Verify”:

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Congratulations! Your bank account is now linked to your investing account!

Click the “Portfolio” tab to head back to the home dashboard screen:

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Building Your Investment Portfolio

Now you can’t read an article called “How to Start Investing” without learning how to build an investment portfolio. Hence, we’ll discuss it below.

What is an Investment Portfolio?

If you want to learn how to start investing then you need to understand that an investment portfolio is just a fancy name for a bundle of stocks, bonds, and other financial instruments. Furthermore, you want a variety of different securities in your portfolio in order to reduce risk.

If you only owned stock in one company and that company went bankrupt, then you would lose all your money. In contrast, if you owned stock in 100 different companies and one of them went bankrupt, then you would still have the other 99 companies to fall back on.

This is called diversification and it’s a cornerstone of investing. Now it’s time to learn how to build a well-diversified portfolio in M1 Finance.

Choose a Pie

While on your M1 Finance Robo Advisor home dashboard screen, click the “View Pies” button in the Browse Expert Pies box:

how to start investing

There are many ways to invest using a Robo Advisor and one of the easiest and most noteworthy routes in M1 Finance is to use the General Investing pies. These pies certainly represent diversified portfolios that are built based on risk tolerance and are meant to be used over the long run. There are other segments of pies as well, including:

  • Plan for Retirement
  • Responsible Investing
  • Income Earners
  • Hedge Fund Followers
  • Just Stocks & Bonds

In the General Investing box (or any other box/segment that grabs your attention), click on “View Pies”:

general investing m1 finance

As you can see, there are 7 different pies you can choose from in the “General Investing” segment. These pies range from Ultra Conservative (very low-risk tolerance) to Ultra Aggressive (very high-risk tolerance).

The portfolio/pie that most closely matches my age and risk tolerance is the Moderately Aggressive one, so that’s the one I’ll choose in my tutorial (this choice is for tutorial purposes only and is not investment advice):

how to start investing in stocks

Click “Add to Basket”:

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A box at the bottom of your screen will then show up. Click “Add”:

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Finally, click the “Save” button:

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How to Look into Your Investment Details

Now that you’re back on the home screen you’ll notice it says, “My Portfolio” at the top instead of “Build your portfolio”. That’s because you have a portfolio of investments that you’re ready to start purchasing. But what kind of investments are in your portfolio?

To find that out you’ll want to click anywhere on the donut/pie chart:

how to start investing in stocks for beginners with little money

Scroll down to the “Slices” section and notice a bunch of names that start with “Vanguard” and percentages next to them. First of all, each one of those is a different kind of investment. Furthermore, the percentage represents how much of your money will be allocated to each investment.

As a result, if you invest $100 then $23 would be invested in Vanguard S&P 500 and $14 would be invested in Vanguard Small-Cap, etc.

Click on “Vanguard S&P 500”, so we can look at it in more detail:

vanguard s&p 500 easy for beginners

Click “VOO Details”:

(VOO is the 3-letter abbreviation for the Vanguard S&P 500 ETF)

how to get started in stocks

This screen will give you more information into what exactly you’re investing in. In the case of the Vanguard S&P 500, it’s a fund that copies the returns of the Standard & Poor’s 500 Index (500 really big U.S. companies).

You heard that right: 23% of your portfolio will be invested in 500 companies! Now that’s what I call diversified.

To get back to the home dashboard screen, click the “Invest” tab:

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You’ve went from “How to Start Investing” to the owner of an investment portfolio! As a result, next time someone brings up investing you can talk about how your invested in the S&P 500, a corporate bond ETF, some small cap companies, and a little in emerging markets just to keep it fun.

Setting Up Automatic Withdrawals From Your Checking/Savings Account

Finally, we’re in the home stretch! You’re “How to Start Investing” tutorial is almost over.

First, we set up our account and then we created a diversified investment portfolio. Now it’s time to fund our account so we can invest in the portfolio we created.

Set Up Recurring Transfers

Choose the “Transfers” tab:

how to start investing with m1 finance robo advisor

Press “Move Money” button:

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Click on “Recurring Transfer”:

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Type in whatever you can afford to invest monthly at the top. A good starting point is at least $100. If you set up monthly withdraws of $100, and have an average return of 12%, you’ll have $546,000 in 35 years! Also, if you can afford $200 a month then you would end up with over $1,000,000 in 35 years!

Choose your bank as the “FROM” and your Individual account as the “TO”. Set “FREQUENCY” to “Monthly” and “DAY OF THE MONTH” to “15th”. I’m choosing the 15th because I have my mortgage, car payment, and utility bills during the first half of the month.

Hit “Continue”:

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Tap “Confirm”:

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Press “Done”

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How to Do a One-Time Transfer

While on the Transfers screen, click “Move Money”:

how to start using a robo advisor

Click “One-time Transfer”:

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Type in the amount that you want to transfer. Choose your bank as the “FROM” and your Individual account as the “TO”.

Hit “Continue”:

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Press “Confirm”:

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Finally, tap “Done”:

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There you have it! You went from wondering how to start investing to being officially invested!

Now you can sit back and relax while $100 (or whatever amount you chose) gets automatically transferred into your M1 Finance investment account each month. This amount will grow and grow over time and will turn into an exceptionally large sum of money in the future.

Now that you know how to start investing you can focus on other parts of your personal finances like budgeting. What excess spending can be cut?

For every dollar you save, you can increase your recurring transfer by the same amount. The larger you make that recurring transfer the faster your money will grow.

Congratulations! You fully understand how to start investing. You’ve taken a major step towards financial freedom!

Also it seems like you want to learn more. In other words, you should check out some of my personal book recommendations related to topics that will help you understand your finances:

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