While the choices are endless if you’re just getting started the best thing to do is keep it simple. Over time you’ll learn more about your own risk tolerance and how much time you’re willing to put into research.
Your financial goals will also probably shift. If you’re like me it will start with just a vague idea that you should be investing and a few years later you’ll find yourself craving more and more financial understanding so you can retire by 45.
I’m just getting started with Emergency Savings
In my blog on emergency savings, I recommend saving up $1,000 to help catch you in those “oh f*uck” moments in life. I recommend using Acorns to automate savings in order to grow your fund slowly over the course of a year.
However, there are a couple of things to consider here:
- Savings accounts are valuable in that you can access the cash immediately. With Acorns or any other investment platform, it takes an average of 3-5 days to get your money.
- There are returns on market-based platforms, but markets by nature are volatile. On average the US stock market has gained over 13% over the last 10 years. That doesn’t mean you won’t experience ebbs and flows.
- However, if you do put your money into savings accounts you’ll lose value in the long run.
On average the rate of return on a savings account is .06%. When accounting for inflation, $1,000 saved in 2011 would have the value $803 in 2021 dollars.
My recommendation is to use Acorns if you find it difficult to not touch your emergency savings, then, when you need the money you can put it on a credit card and pay it off when the money hits your account 3-5 days later.
If you can leave the money alone, then put it in a savings account attached to your checking so you can have immediate access in case of an emergency.
I can set aside a little money each month but don’t have time to research stocks
For me, Betterment has been an incredible tool. However, any low minimum, low fee robo-advisor works. Vanguard, Sofi, and Stash all fit that bill. I have used to as the place where I stash away my f*ck you money. For those unfamiliar with the term, it’s 6 months’ worth of monthly expenditure saved in case I ever need to tell my job to piss off.
A robo-advisor is a simple and automated, algorithm-driven investment platform. Pre-2010 you would have to pay a financial advisor as they were the guardians of the keys to robo-advisors.
With the launch of Betterment in 2010, that’s no longer the case. You can have your money invested by an algorithm without having to pay hefty fees to a middleman. My annual returns on Betterment have been over 14%. It also makes it easy to auto-deposit and make withdrawals.
Keep in mind that the fee for Betterment is 1%, so this isn’t a long-term investing strategy. Over the course of 6 years, I have paid $76 in fees. However, using a robo-advisor for retirement savings is estimated to cost $232K in fees over the course of 40 years.
I have money set aside, I’m ready to see it grow but I don’t have time to learn about stocks
If this sounds like you then it’s time to learn about a two-fund portfolio. You’ll want to open up a personal account (unless this is retirement savings – then you need to look into IRAs) with Charles Schwab, Vanguard, Fidelity, or whatever your brokerage firm of choice is.
For beginners, I recommend Vanguard. Their learning materials and support are incomparable. Then choose your risk level. If you’re younger, you’ll want to play with more risk, if you’re nearing retirement, stay a bit conservative. This will determine your portfolio mix.
Put 10-40% in a broad bond fund and the rest in a broad market fund. A quick Google search will tell you which ones your brokerage manages. 10% in bonds would be high risk, 40% would be very low.
Now just check in every 6 months and rebalance. If the market is up so you now have over your chose percentage in the market, pull some out so it’s in the bond fund, and your back to your mix. If the market is down, do the opposite.
Please note that I am not a professional financial advisor. Do your research!
I like risk and I have time and money to play with
This is when you can start playing the stock market. What I’ve learned is that it’s a steep learning curve. If you want to learn to play, try starting with Investopedia’s stock simulator.
This is a great way to figure out what it is that you need to learn to play the game.
I also recommend choosing an amount of money that you don’t mind losing, and using Robinhood to see where it will take you. The great thing about Robinhood is that you can buy partial stocks. You don’t need hundreds of dollars to buy a Tesla stock, you can just put $5 in and see if you make anything.
Once you’ve gained some knowledge and confidence you can slowly edge your way up to investing real money with a larger brokerage firm like Vanguard or Charles Schwab.
There are so many options and everyone is in their own individual place with where they are starting. Wherever you are right now, there’s an option for you. Find a good home for your money and continue your learning journey so your investment strategy can grow with you.
Have a question about where to put the savings you’ve worked to build? Comment below!