95% of investing in 4 simple steps

There are 4 simple steps that take care of almost all investing needs. The third step is the most difficult, but we can help with that.

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A man sprawls on the grass reaching out to touch four piggy banks, lined up in a row.

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A couple of times in the last week, I've received a similar query: 

"How can I get started investing with $500 or $1,000?"

It's a simple question.

And, if you've been investing for a while, you might have a good answer.

But if you'd never had a brokerage account, much less invested, and the whole thing seemed entirely foreign… 

Well, then it can feel like a question without a simple answer.

But we'll get to that.

Because the most recent time I received that question was in reply to a tweet of mine.

tweeted:

So I thought we'd start there.

See, the team and I at The Motley Fool spend almost all of our time on the third one.

And I think we do it pretty well. Past performance is no guarantee, of course, but I work with smart, capable, committed people who want to help our members achieve their financial goals.

But you can do pretty well with just 1, 2 and 4.

No, that's not sacrilege for a guy whose day job is picking stocks.

And no, I'm not going to get fired for saying so.

My point is that I think we can help you with the third bit, but you have to help us, help you.

You've gotta work and save hard. You've gotta leave things alone (though we'll help you with that, too, with our regular advice).

But we can't do any of those things for you.

You have to do that work, yourself.

Now, in terms of where to start, I reckon there are two really good options.

The first is to kick off with some instant diversification through a low-cost index-based exchange-traded fund (ETF).

Vanguard is excellent and has a low-cost fund that tracks the ASX 300: Vanguard Australian Shares Index EFT (ASX: VAS). Also one that tracks the rest of the developed world: Vanguard MSCI Index International Shares ETF (ASX: VGS). I own units in the latter, for full disclosure.

Other ETF providers have similar options.

Buying some of each gives you immediate diversification and global reach. Simples, as the meerkat says.

The second option is to go with individual company shares. If you're taking that option, try to get to 15-20 companies as quickly as possible.

That has the dual benefit of ensuring one company's share price movements don't unduly impact your portfolio value and also is less likely to impact your emotional state. A meaningful loss, early on, can otherwise play with your mind, potentially derailing your long term wealth-building.

And then, of course, you can keep going, with either strategy or cross-pollinate them — adding individual companies to your ETFs, or some international ETFs (for example) to your ASX companies portfolio.

And then?

Yep, leave it the hell alone.

Not entirely, of course.

There may be times when selling is prudent.

That's why I said 'Investing is 95%…' not 'Investing is 100%…' 

But for most of us…

Most of the time…

I reckon the working, saving and adding bit will drive most of the value of your long-term wealth building.

Or, as I said in another tweet:

Sure, you can make investing more complex if you try.

But sometimes you're better off just keeping it simple… surely?

(See what I did there? And don't call me Shirley.)

Have a great weekend.

Fool on!

Motley Fool contributor Scott Phillips owns shares of Vanguard MSCI Index International Shares ETF. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Vanguard MSCI Index International Shares ETF. The Motley Fool Australia has recommended Vanguard MSCI Index International Shares ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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