Here’s how to get started investing today without knowing anything else

black point and shot camera near macbook pro
Photo by rawpixel.com on Pexels.com

So you’ve finally saved up some money and you are ready to start investing? But, you have absolutely zero experience or education in the space and don’t even know where to start?

Well we are going to fix that in a very simple way without getting too technical.

The following will give you just enough information to get started without diving too deep into finance, asset allocation, stocks, bonds, IRAs, Roth IRAs, etc.  This is intended to start from the very beginning and set you on solid footing.

Getting Started

There are a number of good online brokerages that you can choose from, but you cannot go wrong with opening a Vanguard account.  This firm pioneered low-cost index fund investing for the retail investor and you will be in good company if you start here.

First, you will need to open a brokerage account.  Go to www.vanguard.com and open a new brokerage account.

Follow the steps to fund the account with however much you are ready to invest.

 

Selecting Investments

Now, what do you invest in?  The good news is that you are not going to be picking individual stocks. This is long term investing in mutual funds that don’t require you to be a stock picking genius. In fact, its better to avoid all individual stock picking.

There are probably hundreds of options for investing on the site, but I will distill everything down to two points:

Diversification (index mutual funds).  Invest in a low fee, passive index fund.  This will give you broad market exposure without single stock risk.  You are not making a specific bet on a single company you heard about. You are investing for the long term in the US and or global economies.

Timeline (Risk). Do you need this money in the near term? If so, you should be ultra conservative. Investing in stocks is a longer term strategy and you should really only be investing in stock mutual funds if you have a time horizon of longer than 5 years at a minimum (and probably longer).  Assuming this is money you do not need for the short term, you have several options that will give you stock market exposure.

Three Options to Invest for Starters

Vanguard has created investment products that are one-stop solutions for your investing.  Since you are new to this, this is a great option.  It comes down to how much risk you want to take. These portfolios are shown here in more detail:

https://investor.vanguard.com/mutual-funds/all-in-one-funds

 

https://investor.vanguard.com/mutual-funds/lifestrategy/#/

There is a ton of good information to get educated on these two websites that talk about risk, time horizon, retirement saving, or saving for other goals.  The bottom line is that investing in all-in-one fund created by Vanguard is a great low cost option for new investors.

If you have a longer term horizon, the below fund would be a good option that includes 80% stocks and 20% bonds.  It has higher risk and you should be aware of that, but it is broadly diversified and includes some bond exposure that will reduce the downside volatility.

  1. LifeStrategy Growth Fund. 80% stocks and 20% bonds
  2. LifeStrategy Moderate Growth Fund. 60% stocks and 40% bonds
  3. Vanguard Total Stock Market Index (VTSAX). Another option is to simply invest in the the total stock market through this fund. This would give you diversified exposure to 100% U.S. stocks (no bonds).  This is a great option, but note that it includes no bonds in the portfolio and is therefore riskier than the two LifeStrategy funds previously mentioned.

 

All of these funds are very low cost and combine passive investment strategies offered by Vanguard on an individual basis.

For beginners, these are great options.

If you never learned any more about investing, and methodically saved and invested bi-weekly or monthly into this single investment for the next 30 years, you would very likely be in strong shape.

It’s this simple.

Don’t over complicate it.

12 Rules for Money: An Antidote to Financial Chaos

man and woman holding check signage

I’ve been listening to lots of podcasts lately and came across Jordan Peterson, a Canadian Professor of Psychology and Clinical Psychologist, and involved in the so called intellectual dark web. Look it up if you haven’t heard about it yet; it is quite interesting.

Mr. Peterson’s recent book is called ’12 Rules for Life: An Antidote to Chaos.’  I haven’t read it yet and am not endorsing Mr. Peterson, though I have found the first few interviews quite interesting.  However, the book did give me the idea on what are the 12 Rules of a Financially Literate Life?

So, here they are:

12 Rules of Financial Freedom: An Antidote to Financial Chaos

1. Invest in yourself (get educated). You don’t get rich by saving nickels and dimes. You need to earn money over time. This doesn’t have to be $100,000 per year. There are plenty of stories of people earning $50K per year accumulating wealth with the right habits over time. But you will reach your financial goals a whole lot quicker if you focus on growing your income.

2. Monitor your spending habits (don’t spend more than you earn). Enough said.

3. Prioritize saving over spending. Develop a mindset for getting satisfaction out of saving as much as or more than buying things.

4. Understand compound interest. Not enough people understand the basics of compound interest and the impact it has on your investments over time.

5. Setup an automated bi-weekly investment plan. Setup a plan and stick to it. Remove the manual effort of saving and your future self will thank you.

6. Learn the basics of low-cost diversified stock mutual funds. Stop picking stocks. Select low-cost, diversified stock index funds. If you are older and want to reduce risk with some blend of bonds, go for it. Don’t complicate things. Stick with a few broadly diversified index funds.

7. Pay off your credit cards every month. Never, ever, ever consider leaving a balance on your credit cards. 16% or more interest is outrageous.

8. Don’t ever spend your year-end bonus. It’s your found money. You don’t even need it to get by month to month, so just sock it away.

9. Don’t buy more house than you can afford. This is tough for people in high cost of living areas (like many areas these days), but the less house you can reasonably buy, the better for your financial picture. Since you’re living here, there is understandably a bit more that impacts this decision (spouse, kids, schools, etc.)

10. Drive a used car. The difference in cost between a new and used car is enough to pay attention.  Even worse is trading up for a new car every three years and just keeping a drag of the big car payment into perpetuity. Buy used.

11. Max out your 401(k). Hit the limit. $18,500 in 2018.  10% is a rule of thumb but is not putting you above average. Save more, invest more.

12. Pay off your debts. Student loans, car loans, personal loans. Pay them off. There are differing views on what’s the best route to do this, but pick one and do it. Your debt is killing your financial freedom.

 

Those are 12 Rules that I just came up with. Let me know what your top few would be to move along the path towards financial freedom.