After Mrs. Moneyseed and I got married (about three years ago), we started aggressively paying off our debts. We owed about $60,000 between student loans, car loans, etc. We carefully mapped out a debt repayment plan, and figured out, pretty accurately, the date that we’d be debt-free. Once our debts were almost completely paid off I had a mini-meltdown, because I knew I wanted to, but didn’t know how to invest money. I understood the concept of investing, but I didn’t understand what the actual process entailed.
I was in a state of “investment analysis paralysis” that so many people are affected by, that leaves them penniless after long careers, because they didn’t know how to invest. What causes this state of do-nothing-ness? Confusion, for one. You’ll hear people throw around investment options like 401k, 403b, Roth IRA, Traditional IRA, 529 College Plan. You’ll hear other jargon like “Tax-Deferred” or “Tax-Advantaged”, and you’re supposed to know what any of this crap means? It’s about as confusing as trying to figure out the Matrix first-hand.
Investment analysis paralysis begins when you know you want to, or should be, investing money, but the sheer amount of investment options keep you from purchasing anything. What’s the best investment option for you? Who the hell knows! You could talk to 10 financial advisers and they’d tell you 10 different things. Though, there would be one similarity between all of these so-called experts, they’d all be trying to sell you something. They may want to help you succeed, but they want to line their pockets in the process.
There are also people who haven’t started investing yet, because they’re “too young to think about retirement”. I’m talking primarily about 20 and 30 somethings. Did you know that if you don’t invest your money when you’re in your 20s or 30s you’ll miss out on one of the most amazing mathematical phenomena in existence? I’m referring to compound interest, of course.
The younger you start investing, the less you’ll have to invest in your lifetime to “become rich”. Older folks in their 40s and 50s, in contrast, have to dump significant amounts of money into their investment accounts to play catch-up. Would you rather invest $100/month starting in your 20s or $1000/month starting in your 40s? The crazy thing is that you’ll end up with the same amount in the long-run, so why not take the path of least-resistance?
The two biggest misconceptions about investing are that it’s hard, and that you have to have tons of money to do it. Investing money is probably the easiest thing in the world. You log onto your investment account, click “buy” and select an amount of money to contribute. Boom. That’s seriously it. And you don’t need to be rich to invest, but it’s a good possibility you could become rich from your investments, you just need to start.
Primarily, I am an index mutual fund investor. What that means is that I don’t buy shares of companies like Apple, IBM, or Exxon individually. Instead, I’ll buy shares of a fund that may be comprised of a thousand different companies. Essentially, with mutual funds, I can invest in thousands of companies easily and pain free through one single transaction. All you have to do is figure out what sector you want to invest in, whether it be Energy, Health Care, Growth, or the S&P 500. It’s pretty standard for there to be minimum investment for purchasing a mutual fund, usually around $3,000. After that you can contribute as much or as little as you want. Pretty sweet right? It only takes $3,000 to be an investor. But, what if you don’t have $3,000?
I can understand that most people don’t have $3,000 to put into an investment right now, so here’s something even better: Betterment.com. With Betterment, all you need to do is pick your risk tolerance, then you can start investing with as little as $100 a month. I was pretty skeptical at first, but we opened a Betterment account to see what it was all about and so far it’s been pretty awesome. It’s completely hands-free and they barely charge anything (which is surprising for such a great service). I don’t care who you are, you can afford $100 a month. Even if you have debt, it’s a good idea to start investing, so you can take advantage of compound interest. The reason I say this is because debt isn’t affected by compound interest, but your investments are, which makes investing a much more powerful tool than debt payoff (even though you should pay down your debts as well).
What’s the bottom line to all of this? Doing something is better than doing nothing. You don’t need to know everything to start investing (you can learn as you go!), and you don’t need to have very much money to be an investor ($100/month). There are so many paralyzing factors that could make you hesitant to start investing, but when you realize how easy it is, you’re going to wonder why you didn’t start sooner.
If you have $3,000 to start investing today check out Vanguard. They have some of the lowest fees for mutual funds in the industry. If you don’t have $3,000 either save for a few months until you do, or head over to Betterment and set up an account.