How to Open a Tax-Advantage or Regular Brokerage Account
Everyone keeps talking about how a $5 coffee is ruining the life of millennials…
I don’t care about the coffee.
What I DO care about is finding another $5 to invest on a regular basis and maximizing tax advantaged accounts! You can open one from your living room and I teach you how in the video below.
A few weeks ago the below tweet when viral from Matt because millennials (myself included!) are tired of hearing about how we spend too much on avocado toast and Starbucks coffee.
The tweet went viral (over 196,000 likes!) because people are tired that the “experts” keep telling us that we would be millionaires or billionaires by now if we just stopped with the small purchases, glossing over major issues like crippling student dent and lower purchasing power when adjusted for inflation. I know those things are true and I’ve paid off over $45k student debt myself — but I don’t want you to buy just 1 coffee, I want you to be in a position to buy 100 of them, and that’s not going to happen if you just save $5 here and there — what you really need to do is invest that $5 somewhere else.
A $5 coffee (or whatever) example
Let’s say that you’re able to save 10 coffees a month, for $5 x 10 = $50 a month. Keep in mind this doesn’t have to be coffee — it can be money you’re saving on transportation, it can be an extra $50 you make from walking dogs, whatever. The point is, you find or make $50 to invest every month.
You invest that money in an index fund, for example, the Vanguard Total Stock Market Index (VTSAX) every month, for 20 years. At a 6% annual rate of return, at the end of the 20 years you would end up with over $23,000. This includes the $12,000 you would have contributed over 20 years, plus over $11,000 growth in the return on your investment.
FACT: The U.S. stock market has never had less than a 6% average annual rate of return in its history over any 30 year period. This is incredible! So yes, it goes up and down, but over the long term (and investing is a long game) 6% is a reasonable, even conservative expectation.
Of course, you can invest more than $5 if you want to speed things up. Using an example from my own investments, back in October 2019 I bought 3 shares in Shopify Inc. (NYSE: SHOP) for $317.76 a share. As of June 26, 2020 the share price is up to $910! Now, keep in mind not all stocks will do this well — most won’t in such a short period — but the real power of investing is that so long as you start early enough you give yourself more time to reach that level of growth.
Note: I am not recommending that you invest in Shopify, Inc. specifically. This is only an example.
How you can get started
Ok, so you know you need to invest now, but how do you actually get started?
Step 1. Figure out how much you have on a monthly basis to invest.
If you haven’t already, make a quick budget and figure out how much money you have to start investing. Ideally this is on a monthly basis, but if have some money stashed away and want to invest one-time only, that’s a great start too! You can always invest more later.
Step 2. Revisit your tax advantaged accounts.
These are things like your 401k, 403b, 457, and IRA. Because of the tax savings these accounts provide, you want to make sure you are maxing out your contributions to those accounts first ($19,500 for your 401k, 403b and 457 for 2020, and $6,000 for your IRA). If you’re not sure what I’m talking about, read this post on how I maxed out my Roth IRA in 2019 twice! And don’t forget that COVID-19 CARES Act extended the deadline for 2019 contributions to July 15, 2020. This means you still have time to max out your 2019 IRA before moving onto the 2020 contribution year.
No clue what a tax-advantaged account is?
No problem.
Check out my Money Moves Accelerator to gain confidence and learn to manage your money like the pros (even on a budget).
Step 3. Open a tax-advantaged or taxable brokerage account.
Now that you know how much money you have to invest, and the type of account you want to set up, you’re ready to get started. Want a step-by-step guide to opening an account? Check out below where I walk you through how to open a taxable brokerage account with Vanguard. Keep in mind although I use Shopify as an example, that you can start investing for as little as $5 and many financial providers have a $0 minimum to open accounts.
Want recommendations for a few other financial providers? Check here.
Video: How to start investing and open a taxable brokerage account with Vanguard
Step 4. Contribute money to that account AND select your investment
Once your account is approved, you’ll need to transfer money to that account. Often, money transferred from your bank will sit in a money market account until you select the investments, so don’t forget to do this! Otherwise, the account will act as a fancy savings account, which is not the point. You want to make sure that money is being invested in the stock, bond, fund, ETF, etc. of your choice.
Want to know how I picked my first stock? Read this blog post.
10 Investing Terms You Need to Know
Want to learn more about investing? Get your FREE copy of 10 Investing Terms You Need to Know to Build Wealth now.
Enter your email to get your free copy!
Other ways to get started today
So now you’re all set! But if you want to learn more or get started even quicker, here are a few additional ways you can start investing today.
Disclaimer: includes affiliate links to products and services I personally use or strongly believe in.
If you’re too overwhelmed to pick your own investments, let a “robo-advisor” do the work for you. Using a robo-advisor means that instead of picking your own investments or paying a financial advisor to do the work, the provider you choose will automatically select and manage your investments based on a “risk-score” they assign you after taking a super quick quiz. This is how I first got started investing years ago with Wealthfront, and studies show robo-advisors do just as well (if not better) than financial advisors over time. You can get started with Wealthfront here.
Want to get started with your spare change? Acorns is an investing app that literally does this. They round up your credit card expenses and invest the spare change to the nearest dollar. Will you build serious wealth doing this? No. But hey, it’s a start! Check it out here.
I hope these resources are helpful for those that may get overwhelmed by picking their own investments, but trust me — you can do this! And keep in mind, I still want you to enjoy your coffee — but think about your budget and where else you may be able to find savings, even a small amount, to get started now. The trick is to invest early and often so you can build wealth and drink all the coffees you want over time.
Still have questions? Drop a comment below.
