Most people believe, as I did for many years, that investing was mostly just for rich people. As a child, we never spoke about investing. I vaguely remember getting a savings bond from a grandmother or someone when I was young, but I think that was cashed in quick. Investing wasn’t something we ever talked about in our household, but I sure wish we had. I never really looked into investing. I figured, “I have my 401(k), that is good enough.” Boy was I wrong. In the book, I Will Teach You To Be Rich, Ramit Sethi said that your investment plan is more important than your actual investments. What is your plan?
Do you currently have an investment plan? Do you Pay Yourself First with each paycheck, or simply promise to save whatever is left? If you don’t have a plan, now is the time. I shared the 5and2Guy’s investment plan in the post, Pay Yourself First: Investment Bucket. That post talked about having a plan. Without a plan, you are lost. As Jim Rohn said, “It’s not about the amount…it’s about the plan.” Once you establish a plan for investing, you just need to increase the amounts when you have more, and, if necessary, decrease the amount when times are tough. Either way a plan is crucial. In order to have a plan, you have to have an idea of what you should invest in. Ramit spoke about Mutual Funds and Index Funds.
Mutual funds are funds where you put money in and the fund is managed by someone. In other words, you put your money into a pot, and someone takes that money and invests it where he/she thinks is best. The fund is manually managed by a live person who will diversify the investments for you. This can be great because of the hands off approach. You simply put your money in, and a money manager takes care of the rest. The bad part of this is the fees associated with this. The fees can really add up and hurt your returns. An even scarier thought is that the money manager collects his/her fees whether you make money or not.
Index Funds are mutual funds that are set up to track a specific financial market, like the S&P 500. These are great because they are easy to maintain, low cost, and really tax efficient. You keep a very large part of the returns as these are typically set up with extremely low fees. The bad part is that you have to invest in different funds yourself in order to diversify your portfolio and you have to rebalance every year to make sure you money is properly balanced for your future plans. Don’t let that last part scare you. It is not that bad. You can automate the investments in these funds and have a completely hands off approach. Index Funds are where most professional agree that you should be investing your money. Graham Stephan even said that Index Funds beat 99% of money managers out there. That’s enough for me to be convinced.
Based upon Ramit’s advice and what Graham Stephan said, I have decided to go the investment fund route for all of my stock market investing. There are plenty of Ivy League graduates who can’t beat the market regularly, what makes us think we can? I don’t study investing and most people don’t, but still need to invest. With this in mind, it is highly recommended that you put your money in Index Funds.
Warren Buffet, when asked where he would tell his family to put their money, said they should put their money in the Vanguard S&P 500 Index Fund. He is one of the best investors in the world, and that is his advice.
I strongly recommend that if you are not investing in the stock market at the moment, then you need to come up with a plan. Look at some of the Vanguard Index Funds as they are some of the cheapest funds around and provide excellent service. Whenever I am confused, I just call them, for free, and my problem is solved. Get started today. It’s one of the simplest things you can do to plan for your future!!!
*** Again…I am NOT a financial advisor. I simply try to do what makes the most sense.***