I’m really glad that I had money invested in the stock market during the housing crash in 2009. I was able to watch my investment plummet, but I knew enough about how this works to know that I should leave it alone. So, like many people that were invested during that time, I saw my money lose half it’s value as it was cut in half.
I grew up watching my grand dad, Joe, invest in the stock market. As a kid, I still remember him watching CNBC for the latest stock information go across the stock ticker. He had this notebook that he would update his prices on to keep track of his investments. It drove my grandmother nuts because she was convinced that he would lose all of their money.
I remember one time, he had to get on the phone to his brokerage firm to sell a stock while we were on a family vacation.
So I think I got my curiosity about how the stock market and money work from him.
In college, he helped me invest a little money so that I could start understanding how this works.
The good news is that because I had somebody that could show me what it was like to invest, I wasn’t afraid of it.
Investing can be intimidating, I know. But it doesn’t have to be. In fact, it’s easier than ever to get invested in the stock market and save toward your retirement.
And in fact, you must. The most important part of saving for your retirement isn’t how sophisticated your investments are, it’s that you’re contributing.
So if you aren’t contributing to your retirement and investing yet, let’s get you started!
Investing
So when you invest in the stock market, you invest in stocks of companies, right? What makes it’s scary is if you invest in a company and that companies value goes down, you could lose your money.
Scary right?
The way you invest safely is to be invested in a lot of different companies. That way if one goes down, there are a ton of other ones to take it’s place. That’s what it means to be diversified.
The simplest way to be diversified is to put all of your money in mutual funds and index funds. A mutual fund is just a bundle of stocks put all together into one fund.
A much smarter idea than just investing in one stock.
That way, if you have a company that is a part of your mutual fund go under, which would mean that their stock becomes worthless, then another company is going to rise up to take the place of that company that went under.
A specific type of mutual fund is an index fund, which is a super simple and smart way to invest, and is the subject of this post.
Index Funds
Your goal with the money that you’re investing for your retirement is to put it in something that will help it grow the most while keeping your money the safest.
An index fund is how you’re going to accomplish that. Indexing investing was invented by a guy named Jack Bogle, the same guy who founded Vanguard, the investment company I recommend.
He invented the index fund because it’s a super easy, low cost, and smart way for your average person to invest.
He saw that so many people were trying to beat the market. In other words, trying to make more money with their investing than something like the S&P 500.
Does the S&P 500 sound familiar? What about the Nasdaq? These are indexes. They are a made up of really important stocks that help us see the general health of the whole market. The S&P 500 is made up of the 500 biggest stocks in the country. So if those stocks are doing well, we get a sense that the entire stock market is doing well.
So what Jack Bogle realized is that it didn’t make any sense to try to guess and figure out how to beat the stocks in the indexes, but that it would be a lot simpler just to invest in those same stocks.
The ultimate “if you can’t beat em, join em” strategy.
Investing in Index Funds
Here’s why you need to invest in index funds.
It is incredibly simple for an average person to invest in index funds and get great returns without having to have a degree in finance.
It’s really simple.
You’ve got to get into the game with saving for your retirement, but investing has been intimidating enough that you aren’t sure what you need to do. I’ve got the perfect strategy for you to get into the game.
To start, I want you to get invested in what is called a Target Date Fund. No matter where you go to invest, they’ll have them there.
A Target Date Fund has several index funds in it, like one that matches a broad share of stocks in the US market, one that has a broad share of stocks in international markets, and one that has a broad share in US bonds, which are more conservative that stocks and will keep things from getting too wild in the stock market.
Target Dates adjust their mix of stocks and bonds to match the timeline you have until retirement. As you get closer to retirement, they automatically adjust their mix of funds.
If you’re just getting in the game, and you’re a little overwhelmed by what you should be doing, getting in to a Target Date Fund is the perfect strategy for you.
If that’s all you did your entire time that you’re working, you’d be in great shape! Target Dates are going to earn a great return that matches the market, without you having to be an expert.
Effort vs. Results
The reason index funds are so great is that you don’t have to be an expert to be able to invest.
Professionals that create mutual funds where they pick which stocks will be the winners and bundle them together for you to invest in have teams of people researching and helping them out.
With index investing, you won’t have to stress about beating the market or getting involved in something that’s ultra risky.
I never check my investments. I know that my investments are following the market and that I’m getting a great return and I’m not having to do any work.
It’s the perfect amount of effort for the return that I’m getting.
Are you able to beat the market by really doing some in debt research and picking mutual funds that can outperform the market?
Well, that’s up for debate. Studies have shown that when the dust settles, people aren’t actually beating the market. So you’re doing all of this hard work, but you aren’t actually doing any better.
So now that I’ve researched up to this point, I basically have to do no more, and I can know that my investments will be doing great while I just sit here.
Funds to Invest In
So if you’re convinced that investing in index funds is the way to go, here’s what you’ll want to invest in.
First, you’ll want to make sure that you are investing inside of a Roth IRA or a 401k if you’re trying to get the company match.
If you haven’t started a Roth IRA yet, pick one up at Vanguard, they’re the brokerage firm that I recommend.
If you’re brand new, start by investing in your Target Date Fund that most closely matches the year that you’ll retire. This doesn’t have to be perfect, they just use the year to decide what your mix of stocks and bonds is going to be.
Then, for the moment, you’re set!
You’ll know that you’re invested in something that is going to give you a great return while minimizing your risk because it’s so well diversified.
While you’re working on the action step of getting in the game and investing, I’d also like you to let me know where you may be stuck. Is there a particular part of investing that makes it hard for you to jump in the game?
Remember, the most important part of planning out our financial future is taking action.
Disclaimer: All investing is subject to risk. I am not a financial professional. The ideas contained in this blog are strictly for educational purposes. You assume full responsibility for any actions you take.
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