There are very few techniques out there that truly apply to everyone when it comes to investing. This is what you need to do. I can say this because it is what works when it comes to investing and it is highly effective. I’ve said it again and again. Investing is not rocket science, it is a discipline.
Many people believe that it is something that is hard to understand but in reality there are steps you can put yourself through to be immensely successful if you just follow some very simple steps that I’m about to lay out.
I don’t see enough people talking about finances. It’s not a common conversation a lot of people have with friends and neighbors. My last job I worked in finance and I called upwards of 140 people a day and I talked finances with them.
You would be pretty shocked to know how many people I talked to who were at the end of their careers and still were unsure of how to invest into their retirement. Many of the people I spoke with did not have enough saved for their retirement and that pushed them into working longer than they needed to.
It is such a massively important topic to face since we are not educated into this stuff k-12. It should have its own whole subject from 7th grade up in my opinion. But alas here we are and most people don’t know a thing about investing. If you agree finance needs to be a part of the schooling system slam that like button.
So I’d like to share my years of experience about some foundational knowledge when it comes to investing so you can get started today!
I’ve put about a week of thought into this article and how to make it as simple as possible so strap in people we are going to dive right in.
The great thing about finance is that there is always something to learn, so it doesn’t matter if you are a skilled investor or a beginner this will have something of value for you.
Let’s go through some scenarios of some steps you need to take and talk real life examples of why they are important.
1. Before you start investing I highly recommend that you get an emergency fund. Save $1,000 or one months expenses, whichever is more. Now you may be asking yourself right now… Why is this guy talking to me about an emergency fund right now? We should be talking about investing, right?!
I can’t tell you the peace of mind I have knowing that if my car dies tomorrow I don’t have to scrape my pennies to fix that thing. Let’s just imagine for a minute right now that you don’t have a savings and your car dies. But at the same time the stock market plummets into oblivion.
The only way for you to fix your car is if you pull out some of you investments. But look the $100 you put into some stock has dropped in value to $80. So you pull the money out at a loss and fix the car. So now you lost money in the stock market just to fix your car. Costing you more than it would have if you just had a savings.
Lets look at another scenario. Say that $100 you put into a stock turns into $110. You may be thinking to yourself hell yeah. I’m up $10 and that helps pay for the car. WRONG you pull the $110 out and you’re going to pay taxes on that $10 gain. Just don’t do it.
Do not pull money out of the stock market to fix your car. Keep an emergency fund.
2. Pay off debt. I’m going to keep this simple as I could spend hours talking about how damaging debt is in our lives. Before my wife and I paid off all our debt we were paying about $700 a month in payments towards our debt. Now imagine for a minute how powerful and how much money you can earn by investing $700 a month into the stock market that on average gains about 7-10% a year! Compound that over 30 years and that will get you 1.3 million by the time you retire. If you wait 5 more year it turns into 2 million. 5 more year and it turns into 3.3 million.
Look young people. Just start investing now. Invest early and often. Time is your best friend when it comes to investing. Just start today. Click my link below for a free stock to get started on Robinhood or 2 free stocks from WeBull that could be valued up to $1,200 dollars when you deposit $100 dollars to get started. Even if you set up the accounts and wait 30 day ( required ) then pull all the money out to pay off debt! Protip it’s free money, you just need to wait.
Robinhood Free stock just for signing up - https://join.robinhood.com/andrewa6007
3. Open a retirement account. First if your employer offers any type of match you need to get that thing maxed out first and foremost. Look at it this way. You contribute 4% of your check and they match 4%. That is 100% gains already!! Now imagine the stocks you had invested went up 10%. You are now at 120% gain. It is amazingly profitable to use your employers matching retirement plan. If you aren’t using this go do it now. After you’re done reading go set it to max out whatever your employer will match. Just do it.
If you are able to put more money away into retirement after contributing to your 401k then you need to go open a ROTH IRA account. You can contribute up to $6,000 a year into this account. The great benefit of a ROTH account is that it grows tax free forever.
Why ROTH IRA? Lets run through another scenario. During my tenure at my last job I spoke with thousands of people who could have put their money into retirement accounts that made it easier for them. Because they didn’t save enough money for retirement they were forced to live below their comfort levels they had while they were working. A very common situation is that they had to all worry about taxes in retirement and it was something that stressed them all out.
Imagine pulling money out of your investments and you had to worry about not pulling too much because you had to pay taxes on your money you pulled out. You go to the bank and pull out $1,000 dollars just to have to do some math that you’ll need to save $200 dollars for taxes.
So that $1,000 dollars isn’t actually yours, only $800 of that $1000 is yours. The other $200 is uncle Sam’s! This problem is solved with the ROTH account. You don’t pay taxes on your withdraws because you pay taxes on that asset when you originally invest it.
The money you pull out of that account is tax free and you don’t have to stress about taxes in retirement. This greatly increases your life in so many ways in retirement. Everyone talks about ROTH accounts but they’ve never been run through these examples of why it’s so important to contribute towards your ROTH accounts.
Furthermore another benefit to paying towards a ROTH is that you pay taxes now expecting taxes to increase when you retire. We have no idea what taxes will be like in 30 years. Imagine you work your whole life and you think you have enough saved up but taxes increase by the time you retire and the new tax rate cuts your lifestyle by 5-10%. We don’t know what taxes will be like so it is best practice to pay now.
Now lets talk about how you are going to invest those funds inside the 401k and ROTH IRA.
Starting out with allocating your money into different investments can be scary. But you’ll never get over your fear without just doing it. Often times you can pay someone to manage your 401k which might be a good way to start until you feel like you can handle it yourself. But please revisit this thought process often. You don’t need to pay someone for something that you can easily learn yourself.
So I’m going to put in a time stamp of when I start talking about how to allocate funds inside your investments and let you skip to that as I go over investing terms. So if you are versed in all the investing lingo skip to the next time stamp. If not lets dive right into some terms you’ll need to know as I talk.
First and foremost:
Stock: this is a representation of owning a portion of a company. When you buy a company stock you own a percentage of that company. You will start to receive company shareholder information and be invited to meetings that the company has so you can better understand the direction of the company. This will allow you to learn information about that company that you may have otherwise never learned.
They will talk about company initiatives on how to earn more money, cuts spending, increase spending etc. In these meeting. It is a wonderful way for you to learn more about your investments. I also highly encourage that you watch at least a few of these before you get into a company that way you can learn if that company is really something you’d like to sink your money into.
So the most comfortable way for you to get started is to invest into something called an ETF or an Electronically Traded Fund.
What is an ETF? a type of security that tracks an index, sector, commodity, or other asset, but which can be purchased or sold on a stock exchange the same as a regular stock. Put a little more simply it is a fund can be compared to a pie. One slice of this pie is apple, the other is microsoft, or facebook… etc..
If that explanation of what an ETF didn’t make any sense at all let’s look at one and we can break it down.
VOO: I’m currently invested into this ETF and it has done great things for me. The amazing thing about a fund like this is that you are invested into the whole market. Let’s take a look at the top 10 stocks inside of this fund.
Going back to my pie analogy you can buy industry specific ETFs that only focus on certain areas like technology, oil, consumer goods.. etc..
Look at this ETF NOBL. This tracks companies like proctor and gamble, johnson and johnson, and kimberly clark who all sell products like tissue paper, toilet paper, bleach, cleaning products. These type of companies are things everyone will buy whether the market is up or down. We all need to blow our noses and clean our homes. This type of ETF is very predictable and steady. They grow at a steady rate.
So to reiterate what I talked about earlier ETF investing will help you match the market but won’t really beat the market. That being said, investing into an ETF like VOO will get you average returns of 7-10% a year on your money. That is a very respectable gain on your money. This type of return will help you make serious gains as you save for retirement.
Let’s take a look at this compound interest calculator. If you were to start with $100 dollars and invested $750 a month into your investment accounts over 30 years with 8% returns you’ll have over a million dollars.
Now you may be asking yourself, Drew how the hell am I going to find $750/mo to invest? Take some time after reading this to add up how much you are paying in debt. Add all of it up, cars, credit card debt, student loans, personal debt EVERY debt you have. Not slap that into a compound interest calculator and see what you can do. Here is a link for a compound interest calculator.
I’m sure each and every single one of you will be shocked how much you’ll end up with.
There are a lot of ETFs you can get into but to get started just start investing into VOO, SPLG, IVV, SPY, schwab S&P 500 index fund.