Last week we covered common planning misconceptions. This week it’s common investing misconceptions! What can I say; I’m not in a mood for long intros.
It’s hard to start investing
Luckily, it’s not super hard to start investing. Later, we’ll get in to some of the decisions you should consider (or outsource!)
For now, we live in a world with internet access to everything you can pretty easily set up a brokerage account. Vanguard, Fidelity, Acorns, or a robo advisor like Betterment can all be good options for getting started.
I need a ton of money to invest
Nope! You don’t need a ton of money, just a savings plan. When you’re starting out the amount you save matters a lot more than investment return. For instance, if you’re saving and investing $100/month and getting 7% return annually you would have $101.71 the next month but would add $100 in savings. That’s a big difference between the investment growth and the savings growth.
In fact, if you wait until you have a ton of money you’re hurting yourself badly. Check out this article on early savings.
Just start!
Buying crypto or Nintendo stock is investing
I guess technically it is, but it’s a bad idea. Instead you should think of investing as having a long term plan for buying something that will produce growth and income. It doesn’t mean doing a ton of trading or buying something because you like the company. In fact, buying a single currency or a single company’s stock exposes you to a ton of risk. Sure, it could be something like buying Google stock early on. Or, it could be like buying Enron stock at the peak. You never know.
Your best bet is to buy an index of the entire market. It’s easy to do, inexpensive, and your best bet over the long term.
I just open an account with Acorns or Fidelity
I mean ok, yes. You can do it that way. It’s better than nothing!
That being said, you can make a big difference in your long term payoff if you consider using a tax advantaged account. That could be something like a traditional IRA or 401(k) or a Roth IRA.
I’ve written up a guide on different retirement accounts that are available to you. Of course, the most beneficial if you qualify is the Health Savings Account.
Conclusion
While investing isn’t hard to do if you follow some basics it’s still something you can mess up. Don’t get tempted by glitzy fads and instead put together a reasonable savings program into a market index in a tax advantaged account. Sexy? No. Effective? Yes. Be effective.
You don’t have to figure this out alone. This is what we do- help streamers make great money decisions. If that’s something that sounds interesting to you reach out me or schedule some time for a free consult. You can check out what I do here.
