Intro to investing

Part 1 of our Investing Basics

• Wealthy people don’t rely on paychecks to fund their lifestyle. High net worth results from money made from money, which is the essence of investing. 

• If you're looking for returns greater than the 1% interest in your savings currently (which you should be!) you should consider investing. Keep in mind greater returns typically come with greater risk. However to truly achieve financial freedom, life should be about managing risk, not minimizing it.

• This post will go over the types of investment vehicles for the stock market. For actual strategies, what to invest in, and alternative investing, keep an eye out for a future post :)

• Why invest?

  • Compounded returns. Essentially, every dollar you invest has the potential to make even more dollars in the future. Check it out using a calculator like Nerdwallet’s.

• Tax-advantaged retirement accounts

  • If you're a full-time employee in the US, your company probably offers a tax-advantaged retirement account called a 401k. Max that shit out!

  • The 2020 max you can contribute is $19,500.

  • Basically, a 401k lets you invest pre-tax income. It acts like any other brokerage, and typically you can choose what funds you buy into (mutual funds, ETFs, TGFs).

  • Main pro: Tax shelter! You pay taxes when you withdraw after retirement. You can also withdraw early with no penalty for certain uses. 

  • Another pro: most companies offer some sort of matching, which is free money! For example, my company matches 7.5% as long as I contribute a minimum of 6% of my paycheck.

  • Sometimes your company can also offer Roth 401k, meaning you contribute with after-tax dollars instead.

    • Main pro: When you withdraw you don't have to pay any taxes on the gains. So for example, if I invested $1,000 in VTSAX (Vanguard Total Stock Market Index) and that became $10,000 by the time I retired, I can take that money without paying a cent to the govt!

  • Outside of company-sponsored plans, you also have Individual Retirement Accounts (IRAS). The 2020 capoff is $6,000. The same rules for 401ks also apply for traditional IRA and Roth IRA.

    • My 401k is with Fidelity, and Roth IRA is with Vanguard.

• Non tax-advantaged accounts

  • Outside of tax-advantaged accounts, you can use regular brokerages.

  • I began my investing journey with a simple robo-investor. Essentially, these will create a customized portfolio for you based on your risk tolerance, age, income, etc.. and will invest automatically for you. I use Acorns. It's very beginner friendly and a straightforward $1/month fee.

    • Main pro: rounds up the purchases you make and adds that to your account, which is an easy way to save since you don't really notice! The link above gets you free $5.

  • Nowadays I’m a more active investor, so I use Robinhood. It’s great for beginners as well as advanced investors, as it offers capabilities such as options. Other than RH, I use Sofi, which is equally simple to use and offers the whole spectrum of stocks, mortgage lending, banking, +more.

    • Main pro: For investing it offers both automated and active. Also, what I love is that it's educational without being too technical, so it's a nice learning resource. I actually just set up an account for my brother too, who is also just starting out. This link should get you $25 to start.