Many people dont invest because it seems overly complicated.
But if you want to build wealth, investing now is the easiest way to do soandanyonecan do it.
So why pay a financial adviser a bunch of money for something you could do on your own?
Most smart investors try tomatchthe market, which, over a long period of time, tends to improve.
Its very simple, and its something everyone canand shoulddo.
In fact, its one of the best ways to effortlessly build wealth in the long term.
You will have to check in once a year or so, but doing so takes minimal work.
it’s possible for you to mostly leave it alonewhich is perfect for us average Joes.
Here are the basics:
Decide whether you want a traditional or a Roth IRA.
If youre self-employed, you might want a SEP-IRA.
Learn about the differenceshere.
Pick an investment firm that offers an IRA, likeVanguardorFidelity.
Many banks offer them, too.
Connect your checking or savings account to the investment account and start buying index funds.
Once youre all set up, its time to start thinking about what to invest in.
How much of each depends on your age, risk tolerance and investment goals.
If youre more conservative, however, you may want to put 30% in bonds instead.
Its up to you, but this is a good starting point.
As you grow older, you should adjust your asset allocation accordingly.
If youre having trouble deciding on your asset allocation, there are a few tools out there to help.
Theyre great because they have particularly low fees (orexpense ratios).
Lets walk through some easy ones.
The bond fund does the same.
The total world stock index fund contains around 50% US stocks and 50% international stocks.
(In this case, the portfolio totals 60% stocks, 40% bonds).
Also, keep in mind: some index funds have minimum buy-ins.
Thats all you better get started.
The goal is to get started, and this is a great starting point.
For example, maybe you have the total bond fund, but youre missing the total stock market fund.
you’ve got the option to approximate the total stock market with some other available funds.
It doesnt need to be exactly the exact same; just concentrate on hitting the right ratios.
Remember: Look at the funds net expense ratio to confirm it isnt too high!
Or maybe your plan just plain sucks, and offers nothing but funds with expense ratios above 1%.
What do you do then?
Contribute any additional savings to an IRA, which has more flexibility.
you’re free to do this no matter how good or crappy your 401(k) is.
Just confirm the money you invest matches the overall percentages you laid out in step one.
If you have a 401(k), this is especially important, since that money is tax-deferred!
This will help your investments grow over time.
Treat your savings and investments like a bill, and youll never be tempted to overspend.
Once youre done, forget about it.
You will, however, want to check your portfolio every year or so and rebalance.
What does that mean?
After a few months, it should balance out, and you might return to your original contribution levels.
If you plan to retire in 2050, youd choose that one instead.
you’re free to also choose a different one depending on your risk tolerance.
Some may be more conservative or risky than you expect.
Well, target-date fundswhile greattend to have slightly higher fees.
Thats a decent amount of money for a little work.
And Vanguards target-date funds are considered quite cheap compared to their brethren, so this is a best-case comparison.
If you have a less-than-ideal 401(k), the difference could bemuchmore than $50,000.
We dont mean to poo-poo target-date funds.
And when it comes to investing, the most important thing is to get started now.
This post was originally published in 2015 and was updated on April 29, 2020 by Lisa Rowan.
