How To Start Investing

So, you are fresh out of college and just started your first big boy/big girl job. Congrats!!!

Or maybe, you’re 40 and have your head in the sand about investing but aren’t sure how to get started, or if it’s even worth it at this point.

Or maybe, you are cutting it really tight on the budget and figure you’ll worry about this investing stuff later on.

The world of investing may seem intense and intimidating at first. There is so much content to absorb and so little time! Where do we even begin!

The intent of this post is to motivate you to start investing as soon as humanly possible. There’s an old trope in the world of finance, “Time in the market beats timing the market.” I want everyone to get as much time in the market as possible!

At the end of the day, the vast majority of us plan to retire at some point. Even for those brazen souls who plan to work till the day they die, it’s still important to have enough financial security to eventually not have to work for money at some point.

We’ve all heard the saying “let your money work for you.” Investing in the market is the easiest way to begin accumulating wealth, and through compounding interest, it will eventually spit off enough funds to replace our salary!

Here are a few major reasons to get started today:

Inflation

If all your money is sitting in a bank account, you are actively losing money right now! Investing in the market covers the loss of buying power and then some!

Free Money

The power of compound growth for long term investing is substantial. Using the rule of 72, and assuming a very modest return of 7% we can expect our money to double every ten years without having to lift a finger!

The future is going to be different

There’s no telling what new technology or devices we’ll all be fiddling around with in 20-30 years, and no telling how much it will cost. On top of that, our needs/wants will change as we age, it’s going to be best to create that cushion now for our future.

The US Economy, given a large enough amount of time, has always gone up!

Despite every recession, downturn, or overall market uncertainty, the US market has always bounced back! The key here is time. We have discussed the reasons to avoid stock picking, but also, we need to avoid trying to time the market. Long term investors who utilize broad based index funds always come out on top!

The best time to start investing was yesterday, the next best time to start is today!

I know, I know, some of us aren’t currently in the best financial position right now. That said, even the smallest actions can have the biggest of consequences.

“I’m broke, I can’t save up enough to start investing right now…” you might tell me. Welp, I’m here to tell you that you can’t afford to not start investing!

For those of us with a company match, I want you to take advantage of that right away no matter the circumstance. Even high interest credit card debt doesn’t outpace the 100% or 50% immediate return that this match brings! Not to mention the long-term compound interest returns you’ll get on top of that!

Those that don’t currently have access to a match might consider a different strategy, given the situation, in order to start investing as soon as possible. Generally, market returns can average 7-10%, so it makes sense to tackle any debt north of 7% first. Do this aggressively and methodically with the strategy of your choice, and you’ll be riding the investment train to freedom in no time!

Disclaimer: I am not a CPA, CFP, CFA, or certified financial representative in any fashion. This post is intended for informative and entertainment purposes only. Your investment decisions are your own.

For those that are getting the company match, you unfortunately may not have a choice in the investment firm that manages your 401k, 403b, etc. Once the account is open, you’ll have options of different funds to choose from. Do not overcomplicate this, I recommend most to start off utilizing the VTSAX and Chill strat. Find the lowest cost total stock market or S&P 500 fund and set it for 100% of your contributions. You can worry about bonds, international, and other diversification strategies down the line. For now, we just want to get our money in the market.

For those that aren’t getting the company match, the floor is yours! You have your choice of the litter when it comes to investment firms, and your investment vehicle. I personally like the idea of getting a Roth IRA started right away with one of the low-cost providers (Fidelity, Vanguard, or Schwab); but some may choose to go with a brokerage account (hopefully with one of the low-cost providers) for the added flexibility. Either way, keep it as low-cost as possible. Hiring a financial advisor who charges AUM Fees does not make a lot of sense at this point, and possibly never will.

To further illustrate the importance of investing early, we’ll use real life examples that emphasize my point. By “real life examples,” we really mean two completely made-up people with made-up circumstances. 😂 Let’s take a look at Savvy Solo Susan and Savvy Solo Stan.

Savvy Solo Susan

Susan graduated college at 22 years old and got a solid job paying $75k per year. Unfortunately, she made a rash of poor financial decisions immediately after getting hired. She financed a brand-new car, got herself a sweet apartment in a high rise, and signed up for allllllllllll the cool subscriptions. Fancy gym membership, food delivery service, streaming services, you name it! On top of all that, she’s eating out for lunch everyday with her new work friends. After all, she’s an adult now right? And this is what adults do…

Susan’s fixed costs are through the roof, but she at least listened to her crazy Uncle Bill when he stressed that she should be getting the 5% company match at the bare minimum. She decides to utilize the VTSAX and Chill strat, and sets up contributions to be automatic. This way she won’t even see the money hitting her bank account, and it will be invested without her having to lift a finger.

For the purposes of this example, we’ll say that Susan never gets a raise for her entire career (highly unlikely) and only contributes enough to get the match. We’ll also conservatively estimate an 8.5% return, despite the fact that the S&P 500 has had returns north of 10% over the last decade. The 5% contribution to the 401k is $312.50 X 2 (from the match) = $625 per month, or $7,500 per year.

If all Susan does is get the company match, she’ll have over $3.3 million at the age of 65! 😶 Talk about a healthy retirement! 😁

Imagine how much more that could be, or conversely how much earlier she could retire, if she had really buckled down on investing!

Savvy Solo Stan

Stan decided to forgo college and jump right into the workforce after high school. He became a handyman with a local contractor making $50k per year at 18 years old, and it didn’t require any schooling. Unlike Susan, Stan does not get a company match at any job he works throughout his entire career.

Stan doesn’t need a fancy apartment, or all those subscriptions, but still lives a comfortable life. He brown bags it to work, drives a used Honda Civic that he plans to drive to the ground, and has a modest apartment just outside of the city center. Stan loves to spend money on concerts, sporting events, and travel. Despite living a savvier lifestyle than Susan, Stan isn’t making as much money as Susan (let alone the match), therefore can only throw $300 per month at his Roth IRA.

For the sake of this example, we’ll use all the same assumptions as above.

At the age of 65, despite no match and smaller contributions, Stan still ends up with north of $2.2 million! Here’s the extra kicker! Since this was all done in a Roth IRA, this is all TAX-FREE MONEY! Susan might be over there factoring Roth conversions and considering future tax brackets… Stan is already a tax-free multi-millionaire!

We can argue about investment strategies and risk management all day long. What is undeniable is the fact that the earlier we get started investing, the better! These two didn’t do everything “right,” but they consistently invested small amounts over a long period of time. Compound interest is a hell of a drug!

For the sake of argument, if Stan decided to wait till he was 30 years old to start investing, he would have to put away about $550 per month for the same net worth at age 65. 🙈 If he decided to wait till 40, that would be $1,420 per month! 😱

If all you can afford to invest right now is $50, then do it! Feel like you are behind in your investments because you are older? First off, welcome to the club, we got free water in the back. 🤪 Second, work on your financial plan to try to get more invested. I don’t want anyone saying no to high value items in their life, but I do want you investing as much as possible while in the wealth accumulation phase of life.

If you are struggling with coming up with a plan that fits your lifestyle, hit me up! I always love to help out friends come up with a plan!

Stay classy Solos! ✌️