Another $econd Opinion on Investing

In order to take advantage of the power of compound interest, you need to get your money working for you as soon as possible.  As intimidating as it may feel to get started, there are tons of resources available to give you the tools to do it yourself.

The key here is to develop strong habits to: pay yourself first and invest a portion of your income, invest any extra income (credit card/loyalty rewards and survey compensation) and most importantly, take advantage of the tax savings by contributing to your retirement.

Early on, I was definitely scared to start putting money into the stock market.  My knowledge of this area was weak at best.  As I started to read more on the subject, I realized it’s not as difficult as physiology, pharmacology, biochemistry, etc.  It’s actually pretty simple-over the long run, diversified funds will grow.

So I started putting my rewards money into broad funds, because there was no way I was going to “lose my hard earned money in the stock market!” I quickly saw how this market of stocks actually worked, because more comfortable, then started contributing a portion of my income to an investment account also (yes, in addition to the extra money).

Currently I have five different investment accounts.  How do I keep track of everything?  I use a Net Worth Tracker which also takes into account any loans I may have.  It is very rewarding to watch your net worth grow exponentially over time!

 

INVESTMENT OPPORTUNITIES


Brokerage Account

There are many options out there, I would recommend Vanguard.  In general they have some of the lowest expense ratios and provide a plethora of choices for investing.  As long as you’re investing in Vanguard owned funds, your trades are free of charge which makes this an ideal brokerage account to put money in as you receive it and buy funds as soon as you’re able.

You’re probably heard the term mutual funds (large group of funds that are actively traded), but recently exchange traded funds (ETFs) have become very popular since they take on a more “invest and hold” strategy and therefore have a lower expense ratio.  Studies have shown that when you factor in performance and fees, there really isn’t a big difference in the two entities.

My recommendation is to focus on just 4 funds from Vanguard:With just four funds, you can keep your portfolio simple, strong and diversified.

 

  1. Total Stock Market (VTI)-50%
  2. Total International Stock Market (VXUS) -25%
  3. Real Estate Investment Trust (VNQ) -15%
  4. Total Bond Market (BND) -10%

These 4 funds should give you all of the diversity you’ll need to get started.  Make sure you’re reinvesting your dividends so your funds can grow even faster!

 

College Savings Account (529)

Depending on which state you live in, the options for 529 plans will vary.  Money invested into this plan will grow tax free and can also be withdrawn tax free as long as it is used for higher education expenses.  In addition, some states will let you deduct some of your contribution into the 529 plan to give you a tax break upfront.  Some plans let you start with very little money down, so if you have kids there is no reason why you can’t start a plan for each of them now and get that money compounding early.

  

Real Estate

After you’ve started a brokerage account (and 529 if applicable), real estate may be your idea of a solid investment for the future.  Before making a big purchase, check with your accountant to see the tax implications of owning a second home and have that factor into your decision.

Another new option in the real estate world has been crowdfunded purchases; you don’t need as much capital upfront and don’t have to hassle with the research, paperwork, maintenance, etc if you don’t want to.  Learn more about that here.

If you are uncomfortable with purchasing a 2nd home or investing through a crowdfunded source, don’t forget that if you’ve invested into a brokerage account like I mentioned above, you’ll have exposure to real estate via the VNQ fund.  The nice thing here is that you’re indirectly investing in residential, hotels, retail and healthcare real estate so the diversification is really nice.