5 Signs You’re Ready to Start Investing

Are you ready to start investing your money for long-term growth?

Investing your first few dollars into the stock market can be a scary but exciting milestone with your personal finances.

Investing your money in the stock market is the easiest way to build wealth on autopilot. Everyone should either be investing or working on a plan to get in a position to start investing asap.

My first-ever investment into the stock market was a $307.50 contribution to a target date retirement fund in my 401k in March of 2019. I was told to contribute 10% of my salary to my 401k (which I did), even though I had no idea where that money was going and that it was being invested automatically on my behalf!

Looking back now, it’s easy to see that I was ready to start investing, but it didn’t seem so obvious at first! I was a fresh college grad with so many financial priorities and I had no idea what to work on first.

(And I’m so glad I started investing right away, and thankful I was in a position to do so!)

So how do you know if you’re ready to start investing or not?

This post will cover 5 indicators that you may be ready to start investing in the stock market, through a retirement plan or a brokerage account. 

How to Know if You’re Ready to Start Investing

I absolutely love investing! It’s important to know that investing in boring, low-cost index funds won’t make you a millionaire overnight, but it’s almost guaranteed over decades if you’re consistent with contributions.

Good investing is not a get-rich-quick scheme, but a proven way to build sustainable wealth over time.

However, as with any investment, it doesn’t come without short-term risks. Which is why you want to get your finances prepped so that you can start investing as soon as possible!

Here are 5 signs that you’re ready to start investing.

1. You Don’t Have High Interest Debt

While I don’t believe that you should always be completely debt-free before you start investing, investing while you have high interest debt isn’t a great idea. 

Investing while you have high-interest debt is like running up a down escalator. The math just doesn’t make sense!

Over the long term, you can expect to make 8-10% annual returns in the stock market.

The average credit card interest rate is over 21%!

So investing for potential 8-10% returns while you’re paying 20+% in interest on a credit card or personal loan doesn’t make sense!

And while I love talking about how compound interest is so powerful for building wealth, compound interest can also work against you in the form of debt. 

The absolute only exception to this rule is to make sure you’re investing enough in your company’s 401k plan to get the full employer match.

You get a guaranteed, 100% return on your money with an employer match, so the math makes sense to do this even if you have high interest debt. And it’s likely only 3-6% of your salary anyway, so there won’t be much impact on your paycheck (especially if you’re doing a pre-tax 401k!).

So get your 401k match, and use every single extra dollar to pay off your high interest debt before investing beyond this. If you’re in your twenties or thirties, I consider “high-interest” to be 6-7%.

Once the debt is gone, you will have increased your cash flow and can invest those payments!

Related: Debt Snowball vs. Avalanche Method: Which Debt Payoff Plan is Best for You?

2. You Have an Emergency Fund

When you invest money in the stock market, you should be investing for long-term financial goals.

And especially if you’re investing in a retirement account (like a Roth IRA or 401k), remember that money won’t be liquid to you for potentially decades!

So make sure you have some cash on hand, liquid, in a savings account for your emergency fund first.

Think of your emergency fund as insurance for your long-term investments. If an unexpected expense comes along, you won’t have to pull money out of your investments or go into credit card debt to take care of it. This is no-go land!

It’s important to keep at least 3 months’ worth of expenses in cash. I keep my emergency fund in a high-yield savings account with Ally Bank.

If you don’t have at least 3 months’ worth of necessary expenses stashed in your savings account, pause investing (beyond your 401k match) until you get your emergency fund beefed up first.

I know you won’t earn much of a return on your cash, but an emergency fund is the foundation for financial security. I wrote a whole blog post that goes more in depth on how much cash you should keep in your emergency fund.

3. You Have Disposable Income Left Over Each Month

The next question you should ask yourself to determine if you’re ready to start investing is if you have money left over to invest each month.

Do you have a basic understanding of your overall cash flow? How much do you need to live off of each month and what’s left over?

If you don’t have much left over each month, ask yourself why. Have you been living beyond your means? Are there any expenses you can cut? Are you in a career with an upward trajectory in income?

Even if you can only find an extra $100 per month to invest, it’s still worth it to do so!

Adding just another $100 per month to your investments for 30 years can give you can extra $200,000 at retirement!

Plus, when you’re just getting started with investing, building the habit of living under your means and investing the difference is more important than the amount of money you actually put into your investments.

4. You Have Long Term Goals

Next, you should have a good understanding of your long term financial goals before you start investing.

Pretty much everyone I’ve met wants to retire one day, which is a great long term goal!

Unfortunately, retirement doesn’t mean that you magically get a blank check thrown your way when you turn 65. You have to build enough assets to sustain your lifestyle without a paycheck from an employer.

And that requires investing and building wealth for the future. 

Pension plans, which primarily put the burden of retiree income on employers, are on their way out. Only about 13% of Americans have access to a pension plan anyway, and it likely requires staying at the same company for decades. 

And social security funds are currently on track to become completely exhausted by 2037. (Will Congress continue to deficit spend to fund it? Probably, but who knows).

What I do know is that I am not going to trust the government with something as huge as my retirement income.

The average social security benefit is only about $1500 per month anyway (and I don’t know about you, but I definitely couldn’t make it on $1500/month).

And retirement isn’t the only long term financial goal you may be investing for! Maybe you want to upgrade your home one day, buy a vacation property, or save for your kids’ college. 

Whatever your life goals are, if it’s at least 7-10 years away, investing will likely be required to achieve it! It’s important to remember your long term goals when you’re investing.

You need to have a clear purpose for saving & investing your money.

5. You Understand the Risks of Investing

Investing in the stock market does come with risk.

You know what they say, with great risk comes great reward!

The stock market is quite volatile in the short-term. You can lose money in the short term if you sell when the market is down, which is why you save cash if you’ll need the money soon.

However, over the long term, the stock market is a great way to build long-term wealth. The longer your money is working for you in the market, the greater your chances of making money.

As long as you understand this risk and won’t freak out when the market dips, you’re ready to start investing.

Remember, you only lose money when you sell your shares and the market always goes up in the long term. What happens day by day is a gamble.

Think of a market dip as getting shares on sale! You’re lowering your cost basis which makes room for potentially higher returns.

I don’t believe you need to understand absolutely everything about investing before you start, but it is important to understand the basics of risk, returns, and fees.

And if all of this investing jargon confuses you, I wrote a post about 23 investing terms every beginner needs to know here.

How to Get Started Investing

Maybe you read through this list and have decided that you’re ready to start investing. That’s awesome!

The process goes like this: you choose a brokerage and open an investment account (either a retirement account or non-retirement, taxable brokerage account).

Then you transfer money and buy investments (stocks, mutual funds, ETFs, bonds, etc) within that account.

That’s it! Pretty simple, right?

I highly recommend starting with your employer’s 401k or 403b plan. It has this entire process automated for you, so you set it up once and never have to think about it again!

Your 401k/403b is by far the easiest way to get started with investing.

I personally would select a target date retirement fund to get started investing in your 401k and contribute at least up to your employer match.

The next thing I would do is open a Roth IRA, if you’re eligible. 

You’ll need to choose a brokerage, open a Roth IRA with them, and then transfer money to purchase your index funds.

I recommend using Vanguard, Fidelity, or TD Ameritrade/Charles Schwab. They are all reputable, low-fee options with a wide variety of fund choices!

This blog post goes in depth about Roth IRA’s, how to open one, and how to buy your first index fund.

Once you’ve opened an account, you will need to transfer money and buy investments. Simply transferring money into the account is not investing!

You need to actively purchase investments within your account.

An index fund is a way to buy hundreds or thousands of companies in one place at a very low cost. You’re automatically diversified across hundreds or thousands of sectors, companies, etc with potentially one fund!

I personally started with a simple, low-cost S&P 500 index fund in my Roth IRA (VOO, SWPPX, etc are all great options). As you grow your investments, you can diversify into small/mid cap stocks and international funds if you wish. (Again, not financial advice, this is “what would Megan do.”)

And if these last few paragraphs sound like complete nonsense to you, I highly recommend Personal Finance Club’s course. He goes way more in depth about investing than I can in a single blog post, and covers everything from types of accounts, taxes, how to choose investments, and more!

And it’s super affordable compared to similar courses out there.

Check out the course here!

(And if you’re not quite ready to start investing yet, this course goes over basic personal finance concepts and how to manage your money like a millionaire!)

How Much Money Do You Need to Start Investing?

The amazing thing about investing in the 21st century is that it is unbelievably cheap and easy.

You can get started by opening a Roth IRA or brokerage account and contributing just $20!

Some mutual funds have a minimum initial investment of a few thousands dollars, but there are many that will let you buy fractional shares with little money.

So if you can’t afford the minimum $3000 investment into VTSAX, maybe choose SWPPX (basically the same fund but Schwab’s version instead of Vanguard’s).

Some brokerages will even allow you to purchase fractional shares of ETFs, meaning the minimum investment threshold is basically nonexistent.

Brokerage	Minimum Investment for Mutual Funds?	Fractional Share ETFs?	No Transaction Fee Funds?
Vanguard	$3000	No	Yes
Fidelity	$0	Yes	Yes
Schwab	$0	Yes	Yes
TD Ameritrade	$0	No	Yes

When Should You Start Investing for Retirement?

As. Soon. As. Possible.

Seriously, if you start saving for retirement in your 20s, it almost doesn’t matter how much or little you invest since you have so much time for compounding to happen.

As long as you don’t have any high-interest debt and have some savings for emergencies, start saving asap.

It’s never too early to start investing for retirement. I’ve never met a single retiree that says they regretted saving when they were young (in fact, I hear a lot of people say the opposite!).

I hope this post gave you some motivation to start investing, or to work toward getting your finances in a place so that you can start investing soon!

Investing has never been more accessible, affordable, or necessary than it is today. Don’t squander this opportunity!

And our generation will likely not have the luxury of generous pension plans and social security, so you HAVE to invest your money. The responsibility is on YOU!

No one will care about your financial future more than you. You owe it to your future self and your family to start investing as soon as possible.

-Megan

This post was all about how to know if you’re ready to start investing.

Read Next:

• The Complete Beginner’s Guide to Saving for Retirement
• How to Use a Health Savings Account (HSA) to Build Wealth for Retirement
• How to Save Your First $100k
• Roth IRA 101: A Complete Guide to Investing for Beginners
• 6 Must-Know Questions to Ask About Your 401k Plan (What Beginners Really Need to Know)