OP-
Congrats on the job and for saving a good chunk of money in your first year. Is it accurate to assume that you’re in your early/mid 20s? Is it also accurate to assume you only have a small amount of investment education? (sorry if this is wrong, I just don’t see any progress towards your CFA so I don’t know if this is true or not)
Is the money you’ve saved in a 401k, IRA or generic brokerage account? This matters because it effects the tax implications of your strategy and the flexibility that you have with this $5,500.
If the money is in a generic brokerage account, I’d ask you if you have any high interest rate debt, like a credit card. Investment returns will never outperform the interest you’re being charged on an overdue credit card bill, so that would be the first thing to do with this money.
If you don’t have CC debt, do you have an emergency savings account? The size of this depends on many factors, but mostly what monthly expenses do you have? If you’re living with parents and have no student loan debt, this may be small, but if you’re on your own and have rent, auto loan, student loan, etc. it might be a good idea for you to first establish a 3 month emergency savings account. This is especially true if you work in the financial services industry (a lot of people get fired when the market is doing poorly. You don’t want your investments to fall at the same time you might lose your job).
Assuming you have that in place…and again, this is money in a generic brokerage account…chose a low cost ETF or mutual fund that will allow you to be diversified. The reason for this is that you’ll be vastly better off by limiting the number of transactions you engage in when your account value is low. For example, I first had a Scottrade account in my early 20s and believe I paid about $8 per transaction back then. If I bought a portfolio of 10 stocks, that would require $80 in transaction fees. This isn’t horrible…but that’s assuming I don’t sell out and tinker with the portfolio…which is what most young guys do when they’re first getting stock market experience. You’ll love a stock one day and then read an article on seekingalpha about how it’s going to go to $0 so you panic and sell. Long story short, most people would have been better off taking the ‘hands off’ approach until they learned more about the industry. Go with VTI or VB or even VTTSX. Low cost, lets you own many companies and you can ‘set it and forget it’.
I’d also encourage you to do a little homework on long term returns from large cap vs small cap, or on income vs growth. What you’ll find is that a young person who is just starting to invest shouldn’t be focused on income investments, especially in a taxable account. You want to buy something that will appreciate for many years without generating taxible income, that way your money can compound and grow faster. A key here as well is understanding that your emotions will be detrimental to your long term returns. The more frequenly you check the account, the more likely you’ll sabotage yourself by selling at the wrong moment and buying in at a higher price. Again, transaction costs affect this as well.
Finally, if this money isn’t in a 401k or IRA I’d ask you why it’s not. If you’re just saving for a few years to buy a new car or something, then this is acceptable, but if this money is for long term growth you should put it into an IRA or roth IRA and take advantage of tax free compounding.
Maybe check out a few of the best sellers, like ‘rich dad, poor dad’ or something like that. In your 20s those types of books are way more impactful than any financial advice you’ll get on here. Fact of the matter is that taxes are a major part of any investment decision and often dominate your actual realized returns more than the investment performance actually does.