Warning: Please note that I am not an expert nor a financial advisor and you should take the following with a grain of salt. That means whatever I tell you here is what I personally experienced. I just want to share my story in hopes of inspiring you all to take action.

I am in no way saying you have to do what I do. I recommend you consult with a financial advisor before you do any of the following. Read at your own risk!

On January 17, 2021, I opened and funded my Roth IRA for the first time.

It was a very new process for me and I didn’t know what was in it for me. No one in my family had ever opened a Roth IRA before, so it was nerve-wracking being the first one to do this.

Why did I decide to open a Roth IRA? Because I want to save for retirement. 

I’m already 22, and I want to start today; I just thought the earlier I start, the better.

How did I know to open one? Simple. By watching Youtube videos. 

No, I’m serious. 

It’s as simple as that. Sometimes, we overthink things too much and end up having analysis paralysis—when we think too much and take no action for fear of failure or doing the wrong thing.

Why a ROTH IRA?

I had $20,000 saved up in my account at the end of 2020. It has been sitting there for the past year and one day while I was watching YouTube videos on how to save for retirement, I thought, “Why the heck am I just watching? I should open one too!” 

So I started watching as many YouTube videos as I can to learn what a Roth IRA was, how to open one, and how to invest my money.

Then, I opened my very first Roth IRA with Fidelity. 

“It’s 2021. Time to start taking control of my finances,” I thought to myself. 

How I Opened a Roth IRA for the First Time

If you’re nervous and not sure what to do, don’t worry. You will by the end of this article.

 If there’s one goal I want to achieve in this article, it’s to help you understand how this process works. As long as you’re able to take steps one and two, that’s good enough.

1. Decide My Asset Allocation 

This is super important and one of the first things you need to consider before you open a retirement account. 

You don’t have to start with this step, but I recommend you do this first and foremost because it will help you in step 5.

What is an asset allocation? 

An asset allocation is how much of a certain type of investments you want your portfolio to be made up of. These investment types are stocks, Exchange Traded Funds (ETFs), Index Funds, Mutual Funds, Bonds, real estate funds etc. 

This begs the question, what is a portfolio? A portfolio is basically a group of investments packaged into one collection. 

So, what does it mean to decide on my asset allocation? It means I need to figure out what kind of investments I want to have in my portfolio and how much of each I want. 

 Still not sure what I’m talking about? Here’s an example of what I mean:

There are a few general rules of thumb to help you get started, but here’s one method to help you decide what your investment portfolio could look like:

1. Take your age and subtract it from 100. This is how much stock and bonds you should have in your portfolio. Another rule to remember is that the younger you are, the more stocks you want to have in your portfolio. In my case, I’m 22. 100-22 = 88. So if I go by this rule, I should have 88% in stocks and 22% in bonds.

There is more than one way to choose your asset allocation. This reddit thread right here is a gold mine of information for you. Listed here, you will find a few other methods to help you decide how to choose your asset allocation and a more in-depth explanation of the different types of investments and what they mean.

2. Research Which Brokerage Providers to Open a Roth IRA

A brokerage provider is basically a company that allows you to trade, buy, and sell stocks—and lots more. 

There are two popular brokerage providers that I looked into Fidelity and Vanguard. 

I did a bit of research on them and based on the Youtube videos I watched, I decided to go with Fidelity.

If you’re not sure who or what to choose, check out this video by Investing with Rose. 

She’s great. She’s who I get the bulk of my information from. Please do your own research because research is important!

3. Sign Up for a Roth IRA

Now that you are equipped with the information you need to get started, it’s time to open a Roth IRA. Head over to Fidelity and select Open A Roth IRA to get started.

Did you know? There are certain guidelines that you need to meet before you can open a Roth IRA. 

• If you’re single and make below $125,000, you’re eligible to open a Roth IRA. 
• If you’re married, filing jointly, you need to make $198,000 or less before you can open a Roth IRA. See this chart from Nerdwallet to determine if you’re eligible to open this type of account.

 4. Fund Your Roth IRA

Once you’ve opened an account, the first thing you will want to do is fund your account!

What does this mean?

It means you need to add some money into your account so you can start buying stocks or other investment types.

To do this, make sure you’re on the summary page. Not sure where this is? 

1. On the top left corner, click Accounts & Trade > Portfolio. 
2. There should be a section to help you set things up like below. Click on Fund Your Account. See the image below. Note: I have deposited money into my account, so what’s shown below may not be exactly what you see.
3. Follow the directions on the screen to help you put money into your Roth IRA.

Important! Please know that how much money you put in your account now will start counting towards your Roth IRA contribution for that year. In 2021, you can only put $6,000 into your Roth IRA. If you decide to fund $6,000 right after you open your account, that means you will have maxed out your Roth IRA in that year.

In my case, I funded my account with $2,000. 

Also important! If you want to contribute to the previous year’s Roth IRA, you have until April of the current year to do so. 

For example, I opened my Roth IRA in January of 2021 and funded it with $2,000. Even though it’s 2021, if I want to contribute to my Roth IRA in the year 2020, I could still do that. I could put down as much as $6,000 into my 2020 Roth IRA as long as I do so before April and this would not count towards my 2021 Roth IRA Contribution. 

As soon as you contribute money to your account, you want to wait because it will take a few days before the funds transfer from your bank account to your Roth IRA account.

 5. Build Your Portfolio

Once you’ve opened a Roth IRA account, you can start building your portfolio.

In this step, you can start buying stocks, bonds, ETFs, Index Funds, you name it! If you don’t know what to invest in, please do your research first. 

Not sure where to start? Rose has a great video in which she explains more in-depth about what ETFs, Index Funds, and Mutuals Funds are—including which of these three options is best for you based on your personality type. 

If you decide to choose Fidelity as the brokerage provider, here’s another video in which she goes through some of the best Fidelity index funds you could buy. 

After watching YouTube videos and doing my own personal research, here are a few things I learned along the way that I want to share with you. These are general rules of thumbs to help you choose the best investments:

1. If you would rather not manage your stocks every day, then go for Index Funds. Again, watch this video to learn what Index Funds are.
2. Index funds tend to have a low expense ratio, which is basically like a management fee. You want to look for index funds with an expense ratio below 0.2%! Any more than that and you could lose thousands of dollars to management fees by the time you retire!

But, how do I actually buy stocks? Not sure how to? This video shows you how to buy an investment. Otherwise, in 2021 here are the rules:

• In the search bar, look up the investment you’re interested in buying
• Click on Buy in the top right corner
• Select the Roth IRA account you want to add the investment to
• If it doesn’t already populate, type in the investment you want to buy in the Symbol box
• Select Buy in the action dropdown menu
• Put in how much money you’re willing to buy
• Click on Preview to make sure everything is correct 

Here’s an example of what I mean:

Congrats! You just opened your first Roth IRA and bought your first investment. This is known as a trade and it can take a few days for the transaction to go through.

What Happens Next?

Now, you want to decide how much and how often you want to start contributing money to your Roth IRA.

Will you deposit money every month? Bi-weekly? Once per year? 

It’s up to you. Fidelity gives you the option to do direct deposit—by far the most confusing aspect of this whole process that I’m still trying to understand. To set up direct deposit, read more about it here. 

So…

How did you get started in investing? Or are you already investing in one? I’d love to know how you got started.