Now that you got rid of your high interest loan and credit card debt and started saving, the obvious question is where and how to place your money in investments. First I have two words for caution.
Trap #1) The big trap with any investing management company is that their interests are generally different from your interests. For most investment management companies it should be easy to see, someone pays for their very high pay and fancy stuff and you’d be wise to guess it’s you and all their other clients. Same trend has been happening to the health care industry(what an investment boom the past couple decades a lot of money made at everyone’s expense) and the banking industry(I use and recommend small town local banks). When it comes to service if I see fancy cars, trucks and over elaborate buildings, I generally assume high cost for their service which may or may not be worthy.
Trap #2) Insurance companies have been attempting to wear a mask, if you will, of investment companies. Avoid whole life insurance and the like. I’d rather burn my money in a giant pile of singles for entertainment value. Obviously there are situations where you’d like to protect loved ones, Term life insurance makes sense for this. By the time that insurance ends, you should be well taken care of by your investments if planned correctly.
That being said if you want to manage your own investments we have help.
Vangaurd – really the only option for most personal investors, proven most to actually give a crap about the little guy and generally the lowest expense ratio funds you will find. I hope these things never change over time with future management changes.
There are several other companies like Charles Schwab, Fidelity and others that sell very similar funds and can be fine as long as they have good diverse index funds at low expense ratios. I would not buy into any loaded funds that they may offer.
Actively managed funds is another form of managing. a financial adviser will often point you towards an actively managed fund that gives them the biggest kickback for selling that fund. In return that company makes a sizable amount of cash through its higher expense ratios. All while the vast majority of these funds will not out perform index funds. These investment are bad for one simple reason. No one can predict the market, No one can predict the next stock to go through the roof reliably, Some get lucky for a year or a couple years but eventually the basic index funds over take them. Then investment companies are known to quietly close that actively managed fund after a while. Buying broad index funds has been proven mathematically many times over to be more reliable and give you the best returns with the bonus being they are lowest cost expense ratios. I’m sure there are other reasons people will come up with why to pick actively managed funds but I’ve decided to put the theory to the test on this one.
I personally chose Betterment because I myself am new to investing and something automated that uses good low cost index funds and manages the allocation for you at very low cost appealed to me. They are also always trying to innovate using technology to be more efficient.
I think robo-advisors is a good way to jump in and start investing while at the same time continuing to learn and keep as a benchmark. You may want to stick with robo-advisors if you if you don’t want to keep an eye on your assets and do allocations periodically.
Another way Betterment is great for beginners is you can start small with $100 per month.
If able(most are), put the money into a tax advantaged account, like a Roth or Traditional IRA depending on your situation. Currently these accounts have a max of $5500 per year but you have to pick one or the other(or combination that adds to $5500).
Whatever monetary goal you have with investing, I believe this is the most important thing to know:
Assuming you don’t have any high interest debt, the best thing you can do for yourself long term is get as much money in low cost index funds as early as possible because time in the market is the most important to your growth of wealth. Compounding interest is a very powerful thing.
This is why so many people that “get it” scale back their life. They may have roomates, buy cheaper used cars, smaller houses, don’t have cable TV and rarely eat at restaurants. They also frequently happen to be people that aren’t materialistic, love to work with their hands and enjoy the great outdoors.
In the future I plan to try out a couple different investing avenues including purchasing Vanguard funds directly.
*To re-point out what I’ve mentioned before, I am not a financial adviser. Take everything mentioned here with a grain of salt and please continue to do your own research on these topics.