Investing Demystified

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As I’ve talked to people a lot about finances in the last year or so, investing always comes up.  Two common themes arise:  1)  I know I SHOULD be investing but 2) I don’t know how and it’s really overwhelming.  I’d like to debunk these 2 myths in this post.

“I know I SHOULD be investing”

Well, should you?  Stop comparing yourself to others and what you think other people are doing!  When I sit down with folks one on one, there are a lot of goals we talk about.  Debt repayment is often #1.  Next comes saving up for big purchases like a house, wedding, or car.  Often these folks also have a 401k with their employer, so they already are investing.  So it really comes down to people thinking they should be “playing the stock market” and feeling guilty if they’re not doing so.  If you are contributing to your 401k to the point of your company match, your next steps should be paying off debt, building an emergency fund and saving up for any big ticket items.  If you plan to buy a house, make sure you have saved the 20% downpayment plus the extra 3% for closing costs.  That’s a big chunk of change!

Now, I’m pretty conservative and would recommend you save in an online high-interest liquid savings account.  While you COULD invest this money in the stock market to gain larger returns, you are taking a risk that you will lose that money in the short-term.  My guidance with investing outside of retirement is that you are using money that you can AFFORD TO LOSE.  You definitely don’t need it in the next 5 years.  It’s not your emergency fund, it’s not your home downpayment, it’s not your wedding fund.  Getting to the point where you have achieved all your savings and debt repayment goals and you now have extra money to “play” with is a pretty advanced move.  You are in the majority if you have not gotten there yet, so don’t feel guilty that you’re not day trading in the stock market.  You have worthy goals to achieve in the meantime!

“I don’t know how and it’s really overwhelming”

Indeed, there are a sea of individual company stocks and mutual funds out there available to invest in.  I believe a lot of people think if they did a lot of research and picked just the right stock or fund, it would be like winning the lottery.  If you don’t have time to research individual companies, you need not be overwhelmed.  It seems too good to be true, but a basic S&P Index Fund is the slow and steady tortoise that wins the race!  You’ll be instantly diversified as the S&P index includes 500 companies.  You will not incur high fees as the fund is automated and you don’t have to pay a person to manage it.  The long-term returns beat all other mutual funds!  I’ve been hearing this over and over but I recently came across this article where Warren Buffett bet on an S&P index fund and won in a wager over the last 10 years.  My man, Warren, has been recommending S&P index funds for a while.  Many other financial gurus are also proponents of index funds in general.


“I’m ready to invest in an S&P Index Fund, how do I start?”

  • If you are within the income limits for a Roth IRA, I would love for you to start there.  Open an account through an online brokerage firm such as Vanguard and invest in the S&P within a Roth IRA.  Your goal will be to contribute the annual max set by the government (for 2017 and the last several years it has been $5500) by making regular contributions ($458.33 per month will get you to the $5500 for the year).  If you are over the income limits for a Roth, you can also invest in a Traditional IRA.  Here’s a refresher on the different Retirement options.
  • You can check your company’s 401k fund options and see if there is an S&P index fund to invest in there.  If you’ve contributed to the point of the match,  fully-funded a Roth IRA, and still have money left over, increase your 401k contribution to the max or see if your company offers a Roth 401k option.
  • Once you’ve done both of the above, you could invest in non-retirement accounts and open a basic investment account, also through an online brokerage firm. A good option for beginners is Robinhood. It’s an easy way to start investing with smaller amounts of money without all the fees. I feel like this is the peak of financial management.  It means you’ve paid off all your debt (maybe still working on that mortgage), have an established 8-9 month emergency fund, and are contributing a good chunk of your income to tax-advantaged retirement accounts.  This is like AP Personal Finance.  You may not get here any time soon, and that is OK!!


  • If you’re not investing outside of a company 401k, it’s OK!!  Pay off debt and accumulate liquid savings first.
  • An S&P Index Fund is the way to go for diversification, low fees and great long-term returns.

I try to make the point a lot that personal finance is pretty basic and simple.  This investment advice is an example of that.  You can do it if you put your mind to it, and THAT is the hardest part.  Being disciplined.  Spending less, saving more, avoiding debt.  I hope I keep driving that home to my readers and that’s why I’m fascinated with all the psychological barriers to financial success that we make for ourselves (and America makes for us)!

Did I demystify investing for you?  Do you feel less guilty?  Let me know in the comments below!

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