This may come as a surprise, but I talk to friends, coworkers, and even dates about personal finance.
I know. I’m sorry. But I’ve realized that not enough of us are investing. Only 9% of millennials consider themselves investors! We’re hustlers, hard workers, and thought-leaders in our prime, and we’re somehow not making our money work for us? In the words of Preacher from Deep Blue Sea,
my hat is like a shark’s fin this is a mistake.
There’s a barrier of misinformation telling us that investing is way too complicated, or that you need a ton of money to get started. While companies like Acorns are changing that by letting you invest spare change without thinking about it, we need to do more for our future selves.
I’ve already posted about my favorite tools that streamline my finances and bring early retirement closer to a reality, but the right tools are just the foundation. There are a million ways to start investing in your future well-being and freedom. This is just how I do it.
While there are plenty of types of investments, for the purposes of this post, I’m only going to talk about the stock market. Most people have heard of investing by means of retirement accounts like 401(k)s or IRAs. You can also invest outside of retirement accounts, which is crucial if you’re gunning for early retirement.
Conventional wisdom (aka r/personalfinance) demands that you use your company’s 401(k) and get your match — do this if you can! If you’re like me and don’t have access to one, do the next best thing: open an IRA.
There are two types that are usually most helpful: Roth and Traditional. I actually have one of each.
Before I doubled my income, a Roth made sense. My “salary” was so small that it had to technically be called a stipend, so my tax bill was lower than it’d (hopefully) ever be again. With a marginal rate so low, it made sense to just pay the income tax then, instead of waiting to pay at retirement.
Now that I’m making something that can actually be called a salary, I opened a Traditional IRA with Charles Schwab. Because they don’t charge commissions for their own ETFs, I’ve been very happy with them so far. And because the cash I put into it every year is a deduction, my tax refund has been happy with them, too.
But that $5,500 annual limit leaves a bit to be desired. Plus, you can’t withdraw funds from IRAs penalty-free unless they meet very specific criteria. If only there was some way to invest more, but still not pay commissions on trades…
How I Invest
I don’t have a financial advisor, and probably won’t until I find a psychic who can tell me exactly when a company is going to blow up. People are limited and error-prone, so I’m not going to trust some human advisor’s judgement. Or their 1%+ fees.
That said, I’m no psychic either. I’ve already publicly shamed myself for my bad investments.
This is where Future Advisor comes in. Although it’s also not psychic (probably), I trust their algorithm, and I’ve seen compelling results since I started following its advice.
I set the goal of retirement by 40, put in my current savings rate and portfolio, and their program gave me a target portfolio, complete with specific suggestions of how much of which stocks to buy or sell.
While I’m still holding
the bag a few shares that I’m secretly hoping will get out of the red, most of my portfolio is made up of good old-fashioned Exchange Traded Funds. I’ve learned that what AAPL and TSLA offer in sex appeal, ETFs offer in stability and growth. Future Advisor looks for the lowest-fee ETFs, but I always double check on their suggestions for history of steady growth, worthwhile dividends, and low costs.
Still, I can’t follow everything
our robot overlords the algorithm says. Individual Real Estate Investment Trusts are now my guilty pleasure. These are a bit riskier than ETFs (although you can hit two birds with one stone with my homie VNQ), but you get to invest in real estate without owning real estate. Instead, you’re investing in companies that own income-producing properties (think apartment buildings, commercial spaces, even nursing homes). Just like their tenants pay rent, these companies pay their shareholders dividends – a percentage of their profits – monthly, quarterly, or annually.
And you better believe I’m using Personal Capital’s Investment Checkup tool every step of the way, just in case. Rule of thumb: get competing view points, go with the one that makes the most sense.
They say that time in the market beats timing the market. The earlier you can invest, the better. Every month, come hell or high water, I’m putting at least $1,000 into my Robinhood. As for my IRA, if I have the $5,500 (plus a healthy emergency fund) in my savings come January 1st, I investment it all up front at the start of the year. Otherwise, I’ll put another $1,000 per month until I hit the cap. Either way, the important thing is that money isn’t just sitting in my accounts doing nothing – it’s immediately invested as soon as it’s transferred.
But What About Recessions?
You will see a dip. No matter what you invest in and when, you’re going to see your shares fall in value. It’ll feel terrible knowing you could have had 1% interest guaranteed.
But then you’ll see better returns overall, with time. The average return in the stock market is 7%. That’s miles ahead of any savings account or CD you can get these days.
And in the likely event of a recession, the smartest investors actually buy more. I think of it as a sale where all my favorite stocks and ETFs are discounted. Every time there’s a sizable dip (thanks Brexit), I put a bit more than usual into the market, and load up on shares. You’ll see your average price per share drop, and have a greater profit when the market rebounds.
All in all, I only touch my portfolio once a month, unless there’s a
dip buying opportunity that I want to jump on. Everything else is out of sight, out of mind, until I see that I suddenly have a few hundred dollars that I didn’t have to actually work for. So why isn’t everyone doing this?