“Investing” is one of those last things I had to check off my grown-up list before I turned 30. Because everyone knows if you don’t finish your grown-up list by the time you turn 30, you’ll be forever doomed to wearing diapers, right? (Wait – was that just me?)
I didn’t want to start investing because it seemed scary to me. Like, spiders scary. To hell with spiders.
Today, though, I am a bona-fide investor. And do you know what? It’s a hell of a lot easier than college was, that’s for sure!
If you’re hesitant about starting to invest, have no fear. I’ll tell you about why it’s important and what the best ways to dip your toes into the water are. It’s not as scary as it sounds, I promise!
Why start investing?
I think a better question would be, why not invest?
It’s the single best way to grow your money. Maybe you’ve heard that you need somewhere around a million dollars to retire. A MILLION dollars!
Here’s a secret, though: you don’t actually have to save up that amount of money on your own. You can use the stock market to multiply your savings for you.
Let’s look at a short-term example. Let’s say you saved up $50 per month for five years in two different accounts:
- Savings account, earning 0.06% interest
- Stock market index fund, earning 7% interest
Guess what your bank account will earn you at the end of those five years? A jack-diddly-squat $4.62. Woohoo! You can buy two tacos.
But if you’d invested that money in the stock market instead and earned the average rate of return? You’d have earned a whopping $579.87. You can buy ALL the tacos.
Now, extrapolate this out over your entire working lifetime. You can earn hundreds of thousands of dollars without even lifting a finger to work for it. This is the real power of investing. This is the difference between poor people and people who have enough money to live the life they want.
That’s all well and good, but if you’re like me a few years ago, you still think that investing isn’t something that you can do. It’s for dusty old white men riding around in crisp black limos.
Here’s the truth, though: anyone can learn. And, like I said earlier, it ain’t exactly rocket science—not if you do it correctly. But, it will require a bit of studyin’ up on your part.
Here are some great blog posts and podcast episodes to check out:
- Listen Money Matters: How To Start Investing
- Listen Money Matters: What The F**k Is Vanguard?
- JL Collin’s Stock Series
Here are some good books to check out (affiliate links):
- The Simple Path To Wealth by JL Collins
- Investing In Your 20s And 30s For Dummies by Eric Tyson
- The Little Book Of Common Sense Investing by John Bogle
- The Boglehead’s Guide To Investing by Taylor Larimore, Mel Lindauer, and Michael LeBoeuf
Keep It Simple, Stupid
There are a ton of ways you can invest your money. Stocks, bonds, real estate, ETFs, mutual funds, professional poker players, tulip bulbs, etc…
How the hell is one to ever make sense of such a mess, especially when people devote their entire lives to the game of stock picking alone?
Here’s another secret: you don’t need to be an expert to pick the right investment. All you need to do is to put your money in some basic index funds.
What’s an index fund? It’s a collection of stocks pegged to some index. For example, the S&P 500 index fund is a collection of the 500 largest companies in the U.S. The Total Stock Market index fund is a collection of all of the stocks. Each investment company—Vanguard, Charles Schwab, etc…—has their own index funds based on these indices.
In short: index funds are collections of stocks, like a chocolate sampler. Except way less tasty. But if you mix in enough time and money with an index fund, you can buy all the chocolate samplers.
Only Invest What You Can Afford To Lose
Another reason I was afraid to start investing was this: it’s possible to lose money. In fact, it’s possible to lose a lot of money—even a significant portion of your investment.
There’s a simple way you can get around this, though. Don’t invest what you can’t afford to lose.
I always keep this month’s and next month’s expenses in my checking account. I also keep my short-term savings (money I’ll need in five years or less) in my bank’s savings accounts. Finally, I keep my three-month emergency fund in my bank’s savings as well.
This effectively keeps me safe from any weird market turns. Everything else either goes towards debt or gets invested.
Of course, this means that you need to have some extra buffer money. If you don’t have that built up yet, I recommend setting up a budget, reducing your expenses, and earning more money until you do have enough. That way you can invest money without peeing your pants because you’re too scared to lose that money.
Baby Steps: Start Small
Not all investing is created equal. If you’re afraid of jumping in the deep end of the pool, good news! You can start out in the shallow section.
That’s what I did. Most DIY investors buy and sell shares of index funds within brokerage accounts. Honestly, I am still learning WTF that all means.
That doesn’t matter just starting out, though. What’s important is that you just get started, so your money has the longest time possible to grow and you can become accustomed to the movements of the market.
Acorns is one really great way to dip your toe in the investing world. It’s a program that you link to your credit/debit card. Each time you make a purchase, it’ll round it up to the nearest dollar and deposit that extra money into an investment account just for you. Easy peasy!
My favorite tools to start investing are robo-advisors. They’ll ask you a few questions about yourself and your goals and automatically divvy up your money among a series of index funds. All you have to do is pony up the cash.
Betterment (affiliate link) is my favorite robo-advisor, and it’s the one I currently still have my money with. Full disclosure: I am learning how to do fully-DIY-investing and will be moving my money out shortly to an even lower-cost option. But, for getting started, Betterment was just the thing I needed.
Just Get Started!
I understand that investing can be scary. It doesn’t have to be, though. Investing can actually be your ticket to freedom. By learning more about it, investing simply, and investing only what you can afford to lose, you can take the first baby steps towards your financial freedom too.
What would it take for you to start investing? Leave a comment below!