How to Start Investing in 4 Simple Steps

You’ve probably heard it said a thousand times or so: time is priceless. 

I respectfully disagree, because everyone decides for themselves how much their time is worth. 

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As a mom, most of your time is probably spent taking care of your kids and spending every precious second with your family, which is totally awesome! 

But what if I told you that you can enjoy family life and make money at the same time?  

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Today I will show you one of the ways to make your time worth a lot of money, without having to quit all the fun of family life.

The answer is: investing! 

This article is your 101 guide to investing from scratch, where I’ll walk you through every step to making money while you sleep. 

Disclaimer: This content is not financial advise

1 Why should you invest?

Pay for your kids’ college tuition?

Buy a new car?

Fly to Europe to go shopping?

Simply put, investing can help you create a financially free life for yourself and your family. 

By investing money, you let the power of compounding and economic growth multiply it for you. After all, the American economy grows at 10% annually, while bank interest rates are a mere 0.09%. 

Easy question: where will your money be better off?

Please don’t get me wrong, it’s a slow process, but it also doesn’t take much effort and pays off incredibly.

To better illustrate my point, let’s say you need to pay your kid’s college tuition of around $30k. 

The traditional way of doing it would be to open a savings account and contribute small sums of money over a long period of time.

Let’s say you open the account when your kid is born. Then over 18 years, it would take $140 monthly to save up $30k at US interest rates. 

Now consider investing it into the S&P 500 index fund, an organization that tracks all the major stocks of the US economy. (We’ll talk more about that in part 2)

The same contribution of $140 would result in $75,619.66 after tax! (This considers all the economic drawdowns over the last 2 decades). 

This is enough to pay tuition and maybe buy a new car or open up a business of your own

On the other hand, if you don’t save or invest, then you’ll have to take loans where compound interest works against you and gets bigger with time. 

So, if you are at least a little bit excited, let’s see how to make your money work for you. 

2 Investing strategies 

There are tons and tons of different approaches when it comes to investing. 

And please don’t worry, I won’t bother you with statistics and analysis, all we really need to make a strategy is common sense! 

We need our strategy to be simple, not time-consuming to implement, and moderately safe. 

This means that we’d like to make as little trades as possible and hold the stocks to let the magic of investing unfold. 

Now let’s build a portfolio that allows for this to happen.

A great strategy to implement would be investing in low-cost index funds, specifically in ones that track the S&P 500 index, as I mentioned in part 1. 

There are two reasons for this: 

  1. Your money is guaranteed to grow with the pace of the American economy  
  2. The costs of investment are kept to the bare minimum

The latter may be the most important factor of this strategy because at the end of the day the maintenance costs tend to add up to a hefty sum if not minimized. This can eat most of the gains!  

Therefore, 40% of our portfolio is going to consist of the Vanguard 500 Index Fund ETF

The reason this fund is so good for our purposes is that it resembles the S&P 500 index by having major positions in companies such as Microsoft, Apple, and Amazon. 

Also, it’s expense ratio is a mere 0.04% 

This means that your money will be safely tucked away and multiplying at a very low maintenance cost. 

The question you may ask me, especially now, is: what if a market crash happens? 

This is very reasonable indeed, therefore let’s bring some other assets to our portfolio which will make your money crisis-proof. 

The next 40% will consist of bonds.

Bonds mean buying someone’s debt which will be paid back over a long period of time.

Bond payments are guaranteed and therefore are much safer than stocks. Why don’t I make my entire portfolio to consist of bonds? Simple reason: bonds earn much less than stocks. Therefore, we only need bonds to diversify our portfolio in case of a market crash. 

To invest in bonds, we’ll use the Vanguard Long-Term Treasury ETF.

This fund primarily consists of US long-term treasury bonds, which means that the payments are guaranteed by the US government itself! This is possibly the safest investment anyone can make today. Also, the expense ratio of this fund is only 0.05%, so you won’t have to pay much for the safety of your money.

Last but not least, for the third component we’ll use gold for 20% of the portfolio, because it is to this day the safest asset that one can invest in. 

The reason is that gold is not subject to inflation, therefore it appreciates with time without you having to do much, and it booms especially when the economy is in a tough spot. 

The SPDR Gold Trust ETF consists only of gold and is the choice of the best investors in the world when it comes to diversification. 

For example, the legendary Ray Dalio uses this fund in his ‘all-weather’ portfolio. 

If you’d like to read more about it, I have an article written here, which discloses the secret to getting rich during a crisis, while everyone else is failing.

In fact, Warren Buffett himself suggests that beginner investors should stick to index funds, which in his opinion are the most surefire way to get extraordinary wealth if held for sufficient time.

3 How to find money

Investing is great however extra money for your monthly contributions doesn’t just lie on the street waiting to be taken. 

Luckily there are a couple of frugality hacks that won’t affect you or your family much but will save you more than enough to invest. 

My absolute favorite is to reduce the amount of coffee you drink when going out. In fact, an average adult drinks up to 3 cups of Starbucks a day! 

Let’s run a quick calculation: 

An average price for a cup of coffee is about $2, which means $6 a day, 180$ a month, $2160 a year! 

So investing in a good quality coffee machine and reducing your ‘out coffees’ to once or twice a week can give you more than needed to invest monthly.

Yes, you are not mistaken: buying less coffee can give your kid college tuition and a car!

Another, less noticeable but yet as effective hack is writing down all your purchases before you make them. And the reason why this is so powerful is that it makes your brain aware of your spending, so it can be consciously reduced. 

Also, the act of writing down every penny will get so annoying, that you will start to reject the idea of spending those extra pennies. 

I would like to give credit to the book ‘The compound effect’ by Darren Hardy for teaching me this excellent frugality technique. 

I can’t give an estimate of how much you’ll save by doing this, but I can assure you that it will at least double your investing budget. Remember, doubling the contribution will bring exponential benefits later on!  

If you already are making money online, that’s totally awesome and I deeply admire your work! Then, this can be a great source of contribution money, if the earlier tips don’t fascinate you too much. 

Here are more ways to make money to invest.

4 Practical guide 

Boring stuff aside, let’s walk through the steps to starting to invest together. 

First, you need to set up a Vanguard brokerage account. 

For this go to https://investor.vanguard.com/investing/how-to-invest/investment-accounts

Click ‘Start investing now’

Click ‘Open a new account’

And choose how you’d like to transfer your money. Do not use your 401k, as this won’t allow you to withdraw the money if you need it anytime.  

Now, use the service to allocate your money according to the portfolio set out in part 2.

Here, a wise move would be to start with some form of a heftier initial investment, the amount of which of course is up to you to decide. 

Next:

  • Set up a monthly contribution by clicking the tab ‘automatic investments’.
  • Select where you would like your money to be transferred from every month.

Now all you have to do is get on with your daily tasks and watch your portfolio grow. 

A word of caution here would be that simply watching your investments and not doing anything about them may be a difficult task psychologically. Therefore please remember that the only way to let the magic of compounding work for you is to let the investments sit there. 

If you don’t believe me, trust Warren Buffet: ‘Our favorite holding period is forever’. This is said by possibly the greatest investor of all time, so all I can do is humbly agree.

If you’d like to know more about Warren Buffett’s secret formula for success, check out my awesome article here, which I think any financially savvy person should read. 

Conclusion

Investing was never meant to be as complicated as some people make it, trying to chase a bit of extra immediate profit while missing out on the whole idea of building financial freedom over time slowly.

So, probably the biggest challenge you will face on your investing journey would be patience and self-discipline to keep doing it, even if the initial returns won’t be as impressive. 

Exponential growth always starts slow like a sapling growing out of a seed, but one day you wake up to a blossoming tall tree and thank yourself for planting it some time long ago. 

I would like to thank you for reading this article to the end and taking yourself a step closer to financial freedom for you and your family. 

I wish you a nice day, in and out of the financial markets. Enjoy!

Yes, your dream life is possible. Now go get it.


About Roman

Roman Lavrikov is the young man behind FinancialDigest.space About to graduate from high school and go to university to study finance, he has done a considerable amount of financial research and found that finance isn’t a language that many people are fluent in. That’s the problem he seeks to solve with his blog.

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