Thinking of investing for the first time? Experts say you should figure out your ‘why’ before putting a single dollar in the market

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Having a clear goal is the first step to making smart investments. katleho Seisa/Getty Images
  • Investing pros Ashley Tran and Kenneth Chavis IV joined Insider’s Master Your Money Clubhouse event.
  • They discussed DIY investing and offered advice for beginners using online brokerages.
  • Both experts recommended being confident in your “why” and your goals before investing.
  • This article is part of series focused on millennial financial empowerment called Master Your Money.

If you’re thinking of taking investing into your own hands, you’re not alone.

The year 2020 was a big one for first-time DIY investors (also known as “retail investors”). Of the investors who opened brokerage accounts in 2020, 66% had never had a taxable investment account before, according to a study by the FINRA Foundation and NORC at the University of Chicago.

But DIY, or self-directed, investing through online brokerages differs from other options you could use, like full-service financial firms or automated advisors.

At a recent Insider Clubhouse event, “DIY Investing for Beginners” – part of our Master Your Money series presented by Fidelity – speakers Ashley Tran, team leader of Investment Solutions at Fidelity, and Kenneth Chavis IV, certified financial planner at LourdMurray, emphasized why it’s important to start with a goal or an objective before you begin DIY investing through an online brokerage account.

Choose an objective before you choose a security to invest in

“It can feel really overwhelming when you start diving into investments,” Tran said during the event. “The first piece of advice that I would give is: Make sure that you feel really educated and confident about what you’re investing in and why.”

She recommends starting with a goal first for your account and money. Goals, Tran added, might include retirement, saving up for a home, or establishing an emergency fund.

When it comes to investments, you’ll have several options.

“There’s a lot of different things you can purchase in the market,” Tran said. There are stocks, she continued, which are like a piece of equity in a company, as well as mutual funds and exchange-traded funds, which she described as baskets of securities that give you exposure to a lot of different companies with a shared commonality.

Chavis added that your investment portfolio may change depending on your intended time horizon, meaning you might invest in more- or less-risky securities depending on when you think you’ll need access to your money.

Investment taxes can vary depending on how long you hold an asset

Once you have your “why” – or the reason you’re investing – you’ll want to consider the tax implications of trading.

“For folks that are really wanting to play the stock game [or] maybe get their feet wet and do a good amount of trading, both with buying securities and then selling them, there are tax implications for that,” Chavis said.

He made the distinction between two different types of taxes retail traders may face:

  1. Short-term capital gains taxes: “If you buy a position and hold it for less than one year, you’d be subject to what’s known as short-term capital gains,” Chavis said. That essentially means you’d pay the same tax rates as any other ordinary income.
  2. Long-term capital gains taxes: “For any position that somebody’s held for over a year, you get preferential tax treatment, known as long-term capital gains,” Chavis said. “Those rates depend on your income level.”

For most everyday investors, buy-and-hold investing is the best way to build wealth for the long term – and that doesn’t involve frequent trading.

The best time to start investing is today

If you’re new to self-directed investing, it can be a daunting feat. But Tran and Chavis both stressed two sentiments: (1) The best time to start is now, and (2) There are several resources you can take advantage of to learn more.

“If you’re feeling overwhelmed or unsure, just find one place to start learning more about how to manage your money and how to start investing,” Tran said. “Pick up a personal finance book,” she added, or find a blog or money podcast that you feel resonates with you.

“The best time to start investing is always today,” Chavis said.