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How to invest at 18?
Currently a college student who knows nothing about investment but would like to learn and start.
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Paul Goetzinger MPA
Academic and Career Consultant and Freelance Writer
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Paul’s Answer
I think the first thing to do is open a Traditional IRA account with a financial institution.
This will allow you to save for retirement, and amounts contributed can be used for a deduction on federal income taxes each year.
Also, ten thousand dollars of these accounts can be used to purchase a house or first time home, without penalties for early withdrawal.
This will allow you to save for retirement, and amounts contributed can be used for a deduction on federal income taxes each year.
Also, ten thousand dollars of these accounts can be used to purchase a house or first time home, without penalties for early withdrawal.
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T’s Answer
Investing at the age of 18 is a great way to start building wealth over the long term. Here are some steps and considerations for young investors:
Educate Yourself:
Before you start investing, take the time to learn about different investment options, risk factors, and the basics of financial markets. Understanding the fundamentals is crucial for making informed decisions.
Set Financial Goals:
Clearly define your financial goals, whether it's saving for a future home, funding education, or building long-term wealth. Your goals will influence your investment strategy.
Emergency Fund:
Before investing, establish an emergency fund. This fund should cover 3-6 months' worth of living expenses and serve as a financial safety net.
Start with a Budget:
Create a budget to manage your income and expenses. This will help you allocate a portion of your income to investments while covering your living costs.
Take Advantage of Time:
Time is a powerful factor in investing. The earlier you start, the more time your investments have to grow. This is due to the compounding effect, where your returns generate additional returns over time.
Diversify Your Portfolio:
Diversification involves spreading your investments across different asset classes (stocks, bonds, real estate, etc.). This helps reduce risk and enhances the potential for long-term returns.
Consider Risk Tolerance:
Assess your risk tolerance, which is your ability and willingness to endure fluctuations in the value of your investments. Generally, young investors can afford to take on more risk because they have a longer investment horizon.
Take Advantage of Tax-Advantaged Accounts:
Contribute to tax-advantaged accounts like Individual Retirement Accounts (IRAs) or employer-sponsored retirement plans (e.g., 401(k) in the U.S.). These accounts offer tax benefits and can boost your long-term savings.
Regularly Contribute:
Consistency is key. Regularly contribute to your investment portfolio, even if it's a small amount. This practice, known as dollar-cost averaging, can be an effective way to invest over time.
Stay Informed and Adjust:
Keep yourself updated on market trends, economic developments, and any changes in your financial situation. Adjust your investment strategy as needed based on your evolving goals and the market conditions.
Remember that investing always carries some level of risk, and it's important to be patient and disciplined. If you're unsure about where to start, consider consulting with a financial advisor to get personalized advice based on your unique circumstances and goals.
Educate Yourself:
Before you start investing, take the time to learn about different investment options, risk factors, and the basics of financial markets. Understanding the fundamentals is crucial for making informed decisions.
Set Financial Goals:
Clearly define your financial goals, whether it's saving for a future home, funding education, or building long-term wealth. Your goals will influence your investment strategy.
Emergency Fund:
Before investing, establish an emergency fund. This fund should cover 3-6 months' worth of living expenses and serve as a financial safety net.
Start with a Budget:
Create a budget to manage your income and expenses. This will help you allocate a portion of your income to investments while covering your living costs.
Take Advantage of Time:
Time is a powerful factor in investing. The earlier you start, the more time your investments have to grow. This is due to the compounding effect, where your returns generate additional returns over time.
Diversify Your Portfolio:
Diversification involves spreading your investments across different asset classes (stocks, bonds, real estate, etc.). This helps reduce risk and enhances the potential for long-term returns.
Consider Risk Tolerance:
Assess your risk tolerance, which is your ability and willingness to endure fluctuations in the value of your investments. Generally, young investors can afford to take on more risk because they have a longer investment horizon.
Take Advantage of Tax-Advantaged Accounts:
Contribute to tax-advantaged accounts like Individual Retirement Accounts (IRAs) or employer-sponsored retirement plans (e.g., 401(k) in the U.S.). These accounts offer tax benefits and can boost your long-term savings.
Regularly Contribute:
Consistency is key. Regularly contribute to your investment portfolio, even if it's a small amount. This practice, known as dollar-cost averaging, can be an effective way to invest over time.
Stay Informed and Adjust:
Keep yourself updated on market trends, economic developments, and any changes in your financial situation. Adjust your investment strategy as needed based on your evolving goals and the market conditions.
Remember that investing always carries some level of risk, and it's important to be patient and disciplined. If you're unsure about where to start, consider consulting with a financial advisor to get personalized advice based on your unique circumstances and goals.
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Aisha’s Answer
If you're 18 or older, you can easily open an online brokerage account. For those under 18, you'll need help from a parent. Parents have two options: they can either open a brokerage account for their teen or establish a custodial account. The whole process is straightforward and typically takes less than 15 minutes.
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Nick’s Answer
As soon as you hit 18, it's a good idea to open a Roth IRA account. This account is tax-free and serves as a fantastic starting point for retirement savings. However, remember that you can't withdraw the funds tax-free until you're 60. Choose a few Index funds with consistent yearly returns and let them grow. Even with an annual investment of just $1000, the returns you'll see when the account matures will significantly contribute to your retirement fund.
If you're interested in active trading, consider learning about options and stock trading. This route demands more time and carries more risk, but understanding market trends and tracking specific industries can yield substantial returns from trading options and stocks.
Before diving into investing, it's crucial to thoroughly research. Highly rated Index funds might seem attractive, but the real profits lie in emerging markets that have potential for future growth, like AI and sustainable energy. I strongly recommend enrolling in a course, either on LinkedIn Learning or through a bank like Fidelity or American Express, to truly grasp how the market behaves and how to predict trend shifts.
If you're interested in active trading, consider learning about options and stock trading. This route demands more time and carries more risk, but understanding market trends and tracking specific industries can yield substantial returns from trading options and stocks.
Before diving into investing, it's crucial to thoroughly research. Highly rated Index funds might seem attractive, but the real profits lie in emerging markets that have potential for future growth, like AI and sustainable energy. I strongly recommend enrolling in a course, either on LinkedIn Learning or through a bank like Fidelity or American Express, to truly grasp how the market behaves and how to predict trend shifts.
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Carly’s Answer
hi! I think this is wonderful that you want to start investing!
My personal advice would be to wait to start investing until you get through college. If you are taking out loans to pay for college I would advise against any investing until you start a full-time job. Every penny right now should be going towards college and trying to minimize loans as much as possible!
In the meantime if you have a small savings account, I would suggest putting the money into a high yield savings account. I know Ally Bank has a great one.
Best of luck to you!!
My personal advice would be to wait to start investing until you get through college. If you are taking out loans to pay for college I would advise against any investing until you start a full-time job. Every penny right now should be going towards college and trying to minimize loans as much as possible!
In the meantime if you have a small savings account, I would suggest putting the money into a high yield savings account. I know Ally Bank has a great one.
Best of luck to you!!
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Brandon’s Answer
Starting to invest at 18 is a great idea, and it's fantastic that you're thinking about this while you're still in college. Here's a friendly and straightforward guide to get you started:
Educate Yourself: Before putting any money down, it's important to understand what you're getting into. Read up on basic investment concepts. There are plenty of resources out there – books, websites, podcasts – that can help you learn the basics of stocks, bonds, mutual funds, ETFs (exchange-traded funds), and more.
Budget and Save for Investment: As a college student, you might not have a lot of spare cash. Start by setting up a budget to manage any income you have (like part-time job earnings) and save a little bit for investment. Even small amounts can add up over time.
Start with Low-Risk Investments: Since you're new to this, consider starting with low-risk investments. These might include savings accounts, certificates of deposit (CDs), or low-cost index funds. These won't make you rich quickly but are less likely to lose value.
Consider Retirement Accounts: It might seem early, but starting a retirement account now can be incredibly beneficial. Look into opening a Roth IRA if you have earned income. The money you put in grows tax-free, which can be a huge advantage over time.
Explore Apps and Robo-Advisors: There are many investment apps and robo-advisors designed for beginners. These can be a great way to start investing with little money and limited knowledge. They often have low fees and can guide you in making investment decisions.
Diversify Your Investments: Don't put all your money in one stock or one type of investment. Spread it out to reduce risk. This is where mutual funds or ETFs can be useful, as they invest in a range of assets.
Understand the Risk vs. Reward: Investing always comes with risk. Generally, the higher the potential return, the higher the risk. Make sure you're comfortable with the level of risk associated with your investments.
Be Wary of High Fees: Some investments come with high management fees. These can eat into your returns over time. Look for low-cost options, especially when you're just starting out.
Think Long-Term: Investing is usually most effective as a long-term strategy. Don't get discouraged if you don't see big gains right away. The power of compounding interest over time is where the real growth happens.
Stay Informed and Adjust as Needed: Keep an eye on your investments and the market, but don’t obsess over short-term fluctuations. As you learn more and your financial situation changes, adjust your investment strategy accordingly.
Consult with Professionals: If you're unsure or have complex questions, don't hesitate to consult with a financial advisor. They can provide personalized advice based on your specific situation.
Remember, starting small is perfectly fine. The most important step is getting started and learning as you go. Happy investing!
Educate Yourself: Before putting any money down, it's important to understand what you're getting into. Read up on basic investment concepts. There are plenty of resources out there – books, websites, podcasts – that can help you learn the basics of stocks, bonds, mutual funds, ETFs (exchange-traded funds), and more.
Budget and Save for Investment: As a college student, you might not have a lot of spare cash. Start by setting up a budget to manage any income you have (like part-time job earnings) and save a little bit for investment. Even small amounts can add up over time.
Start with Low-Risk Investments: Since you're new to this, consider starting with low-risk investments. These might include savings accounts, certificates of deposit (CDs), or low-cost index funds. These won't make you rich quickly but are less likely to lose value.
Consider Retirement Accounts: It might seem early, but starting a retirement account now can be incredibly beneficial. Look into opening a Roth IRA if you have earned income. The money you put in grows tax-free, which can be a huge advantage over time.
Explore Apps and Robo-Advisors: There are many investment apps and robo-advisors designed for beginners. These can be a great way to start investing with little money and limited knowledge. They often have low fees and can guide you in making investment decisions.
Diversify Your Investments: Don't put all your money in one stock or one type of investment. Spread it out to reduce risk. This is where mutual funds or ETFs can be useful, as they invest in a range of assets.
Understand the Risk vs. Reward: Investing always comes with risk. Generally, the higher the potential return, the higher the risk. Make sure you're comfortable with the level of risk associated with your investments.
Be Wary of High Fees: Some investments come with high management fees. These can eat into your returns over time. Look for low-cost options, especially when you're just starting out.
Think Long-Term: Investing is usually most effective as a long-term strategy. Don't get discouraged if you don't see big gains right away. The power of compounding interest over time is where the real growth happens.
Stay Informed and Adjust as Needed: Keep an eye on your investments and the market, but don’t obsess over short-term fluctuations. As you learn more and your financial situation changes, adjust your investment strategy accordingly.
Consult with Professionals: If you're unsure or have complex questions, don't hesitate to consult with a financial advisor. They can provide personalized advice based on your specific situation.
Remember, starting small is perfectly fine. The most important step is getting started and learning as you go. Happy investing!
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Christopher’s Answer
By investing I will assume you mean investing in financial assets. Examples of financial assets are bonds and company stocks. This is opposed to real assets (real estate and precious metals). The first thing to understand is that company stocks or shares represent the partial ownership in a business and a bond is essentially a loan to a business or a municipal.
Good books to read:
The Single Best Investing by Lowell Miller - This book provides the criteria for choosing good dividend paying stocks
Investing in REITs by Ralph Block - Provides an understanding of real estate investment trusts which are particular type of company that is structured as pass-through for providing income.
Online Resources:
www.SEC.gov - This is the website for the Securities and Exchange Commission. There you can check company filings which are required. Look for the 10Q (quarterly reports) and 10K (annual reports) for companies of interest. When reading the 10K reports pay particular attention to the business and risk sections of the report. It will provide good information on how the company is structured, how it's earning its revenue and the risks to the business and industry.
www.investopedia.com - This website offers educational content and definitions of common investment terminalogy
Yahoo Finance - Provides news with video on topics related businesses and company stocks. Also has an excellent platform for creating stock watchlists
Barchart.com - Provides news and financial information on companies
Finiz.com - Excellent stock screener website. When you become familiar with the criteria for investing in stock you can use this website to search for stocks
Learn macro and micro economics. Companies and municipalities function based upon economic trends. Understand economics will help you to make better decisions. You can find classes in Coursera.org
Learn about particular industries. Look for news periodicals published by trade organizations to learn how businesses operate. You can look online for organizations and subscribe to newsletters
Learn about business finance. Learn how to read financial statements
Follow investment funds and stocks Exchange traded funds are a way to start investing with lower risk. ETFs typically hold companies within a particular industry.
Open a brokerage account to begin investing. A good brokerage such as Fidelity or Charles Schwab provide educational resources for investing and they both have good customer service.
Good books to read:
The Single Best Investing by Lowell Miller - This book provides the criteria for choosing good dividend paying stocks
Investing in REITs by Ralph Block - Provides an understanding of real estate investment trusts which are particular type of company that is structured as pass-through for providing income.
Online Resources:
www.SEC.gov - This is the website for the Securities and Exchange Commission. There you can check company filings which are required. Look for the 10Q (quarterly reports) and 10K (annual reports) for companies of interest. When reading the 10K reports pay particular attention to the business and risk sections of the report. It will provide good information on how the company is structured, how it's earning its revenue and the risks to the business and industry.
www.investopedia.com - This website offers educational content and definitions of common investment terminalogy
Yahoo Finance - Provides news with video on topics related businesses and company stocks. Also has an excellent platform for creating stock watchlists
Barchart.com - Provides news and financial information on companies
Finiz.com - Excellent stock screener website. When you become familiar with the criteria for investing in stock you can use this website to search for stocks
Christopher recommends the following next steps:
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Nicholas’s Answer
The earlier you start investing the better, so the fact you are this young shows great initiative. To start, I would recommend opening a brokerage account (Fidelity, Charles Schwab, or Vanguard all work great). I would spend a few months exploring the platform you choose, as many of them give advice to beginning investors. This will also allow you to understand the trade process if you execute a few trades (I would recommend Index funds or ETF as these allow for diversification or "Risk-Management" with smaller amounts of money). Once you understand the process of investing, and once you have a monthly income, I would recommend allocating 20-30% of that monthly into savings. Take a third of those savings and put it either in a high yield savings account or safer Money Market fund as an emergency fund until it reaches about 10-15k. The remainder, depending on the likelihood you will need the money, should be invested in the stock market. The longer you think the money will be invested without withdrawal, the more risky you can be. I would diversify using ETFs or mutual funds (although beware of particularly high expense ratios for mutual funds) especially early in your investing years. I would recommend avoid hand picking individual stocks for the most part as even the best investors can miss on these predictions. Specifically use S&P 500 fund, a foreign stock index fund, a growth stock index fund, and then research some others and select whatever suits you. Hope this helps and best of luck.
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Leilah’s Answer
Hi there,
Thanks for reaching out with your question! I spent a couple of years in my college's Investment Management Group and I'd love to share some insights with you. My top tip would be to consider investing in ETFs, and perhaps hold off on industry-specific investing until you've gained a bit more experience and have more time on your hands.
Remember, it's crucial to concentrate on your studies and consider passive investments in Index Funds and Mutual Funds like SPY and VTI/VOO. Both State Street and Vanguard offer a good range of ETFs. It's worth noting that only a small percentage (about 3%) of portfolio managers manage to outperform the market over a 20-year period. It can be quite a challenge to generate substantial profits from the markets during your college years and early career, but diversification can help mitigate the risk.
I'd recommend taking a look at the returns for ETFs over a period longer than a year and aim to earn money passively while you're still studying. Over time, you'll see the benefits of compound returns and there's generally a lower risk of losing money in the long-term with an ETF compared to specific stocks. These stocks tend to carry a higher risk and require you to stay updated with the latest company and industry research.
Thanks for reaching out with your question! I spent a couple of years in my college's Investment Management Group and I'd love to share some insights with you. My top tip would be to consider investing in ETFs, and perhaps hold off on industry-specific investing until you've gained a bit more experience and have more time on your hands.
Remember, it's crucial to concentrate on your studies and consider passive investments in Index Funds and Mutual Funds like SPY and VTI/VOO. Both State Street and Vanguard offer a good range of ETFs. It's worth noting that only a small percentage (about 3%) of portfolio managers manage to outperform the market over a 20-year period. It can be quite a challenge to generate substantial profits from the markets during your college years and early career, but diversification can help mitigate the risk.
I'd recommend taking a look at the returns for ETFs over a period longer than a year and aim to earn money passively while you're still studying. Over time, you'll see the benefits of compound returns and there's generally a lower risk of losing money in the long-term with an ETF compared to specific stocks. These stocks tend to carry a higher risk and require you to stay updated with the latest company and industry research.
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Christen’s Answer
I wish I was smart enough to ask this question at 18 - You are already FAR far ahead of your peers and most people well into their 20's and 30's.
Firstly, I would say - Learn to budget. This will teach you to manage your money appropriately which will leave you money to invest. Start by researching the 50-30-20 rule. Second is to understand taxes and account for taxes in the 50 bucket (if you end up using this budgeting rule).
Again, if you end up using the 50-30-20 rule, it will leave you will 20% savings at the end of every month. Keep a portion of the 20% in a High Yield Savings Account as your emergency fund, and then you can invest the rest.
Make sure you understand the following things about investing:
- What accounts are tax-advantaged - do you qualify for one? A Roth IRA might make sense for you if you are working
- Educate yourself on the investments before investing in them - a good starting point would be Index Funds and ETF's
- Understand that the market goes up and down - but you have the luxury of being young, and you have time to make up for market declines
- Beware of any investment that has fees - often mutual funds are recommended by bankers and advisors, and 1%-5% doesn't sound like a lot - but it adds up, and adds up quickly. This will also bring down your investment potential.
I wish you all the best!
Firstly, I would say - Learn to budget. This will teach you to manage your money appropriately which will leave you money to invest. Start by researching the 50-30-20 rule. Second is to understand taxes and account for taxes in the 50 bucket (if you end up using this budgeting rule).
Again, if you end up using the 50-30-20 rule, it will leave you will 20% savings at the end of every month. Keep a portion of the 20% in a High Yield Savings Account as your emergency fund, and then you can invest the rest.
Make sure you understand the following things about investing:
- What accounts are tax-advantaged - do you qualify for one? A Roth IRA might make sense for you if you are working
- Educate yourself on the investments before investing in them - a good starting point would be Index Funds and ETF's
- Understand that the market goes up and down - but you have the luxury of being young, and you have time to make up for market declines
- Beware of any investment that has fees - often mutual funds are recommended by bankers and advisors, and 1%-5% doesn't sound like a lot - but it adds up, and adds up quickly. This will also bring down your investment potential.
I wish you all the best!
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Fred’s Answer
all you need to invest is cash. There are many online trading platforms where you can register an account and get started. If you work, many employers will let you invest a portion of your paycheck each cycle.
Investing is different from speculating. Investing is putting your money into something and letting it sit and grow over time - think years or decades. Speculating is putting your money into something and trying to make a quick buck in a few weeks/days/hours or even sometimes minutes. Speculating is usually considered VERY risky. Investing is generally considered safe over periods of 20 years or more.
Please note: I am not a licensed or even trained financial advisor. The above is my opinion. Please do your own research before making any purchases.
Investing is different from speculating. Investing is putting your money into something and letting it sit and grow over time - think years or decades. Speculating is putting your money into something and trying to make a quick buck in a few weeks/days/hours or even sometimes minutes. Speculating is usually considered VERY risky. Investing is generally considered safe over periods of 20 years or more.
Please note: I am not a licensed or even trained financial advisor. The above is my opinion. Please do your own research before making any purchases.
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Michele’s Answer
It's fantastic that you're eager to delve into the world of investment! Here's a simple guide to help you begin your journey, though bear in mind I'm not a certified financial advisor or an expert in this area:
1. Self-learning: Kick off your journey by immersing yourself in books, articles, and blogs about investing. Online platforms such as Investopedia, The Motley Fool, and Morningstar are excellent resources to grasp the fundamentals of investing.
2. Begin modestly: Initiate your investing journey by putting in a small sum of money that you can afford to part with. This strategy will allow you to gain practical experience and build confidence without jeopardizing too much.
3. Set up a brokerage account: A brokerage account is essential for purchasing and selling stocks, bonds, and other investment options. There are numerous online brokers to choose from, including Robinhood, E-Trade, and TD Ameritrade.
4. Diversify your holdings: Avoid concentrating all your resources in one place. Spread your investments across a range of stocks, bonds, and other assets to mitigate risk.
5. Maintain patience: Remember, investing is a marathon, not a sprint. Don't let short-term market fluctuations deter you. Keep your eyes on your long-term objectives and adhere to your investment strategy.
Keep in mind that investing comes with its own set of risks, and there's no absolute assurance of making profits. It's crucial to conduct thorough research and make informed decisions. Best of luck on your investing journey!
1. Self-learning: Kick off your journey by immersing yourself in books, articles, and blogs about investing. Online platforms such as Investopedia, The Motley Fool, and Morningstar are excellent resources to grasp the fundamentals of investing.
2. Begin modestly: Initiate your investing journey by putting in a small sum of money that you can afford to part with. This strategy will allow you to gain practical experience and build confidence without jeopardizing too much.
3. Set up a brokerage account: A brokerage account is essential for purchasing and selling stocks, bonds, and other investment options. There are numerous online brokers to choose from, including Robinhood, E-Trade, and TD Ameritrade.
4. Diversify your holdings: Avoid concentrating all your resources in one place. Spread your investments across a range of stocks, bonds, and other assets to mitigate risk.
5. Maintain patience: Remember, investing is a marathon, not a sprint. Don't let short-term market fluctuations deter you. Keep your eyes on your long-term objectives and adhere to your investment strategy.
Keep in mind that investing comes with its own set of risks, and there's no absolute assurance of making profits. It's crucial to conduct thorough research and make informed decisions. Best of luck on your investing journey!
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Jerome’s Answer
I wish someone would have told me about High Interest Savings Accounts early in my life. You can earn decent interest, but your money is secure. While the Stock Market typically performs well over long periods of time, you may find that early in life you need access to your money and the wild swings the market might take can be tough at times.
Start by building up your emergency fund, create a budget where you are comfortable and have the rest direct deposited into an account you simply forget about. If you can leave it along, you can accumulate a fair amount of money over time.
Start by building up your emergency fund, create a budget where you are comfortable and have the rest direct deposited into an account you simply forget about. If you can leave it along, you can accumulate a fair amount of money over time.
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Vince’s Answer
This is what I would do if I could go back in time for myself. Not financial advice. I'd open up a Roth IRA account which is post tax.
Invest in one S&P 500 ETF like VOO. It's basically a basket of the top 500 companies in the US and has proven to yield good returns historically. Keep adding whenever you can and what you can afford (should not be money you need for the short term) and hold long term until retirement.
I would max it out if possible check maximum contribution limits as you cannot go over a certain amount each year.
Invest in one S&P 500 ETF like VOO. It's basically a basket of the top 500 companies in the US and has proven to yield good returns historically. Keep adding whenever you can and what you can afford (should not be money you need for the short term) and hold long term until retirement.
I would max it out if possible check maximum contribution limits as you cannot go over a certain amount each year.
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Matthew’s Answer
If you have a little apprehension putting your hard earned money into the market immediately, you can build something of a trial portfolio using tools like Yahoo Finance. You can use some of the advice above to determine your risk appetite, processes, etc. Then you can use that to find stocks/funds that you can add to a portfolio and track them. Then when you feel comfortable to take the plunge with actual funds, you'll feel more informed about your investment decisions.