Investment options for somebody just getting their feet wet.

[Anonymous]

I've never really gotten into investments (only 23y/o) but have recently been looking into getting started with something very small in comparison.

I've looked into apps like Robinhood, Acorns, and Stash... but wasn't sure how user-friendly and/or recommended these apps would be in terms of learning basics of investments? For instance, being app-based and not broker-based, would I simply "list" a stock for sale and save my bank account information to the app for depositing the funds? How would that work?

I apologize if these seem like common sense questions, as this realm is totally new to me. I have my 401(k) with my employer, but never really thought of venturing out into personal options as well.

Any and all advice/insight is greatly welcome and appreciated. Thanks.

[Anonymous]

I'd suggest doing at least two things:

(1)  Read a good book on the basic theory and practice of investing.  A perfect book for you might be IF YOU CAN by William Bernstein.  It is free on the internet, aimed at young investors, written by an expert with no weird agenda of his own, and very easy for a beginner to understand.  It's also short.  After that I would consider reading something longer and with greater depth (though still aimed at beginners).  Bernstein's THE INVERSTOR'S MANIFESTO would probably be a good choice.

You should not make any choices about what funds to place your money in until you know more about the basics of investing.

(2)  Consider opening a Roth IRA in February or March.  You can use the $5500 from 2018 that you were entitled to invest in an IRA as long as you open and fund the IRA before April 15.  You can invest it in a 100% safe fund (e.g. a money market) while you are doing #1 above.  (Reading and learning should be something you give yourself at least a couple months to do.)  Then after you are equipped to understand the risk and return issues you can make an informed decision about what fund you wish to place that money in.

How much are you currently contributing annually to your 401k?  ($5000 a year, $8000, $13,000, etc.)

[Anonymous]

---

@Anonymous wrote:

I'd suggest doing at least two things:

(1)  Read a good book on the basic theory and practice of investing.  A perfect book for you might be IF YOU CAN by William Bernstein.  It is free on the internet, aimed at young investors, written by an expert with no weird agenda of his own, and very easy for a beginner to understand.  It's also short.  After that I would consider reading something longer and with greater depth (though still aimed at beginners).  Bernstein's THE INVERSTOR'S MANIFESTO would probably be a good choice.

You should not make any choices about what funds to place your money in until you know more about the basics of investing.

(2)  Consider opening a Roth IRA in February or March.  You can use the $5500 from 2018 that you were entitled to invest in an IRA as long as you open and fund the IRA before April 15.  You can invest it in a 100% safe fund (e.g. a money market) while you are doing #1 above.  (Reading and learning should be something you give yourself at least a couple months to do.)  Then after you are equipped to understand the risk and return issues you can make an informed decision about what fund you wish to place that money in.

How much are you currently contributing annually to your 401k?  ($5000 a year, $8000, $13,000, etc.)

---

1) I will check into those books.

2) As for the Roth IRA that you'd mentioned, I suppose it'd be best to do that with a company like Schwab or Fidelity? After it is in a money market for a few months, for example, can it be moved into an investment-related fund within the same company on a whim without worrying about taxes/fees?

3) Currently maxing out my employer match contribution percentage, which is 5%. I am employed full-time at a local credit union doing consumer loans and new accounts for consumer/business while completing my degree. The way our 401(k) is setup, they contribute 10% of our gross income automatically, even if we opt out of contributing ourselves.... and then they will match an additional 5%. Essentially, I am contributing 5% and my employer contributes 15%. My income fluctuates a little bit each month due to Saturdays and incentives, but if I were to go off of simply my base pay, then my personal contribution is ~1560/yr and the overall contribution (personal+employer) is ~6240/yr.

[iheartwings]

---

@Anonymous wrote:

I've never really gotten into investments (only 23y/o) but have recently been looking into getting started with something very small in comparison.

I've looked into apps like Robinhood, Acorns, and Stash... but wasn't sure how user-friendly and/or recommended these apps would be in terms of learning basics of investments? For instance, being app-based and not broker-based, would I simply "list" a stock for sale and save my bank account information to the app for depositing the funds? How would that work?

I apologize if these seem like common sense questions, as this realm is totally new to me. I have my 401(k) with my employer, but never really thought of venturing out into personal options as well.

Any and all advice/insight is greatly welcome and appreciated. Thanks.

---

CGID gave you some great advice with regard to books and the Roth IRA.

To touch on your question about apps based investing - I personally love apps that allow purchase of fractional shares because it allows people who don't have a lot of cash to invest in the market, and one can buy with what they can afford. For individual stocks, I use Stockpile (which I started using in the past year - previously was with CapOne Investing). 

It doesn't have all the bells and whistles for trading like a Schwab account does, but I like simplicity (and $0.99 trades). I also like the fact that it is set up to teach you about stock basics (they have a whole series of articles set up in progression).

In addition to the limited interface, they only offer a select number of stocks and ETFs (but was adequate for the 5 stocks I wanted), though there is plenty of choice and variety.  Also, consider the cost of the account you'd be opening. Stockpile charges a commision per trade, which is less than what I was paying with CapOne. You're going to find this with Stash (monthly fee), Acorns (monthly fee based on balance), and RobinHood (free for basic, monthly fee with enhanced account). 

Whatever you decide to do, remember that a lot of providers are now offering discount investment services, Ally, Chase, etc. in addition to the usual suspects. You'll need to do your homework to figure out what account will work best for your needs.

If you're looking to open a Roth - you'll want to shop around and choose an account with the company that offers the best service for the best price with the set of potential investments you want. Don't be tied to Schwab or Fidelity - Vanguard, TIAA-CREF, etc. etc. etc. 

Good luck! 

[Anonymous]

Great to hear the great deal you are getting with your 401k.  Here is an overview of the maximum you can contribute to the 401k and Roth:

401k:

You and your employer combined: 56k

Your portion alone: 19k

IRA: $6000

If you go with an IRA before April 15 (good idea) you'll be limited to the cap for calendar year 2018, which was $5500.  You can add an additional $6000 for 2019 at any point. 

People over the age of 50 can contribute more to their 401k and IRA, but that doesn't appply to you.  As IRW observes, there are many good places to choose for your initial Roth.  You can later move your Roth to another if you like (e.g. start with Vanguard and moove to Fidelity).  I personally like Vanguard but many choices are good.

After you read some books on investing, you will want to review the funds that your 401k offers to analyze whether you wish to choose different funds within that 401k.

I suggest you head over the Bogleheads forum.  They are like us but they focus on investing.  They can help you find other good books on investing. 

One of the things Bernstein stresses is the importance of the psychology of investment.  You are certain to lose money at some point in a market crash (or a softer market "correction").  You need to be prepared so you are not affected by terror when that happens.  You also need to be prepared so that you do not make investment decisions based on thrill seeking or greed.  Terror, thrill chasing, greed, etc. are emotions and your investment strategy should be based on cool headed reason and the very long game.

[Kree]

---

@Anonymous wrote:

One of the things Bernstein stresses is the importance of the psychology of investment.  You are certain to lose money at some point in a market crash (or a softer market "correction").  You need to be prepared so you are not affected by terror when that happens.  You also need to be prepared so that you do not make investment decisions based on thrill seeking or greed.  Terror, thrill chasing, greed, etc. are emotions and your investment strategy should be based on cool headed reason and the very long game.

---

Buffett says something similar "If you go into a coma tomorrow and wake up 10 years later, will you be happy with your portfolio? Only buy stocks you will be happy to hold for 10 years."   Although I might be paraphrasing slightly, its been a while since I've actually read it. The point is, play the long game.

EDIT:  forgot to add investment option as per the threads original question.  Invest in a savings account first. 3-6 months of living expenses could save your entire portfolio if something major happens during an economic down turn.  Invest in debt second. If you owe more than 5% interest, pay it off before you invest (unless mortgage, because reasons that are quite complicated). Invest in yourself third.  Make sure you have plenty of insurances and that your maximums are within your savings account's reach.

[Anonymous]

---

@Kree wrote:

---

@Anonymous wrote:

One of the things Bernstein stresses is the importance of the psychology of investment.  You are certain to lose money at some point in a market crash (or a softer market "correction").  You need to be prepared so you are not affected by terror when that happens.  You also need to be prepared so that you do not make investment decisions based on thrill seeking or greed.  Terror, thrill chasing, greed, etc. are emotions and your investment strategy should be based on cool headed reason and the very long game.

---

Buffett says something similar "If you go into a coma tomorrow and wake up 10 years later, will you be happy with your portfolio? Only buy stocks you will be happy to hold for 10 years."   Although I might be paraphrasing slightly, its been a while since I've actually read it. The point is, play the long game.

EDIT:  forgot to add investment option as per the threads original question.  Invest in a savings account first. 3-6 months of living expenses could save your entire portfolio if something major happens during an economic down turn.  Invest in debt second. If you owe more than 5% interest, pay it off before you invest (unless mortgage, because reasons that are quite complicated). Invest in yourself third.  Make sure you have plenty of insurances and that your maximums are within your savings account's reach.

---

Thank you for the tips.

I understand the part of it being a long-term game and not to be panic in the event of slight dips, as it involves ups/downs and not 100% consistent ups, due to the overall growth likely outweighing the occasional "losses". I don't have a super in depth knowledge, but that part I do feel comfortable with.

We (my wife and I) do have our savings between 2-3mo living expenses (day-to-day spending included, not just 2-3mo of housing/utilities). Still need to build that a bit.

I appreciate all the insight and recommendations as to educating myself prior to jumping in blind.

As for the debt, nothing is above 5%. We have about $6,000 in 0% balances that are good thru November, but they are on track to be wiped out by September at the latest. Our one auto loan is at 2.49%, and with the way rates are rising... I am not as concerned with wiping it out early, due to the low-ish balance (13k) resulting in nominal long-term interest on a monetary scale, and the fact that a basic savings is creeping near that and may even pass it in the semi-near future, not counting investment growth once I jump into that.

[Save-n-Invest]

Great that you are looking into investing at age 23. You have a long way to go until retirement and can ride out downturns. You're received some good tips here. Good luck!

[wasCB14]

One downside to frequent purchases of fractional shares (especially for distinct positions in several individual stocks, as some programs offer) is that when you sell them, your tax prep software may not import the forms correctly - if a brokerage app even supports such a feature. And even if it does import it correctly, you'd have to check it to know that.

So you may spend a lot of time entering and checking tax data.

[brother7]

I have two book recommendation:

1. Get a Financial Life by Beth Kobliner - I always recommend this book to young people who enter the adult world. It's touches on all topics related to personal finance.
2. How a Second Grader Beats Wall Street by Allan Roth - This book is specifically about investing and proposes a simple 3-fund portfolio. It's my opinion that a person can live their entire life without investing in individual stocks. Instead, keep it simple by investing in low-cost broad-based mutual funds. Granted, it's not as exciting as catching an Amazon or Facebook or Google in its infancy but it's simple and the long-term track record is proven.

Try not to get distracted by the latest new shiny thing. In my opinion, investing apps such as Robinhood fall in that category. It may be an improvement for the investor who buys individual stocks but I'm trying to steer you away from that course. Instead, avoid individual stocks and stick with mutual funds.

Regarding your 401k plan, review what you're actually invested in. Usually, you have a menu of investment options to choose from but if you do not choose, you are put in a default investment option which is likely a target-date fund. It's better if you can construct your own simple portfolio using the Second Grader Portfolio above. Oh, and pay attention the the "expense ratio" of the funds, the lower the better.

To build wealth, take full advantage of tax-advantaged accounts (401k, IRA, HSA, 529). Try to fund those accounts fully, as much as possible, while leaving yourself enough money to live on. The cumulative effect of tax-deferred and tax-free (in the case of Roth accounts) growth is incredible. When I say fully fund those account, I mean above and beyond just getting the max company match. For example, 401k max is $19,000/year and IRA max is $6,000/year.

Based on your age, I assume your income is low and therefore your tax bracket is low. When your tax bracket is low, you are better served by contributing to Roth accounts than Traditional accounts. Check with your employer to see if a Roth 401k option is available. The same goes for when you open an IRA... open a Roth IRA.

As far as where to open your IRA, the big three are Fidelity, Schwab and Vanguard. Usually, I recommend Vanguard but their fund minimum investment is $3,000 which can be hard when just starting out. If you want to start out smaller, I recommend Schwab. But you have to carefully select the mutual funds to invest in.

I have LOTS of knowledge to share. If you have questions, feel free to ask!