You know it’s important to start investing your money, but how do you start? We’ll get you on the right track.

“You have to start investing, and do it now in two or three different ways,” says John Schenk, 30, of South Bend, Ind.

Schenk started investing five years ago after attending a financial education course. He sets aside money each month into his 403(b) retirement plan as well as an employee savings account.

“The course inspired me,” he says. “If you would have told me that I need to invest, I would have thought that I needed $20,000 and to hire a stock broker.”

Schenk just needed some courage and support. If you need some guidance, check out this 5-step guide to successful investing.

Retirement plans

The best and first step you can take in investing for retirement is to maximize your employer’s 401(k) or 403(b) plan. If you can afford it, set aside at least what your employer matches in a retirement plan. It’s free money, and not only do you save for retirement, but you also reduce your taxable income. Contact your company’s human resources department for more information on your retirement plan.

“No matter how little money you have, whether it’s $25 a pay period or just a few dollars, don’t be afraid to start,” says Norma Mannix, a senior consultant for PricewaterhouseCoopers Financial Planning Solutions, in Chicago.

Investment tips
Norma Mannix, senior consultant for PricewaterhouseCoopers Financial Planning Solutions, in Chicago, offers her top investment tips:
  • Conquer your fear by educating yourself.
  • Get help from a professional adviser.
  • Don’t watch the stock price everyday. “You’ll sell at the exact wrong time,” she warns.
  • Buy what you know.
  • Invest for the long term.
Educate yourself

Next, start or join an investment club where you meet with other people, and pool your money together to invest in a portfolio that the club recommends as a whole. The monthly dues are set aside in investments voted on by the club. The profits are distributed based on how much each person contributes to the investment.

Investment clubs have launched some amazing success stories, and they’ll teach you a lot, says Robert Dennis, a certified financial planner who does arbitration and mediation for both the New York Stock Exchange and NASDAQ markets.

“The big thing is education,” Dennis adds. “Investment clubs are great vehicles to helping understand individual stocks.”

He also recommends reading as much as possible, whether it be the business section of your local paper or financial magazines such as Money and Kiplinger’s Personal Finance.

Get an adviser

Beyond investment clubs, the next step is to do your own investing. But how do you sort through the thousands of stocks and mutual funds to find a good one? To do this right, you’ll need to take the third step: Get guidance from someone you trust.

If your adviser is a broker, read our story on picking a broker.

Stocks, non-government bonds and mutual funds are all uninsured investments. Be sure you get into an investment that matches your risk tolerance. A good adviser can tell you which stocks and mutual funds are solid.

Set a long-term goal

When you have more confidence, you’re ready for the next step in investing: buying stocks or mutual funds. It’s best to do this with a specific long-term goal in mind such as buying a house or car.

Set aside a certain amount of money deposited directly into a “housing fund” or “car fund.” If you contribute the same amount of money each month into that fund with a direct deposit, you won’t miss it as much as when you haphazardly invest.

Invest for the long haul … several years, not several days, weeks or months. With time, you can ride out the inevitable bumps in the stock market. Mutual funds, which are a collection of stocks, give you greater diversity. Plus, with a mutual fund, you have a professional portfolio manager at the helm. See our story on the basics of mutual funds.

The DRIP option

If you still don’t want to invest through a broker or mutual funds, consider a dividend reinvestment plan. These plans drop money directly into a company’s stock on a regular basis. A DRIP avoids commissions charged by a stockbroker and can reinvest the dividends (profits distributed by the company to its shareholders) to buy more shares of stock.

Many large companies, such as ExxonMobil and Coca-Cola, offer DRIPs to anyone. You can find out more about DRIP plans on the “investor relations” portion of a company’s Web site or by contacting the company directly by phone.