People say investing is complicated and that they are not smart enough to do it…so they don’t do it. I am tired of hearing people say how hard investing is. So, I thought why not write a brief article showing you how simple it can be to start.
Don’t worry this won’t be a long one. There won’t be much math either…Okay, maybe a little.
People believe that to be a “great” investor you have to do a lot of research and watch CNBC. I found that no to be totally true. Don’t get me wrong, there is no such thing as a free lunch. Some research is involved such as knowing what is going on with the world and keeping up with the markets. But nothing too extensive and it shouldn’t take more than an hour or so out of our day.
I will start out by saying the famous quote that everyone investor will tell you “diversify, diversify, diversify.”. I know most people struggle to know how to do that. Well, one simple way is to buy Index Funds. So, what are Index funds? Index funds are a passive form of fund management that has been successful in outperforming most actively managed mutual funds.
They track the indexes such as the Standard and Poor 500 index (S&P 500). What makes these desirable, they are usually more passive than Mutual funds, meaning they trade less frequently. For example, most index funds, like my favorite VOO charges a .04% fee. While Mutual funds usually charge somewhere between 3%-6%. This means you most likely will not get that Capital Gains tax and will be paying the regular tax rate.
Investing Made Simple
So, let’s do some math regarding Index Funds. The S&P 500 has grown on average year over year by 8% annually. If you invested $300/month every year for 40 years, at an average growth of 8% yearly you will have:
One thing that I will touch briefly on is the use of your Roth IRA account. If you are making under the $133k a year single or $196k for couples, up to $5,500 after taxes into an account. Anything you do, buying and selling of stocks is untaxed under the Roth IRA account. Meaning with the example above you could have that $1 million straight up without paying another dime for taxes. Now if you put in $5500 a year, using the same math, you could have $1,538,795.72.
Now as you can see with the example that I gave it is not that hard to comprehend or accomplish. It is very simple. Like with everything taking that first step is the hardest. It is mainly out of fear that they don’t do it, but we fear what we don’t know. Hopefully, this article will provide you with the knowledge to go out and start investing and make your future brighter.
As a disclaimer, you will have to save money and cut back on spending. I am not going to tell you how to do that, because I am not your Financial Adviser. I would advise talking to them to get your budget in check in order to maximize your investment earning potential. That’s assuming you feel that you are not good with your money.
That’s my two cents on investing for now. I will get in deeper on making yourself effective when diversifying your portfolio. In the meantime, I will leave you with a few books that have a lot of knowledge within them. The books I recommend reading are “Money Master the Game” and “Unshakeable” by Tony Robbins first and Investing 101.
If you liked this article check out my other investing articles here!