How to Make Your First Investment

Before You Invest: The Checklist

Before putting money in the stock market, make sure these boxes are checked. Not because they're required—because they'll protect you and make investing more effective.

1. High-Interest Debt Is Paid Off (Or Has a Plan)

Credit card debt at 20%+ APR is a guaranteed -20% return. No investment reliably beats that. If you have high-interest debt, paying it off is your best "investment."

Low-interest debt (mortgages under 5%, student loans under 6%) is less urgent. You can invest while carrying this debt, though paying extra toward it is also reasonable.

2. You Have an Emergency Fund

Before investing, save 3-6 months of expenses in a high-yield savings account. This money isn't for investing—it's for emergencies (job loss, medical bills, car repairs). Having this cushion means you won't need to sell investments at bad times to cover unexpected expenses.

Current high-yield savings accounts pay around 4-5% APY with no risk. That's where emergency funds belong—not in the stock market.

3. You Won't Need This Money Soon

Money you'll need within 5 years shouldn't be in stocks. Markets can drop 30% and take years to recover. If you're saving for a house down payment in 2 years, use a savings account or CDs, not stocks.

Investing is for long-term goals: retirement, wealth building, financial independence. The longer your time horizon, the more risk you can take.

Step 1: Choose an Account Type

The type of account matters for taxes. Here are the main options:

401(k) Through Your Employer

If your employer offers a 401(k) with matching contributions, this is typically your first priority. A common match is 50% of contributions up to 6% of salary—that's a guaranteed 50% return on your money. Free money beats everything else.

Contribute at least enough to get the full match. After that, consider other account types.

Roth IRA

A Roth IRA lets you invest after-tax money that grows tax-free forever. When you withdraw in retirement, you pay nothing. This is incredibly powerful, especially when you're young (decades of tax-free growth).

Contribution limit: $7,000 in 2025 ($8,000 if 50+). Income limits apply—if you earn too much, you can't contribute directly (but the backdoor Roth strategy works for higher earners).

Traditional IRA

Contributions may be tax-deductible now; you pay taxes when you withdraw in retirement. Good if you're in a high tax bracket now and expect a lower bracket in retirement.

Taxable Brokerage Account

No tax advantages, but also no restrictions on how much you can invest or when you can withdraw. Use this after maxing out tax-advantaged accounts, or for goals that aren't retirement.

What to Choose?

For most beginners: 401(k) up to the employer match → Roth IRA → back to 401(k) or taxable brokerage. If you're unsure, start with a Roth IRA—it's flexible (you can withdraw contributions penalty-free if needed) and offers tax-free growth.

Step 2: Open an Account

Opening a brokerage account takes about 15 minutes online. You'll need:

• Social Security number
• Date of birth
• Address
• Employment information
• Bank account for funding

Which Broker to Choose?

For beginners, these are all excellent options:

Fidelity is often the best all-around choice. No account minimums, excellent customer service (24/7 phone support), strong research, and no payment for order flow (meaning they don't sell your trades to high-frequency traders). If you're unsure, Fidelity is a safe bet.

Schwab is similarly excellent with the added benefit of 400+ physical branches if you prefer in-person help. They own the thinkorswim trading platform (from TD Ameritrade acquisition) for those who want advanced tools.

Vanguard is the pioneer of index funds and offers the lowest-cost funds. The interface is dated but functional. Great for buy-and-hold index investors who don't need fancy features.

Robinhood has the simplest interface and offers a 3% match on IRA contributions (with Gold subscription). Good for complete beginners who want an app-focused experience. Less customer service than traditional brokers.

All these brokers offer $0 commission on stock and ETF trades. The days of paying $10 per trade are over.

Step 3: Fund Your Account

Link your bank account and transfer money. Most brokers offer:

• ACH transfer: Free, takes 1-3 business days
• Wire transfer: Same-day, may have a fee
• Mobile deposit: Deposit checks via app

How much to start with? There's no minimum at most brokers. You can literally start with $1. That said, $100-$500 is a reasonable starting point—enough to buy something meaningful without being a major financial risk while you're learning.

Don't wait until you have a large sum. Starting small and adding regularly (dollar-cost averaging) is actually the ideal approach.

Step 4: Decide What to Buy

This is where many beginners get stuck. There are thousands of stocks and funds. How do you choose?

Here's a secret that professional investors know: for most people, the simplest approach beats trying to pick individual stocks. Index funds—which own hundreds or thousands of stocks in a single purchase—outperform most actively managed funds and most stock pickers over time.

The Simplest Approach: One Fund

You can build a perfectly good portfolio with a single fund. These all-in-one options handle everything for you:

Target-date retirement funds automatically allocate between stocks and bonds based on when you plan to retire. If you're 30 and plan to retire around 65, buy a 2060 target-date fund (like Vanguard Target Retirement 2060 or Fidelity Freedom Index 2060). The fund automatically becomes more conservative as you age.

Total stock market funds give you exposure to thousands of US companies in one purchase. VTI (Vanguard Total Stock Market ETF), ITOT (iShares Core S&P Total US Stock Market ETF), and FSKAX (Fidelity Total Market Index Fund) are popular options. You're betting on the entire US economy, not individual companies.

A Simple Two-Fund or Three-Fund Portfolio

If you want slightly more control, consider:

• VTI or FSKAX — US stocks
• VXUS or FTIHX — International stocks
• BND or FXNAX — Bonds (optional for young investors)

A 25-year-old might go 80% US stocks, 20% international stocks, and 0% bonds. A 55-year-old might go 50% US stocks, 20% international, 30% bonds. The exact allocation matters less than having a plan and sticking with it.

Should You Buy Individual Stocks?

For your first investment? Probably not. Here's why:

• Individual stocks are more volatile than diversified funds
• Picking winners is hard—even professionals struggle
• Your financial future shouldn't depend on one company's success
• Index funds let you own hundreds of companies with zero effort

If you're passionate about investing and want to learn, consider putting 90% in index funds and using 10% to buy individual stocks you've researched. This lets you learn without putting your entire investment at excessive risk.

Step 5: Place Your First Order

You've funded your account and decided what to buy. Now it's time to actually buy it.

Buying ETFs

ETFs (Exchange-Traded Funds) like VTI, VOO, and VXUS trade like stocks. Here's how to buy:

1. Search for the ETF symbol (e.g., "VTI")
2. Click "Buy" or "Trade"
3. Enter the number of shares or dollar amount
4. Choose "Market order" (executes immediately at current price) or "Limit order" (executes only at your specified price)
5. Review and submit

For your first purchase, a market order is fine for widely traded ETFs like VTI. The bid-ask spread is tiny, so you'll get a fair price.

Buying Fractional Shares

Most major brokers now offer fractional shares, meaning you can buy $50 of a $500 stock. This is perfect for beginners with small amounts. Instead of "buy 10 shares of VTI," you can say "buy $100 of VTI."

Buying Mutual Funds

Mutual funds work slightly differently. You enter a dollar amount (like $500), and the purchase happens at the end of the trading day at the fund's NAV (Net Asset Value). You don't need to worry about market orders or limit orders.

Step 6: Set Up Automatic Investments

The best thing you can do after your first investment is make investing automatic. Set up recurring transfers from your bank account to your brokerage, with automatic purchases of your chosen funds.

This approach, called dollar-cost averaging, has major benefits:

• Removes emotion: You invest regardless of market conditions
• Builds habit: Investing becomes automatic, like paying bills
• Smooths volatility: You buy more shares when prices are low, fewer when high
• Ensures consistency: You don't forget or put it off

Even $100/month adds up. At 7% average returns, $100/month for 30 years becomes over $120,000.

Common First-Timer Mistakes

Checking Too Often

Your investments will go up and down—sometimes dramatically. Checking daily (or hourly) leads to emotional decisions. Once you've invested in solid index funds, checking quarterly or even annually is enough.

Selling During Drops

Markets drop. It happens regularly. Selling when prices fall locks in losses. The investors who build wealth are those who stay invested through downturns. Every major crash in history eventually recovered, rewarding patient investors.

Trying to Time the Market

Waiting for the "right time" to invest usually means missing out on gains. Time in the market beats timing the market. Studies consistently show that investing immediately outperforms waiting for dips over long periods.

Overcomplicating

A simple portfolio of index funds will serve you better than a complicated mix of individual stocks, sector funds, and exotic strategies. Sophistication doesn't equal returns.

The Bottom Line

Making your first investment is simpler than it seems:

1. Open an account at Fidelity, Schwab, Vanguard, or Robinhood
2. Fund it with whatever you can—even $100
3. Buy a total stock market fund (VTI) or target-date fund
4. Set up automatic monthly investments
5. Don't check obsessively, don't panic during drops
6. Add to your investments over time

That's it. You're now an investor. The most important step is starting—and you can do that today.