A financial planner answers all the beginner investing questions you're too nervous to ask

  • New investors often have many questions about investing that they’re afraid to ask.
  • They wonder whether it’s worth investing at all, and the answer is simply yes — it can help money you’re saving for long-term goals keep up with inflation. 
  • New investors should also pay off credit card debt before getting into the market, and have a working budget and a full emergency fund. 
  • For most people, the best place to start is through an employer’s 401(k) program, where you can take advantage of matches and tax savings. Then, HSAs and IRAs are the next steps.
  • SmartAsset’s free tool can find a financial planner to help you take control of your money »

As a new investor, it’s impossible to know everything about investing. Luckily, if done right, it’s a lot simpler than it seems. 

Tania Brown, a financial planner and financial coach at Saver Life, sat down with Business Insider to answer all the questions that beginner investors never want to ask. Overall, she says the best thing to do as a beginner is to ask questions, and understand the process and your goals before you start. 

In her experience, many people make the wrong investing moves simply because they’re afraid to ask questions. “The biggest thing is that they don’t want to sound stupid. And that can cost you money,” Brown says.

Here are the first few questions new investors typically have but are too afraid to ask.

Why invest in the first place?

Brown sums up the best reason to invest in one sentence: “The benefit of investing is to get the money you’ve worked so hard for working hard for you.” 

Some things — like emergency funds — need to be saved instead of invested. But money for other longer-term goals needs to grow to be useful.

“Money for retirement, or future college savings if your kids are young, you want some help with that money to grow. Investing helps you out,” Brown says. The average savings account has an interest rate of 0.06% for a standard account, though high-yield savings accounts often have higher rates. However, they can’t help your money grow over time as much as investing can — the average stock market return over 10 years is 9.2%, according to Goldman Sachs data.

Investing can also help you grow money enough to keep up with rising costs. Over the past 10 years, inflation has increased the cost of items like housing, transportation, and other living costs between 1% and 2.2%, according to the Bureau of Labor Statistics. When you invest, the value of your money keeps up with inflation. 

Am I ready to invest? 

Simply wanting to invest and having the cash to do so doesn’t mean it’s necessarily the right move. Brown says that there are three questions anyone who wants to invest should ask themselves before investing.

1. You have a spending plan

You need to know how much money you have available, and know where every dollar is going. Having a budget can help you figure out if, and how much, you can invest.

2. You don’t have any credit card or other high-interest debt

Not all debts are the same — some cost more than others. High-interest debt is generally any debt with an interest rate higher than student loans or a mortgage, which generally stay below 6%. Things like personal loan debt and credit card debt generally have interest rates that fall well above this rate. 

If you’re carrying high-interest debt, wait to pay it off before you start investing. “It doesn’t really make sense to invest in something earning 10% while you’re carrying 16% credit card debt,” Brown says. 

3. You have a full emergency fund

Anyone without a full emergency fund isn’t ready to invest, Brown says. 

“When life huffs and puffs and blows your financial house down, you will wind up going in and cashing out your investments to cover that expense,” Brown says. “The purpose of having your [savings] foundation is when you start investing and building wealth sustainably, you’re not going through that roller coaster ride where you’re cashing out your investments for every life event.”

4. You know that the goals you’re investing for are long-term

Investing works best for long-term goals — things like retirement and sending children to college in many years. Short-term goals, like buying a home in three to five years, are probably better achieved with a savings account.

For one thing, you risk having to take a loss to meet your goal’s timeline if investing for short-term goals. “Up until the last 10 years, on average, a recession hit every five to seven years. If your plan is to use the money in five years or less, you run into the danger of pulling out money in the middle of a recession,” she says.

Where should I even start?

The first place you should start investing probably isn’t a fun new, flashy investing app. Oftentimes, these apps only offer an individual taxable account, a type of brokerage account without many tax benefits. For most people who want to build wealth over time, the first stop should be an employer’s 401(k). 

“If you have a retirement plan at your job and they are giving a match, which is free money, at the minimum, start there,” Brown says. “Put enough in to get the free money. If it’s pre-tax, it’s also a tax saving.” Most 401(k) plans take money from your paycheck pre-tax, lowering your total taxable income. Check with your HR office or talent manager to find out what’s available.

After getting every dollar possible of your employer match, Brown suggests looking into a health savings account, or HSA. Unlike a flexible spending account, or FSA, the funds in an HSA never expire and can be invested. Some people choose to save these accounts for retirement, and invest the funds to grow with time. However, you will need to have a high-deductible health plan in order to qualify for one of these plans, which could be cost prohibitive in the short term.

Next, a Roth IRA can offer other advantages. Anyone whose income falls under $124,000 for a single person or $196,000 for a married couple in 2020 can qualify to use a Roth IRA. These investment accounts are funded with money you’ve already paid taxes on, so the withdrawals you make later are tax-free, no matter how much the account or your income has grown.