When Should You Start Investing?

Shouldn’t I already be investing?

Perhaps you’ve been asking yourself this question but have been unable to settle on an answer that you’re comfortable with. If so, you’re not alone… Many people push investing to the back burner because they’re unsure where, when, or how to begin building their nestegg.

In fact, it seems that many people want to start investing, but simply aren’t ready to take the plunge. And even if they are ready, they have no idea where to start. In this article, I’ll be focusing on the issue of readiness.

The obvious answers

Many people aren’t comfortable tying up their money in long term investments until they’ve met a couple of key milestones.

  1. Consumer debt is paid off. Getting rid of your high interest consumer debt should be high priority. It’s probably best for you to forget about investing until your most burdensome debt obligations are met.
  2. Liquid savings buffer built. Having ready access to money when you need it is always important. Make sure you have a comfortable amount of money set aside in a high interest savings account before you begin investing.

While debt reduction and emergency savings are certainly important considerations, there are other important factors to consider.

Other factors to consider

  • Age. While there is no ‘one size fits all’ age to begin investing, the sooner you start, the sooner compound interest can begin working for you. Optimal investment vehicles and portfolio allocations will differ depending on age, so be mindful to choose age appropriate solutions.
  • Matching funds. Does your employer match your 401(k) contributions? Are you fully vested in their contributions right away, or on a graduated scaled based on years of service? If they do offer a match, this should only speed your decision to contribute.
  • Children. If you have kids, you might be tempted to begin saving for their education, but you shouldn’t put this ahead of retirement savings. Instead, you should consider consistently putting 15% of your income toward retirement investments prior to saving for education.
  • Job status. How stable is your current source of income? If you have a stable job and solid savings, you might feel more comfortable locking up a portion of your income in retirement accounts. If your situation is more tenuous and you may be let go tomorrow, you should build a larger emergency fund.
  • Marital status. If you’re considering a move into investing and have a significant other, be sure to include them in the decision making process! When married, these long-term decisions affect both spouses equally, so be sure to communicate and decide accordingly. The best decisions are usually made together.
  • Insurance policies. It is important to carry the proper types of insurance at each point in our lives. A decision to invest should not be made without balancing our investment strategy with situation appropriate insurance coverage. Health insurance, disability insurance, long-term care coverage, and life insurance coverage are all important and need to be considered alongside any decision to invest.

In closing

While there are certainly other factors to consider before making the decision to invest, this list should provide a good foundation and get you started in the right direction.

When making important financial decisions, always move slowly, ask question, and consider as many contributing factors as possible. You might even consider consulting with a professional advisor for feedback.

14 Responses to “When Should You Start Investing?”

  1. Anonymous

    To have a professional advisor who can steer you in the right direction is worth his weight in gold. Having said that, itâ??s hard to find one. Most people are left with the only option of educating themselves, doing their own due diligence and coming up with a decision â?? which I guess is a better way to make investments. By the way, I took up this fun finance quiz and it showed me the mirror about my financial literacy. Maybe some of you might want to give it a try http://tinyurl.com/osbks8y

  2. Anonymous


    Paying off credit card debt can be a better option than taking the employee match. Provided you dedicate the income stream freed up by paying that CC debt to future matched contributions, and the CC’s interest rate is high enough check out: http://ponderingmoney.com/2009/10/30/which-wins-401k-match-or-high-interest-cc-debt/

    The matching % actually drops out of the equation so it doesn’t matter if the match is 0% or 100% as long as both present and future contributions have the same match.

    -Rick Francis

  3. Anonymous

    i also think that you must not invest if you have no idea what you are doing. If you are inclined towards value investing, it is important to know how stocks are analysed and how to get good stocks and bonds, portfoloi management, asset allocation and the like. If helps reading as much as you can before taking the plunge

  4. Anonymous

    The term investing is a little misleading. As John pointed out above, I believe that company match should be the number one priority. Ready my post here on why I think it’s so important:


    This is free money and you should take advantage of it if it’s available to you. As bad as consumer debt can be, it doesn’t match the 50-100% matching the many employers offer.

    I think the other factors that you brought up were really great. You describe most (if not all) of the factors that should determine whether you invest. I think maybe people only consider the financial factors when deciding to make important financial decisions, but you rightly brought up many personal reasons why someone should or should not invest.

  5. Anonymous

    I firmly believe in the emergency fund strategy.

    However, I actually have a different way of thinking than most people. While investing in the market is riskey, I do not have a problem with investing part of the emergency fund in a blue chip stock. Something like Exxon or Walmart usually is a pretty safe investment and can actually go up quite nicely during certain times.

    Again, there is risk, but also a bigger reward factor as well.

  6. Anonymous

    this is my order of priority:
    1)Company match
    2)small e-fund contribution/month
    3)expensive debts like high rate CCs and car loans
    4)increase e-fund contribution
    5)max Roth IRA or other retirement depending on tax situation.
    6)Save for car/motorcycle
    7)Finish off the other debts like mortgage, stud loan

  7. Anonymous

    I always go back to this: “Paying off debt is investing too”. Stating it this way: when is the best time to start investing? Right now — pay off your debt!

    (do as Matt recommends and have an emergency fund before investing / paying off debt).

    Only once your debt is eliminated should you concern yourself about ‘investing’ in the traditional sense — but do get that 401k match regardless (free money).

  8. Anonymous

    I started a retirement and mutual fund account last year and have been working to max out the Roth IRA and contribute just a little bit of money each month in the mutual fund. I am young, single, no debt so want the compound interest to work in my favor over a 10 year period.

  9. Anonymous

    Solid Post Matt. I’ll save some of the readers some money (as I work in retirements for a living). There is a phrase called “Replacement Ratio”, it’s goal is to measure how much money an employee needs in retirement.

    Paternal employers try to get near 80% (combined total of Employer sponsored plans, personal savings and public plan – social security).

    Joe Taxpayer mentioned finance is a personal matter – I agree. 80% is a good replacement ratio for some, other may only need 60 or 40 even.

    Just to the reader, whenever possible save all you can, and own your stuff before you retire. As the world is full of fixed income retirees, just “barely getting by”, making Golden years, not so fun.

  10. Anonymous

    I started putting money aside for retirement my second paycheck on the job. Because of my debt, I haven’t increased the amount that I put aside toward retirement until I finish my credit cards and car note. Given that my job doesn’t have a retirement plan, I’m really glad that I made the decision that I did.

  11. Anonymous

    This is a very personal decision. I continue to better understand that finance isn’t 100% numbers. One’s risk tolerance, discipline, and religious beliefs all kick in on this topic.

    That said, I’d suggest that one start saving the day they get their first job. A company match, especially a dollar for dollar match should (in my opinion) take priority over even paying off credit cards. Most employers, if they match at all, limit to the first 5% of income. So, someone starting out of college at say, $30,000, will only put $1500 into the account.
    If this delays the card repayment a bit, fine. If it means never getting those cards paid, there’s a bigger issue that this 5% won’t fix. Adjust spending. If one can live at their means, one can learn to live 5% beneath that.
    Better that they get the match and learn to budget on 5% less of their income.

  12. Anonymous

    Your list makes sense. You certainly don’t want to start investing when you have piles of credit card debt bogging you down. I don’t think you need to necessarily wait until you are debt free either though.

    Once you have eliminated the credit card debt you should take stock of where you are financially and decide if investing makes sense for you. I have been able to eliminate my car loans and soon my student loan while investing for my retirement.

Leave a Reply