You should be investing, not just saving. Here’s some tips/suggestions.

I’m making this a whole blog post now because it got very long on my Facebook.
There are too many people in my life whom I love and who aren’t doing great with money, like not investing their money. Here are some ideas to help you get started.

But, first, what is investing? How does it work?

When you invest your money, you buy something with it that grows in value/price over time. So, say, for instance, you buy a share of something (your favorite company – i.e., an individual stock, or a mutual fund, which is a collection of stocks and bonds) at $100 per share. But if in two years, one share in this company now costs $125, your $100 became $125. This share could also go cheaper so it could become $80, which means your $100 is now worth $80. That’s why people get scared of investing and don’t wanna do it. But that’s not a good reason. If you were careful about which holdings you had – which stocks, index funds/mutual funds, etc. – then over long term, your money grows.

Here’s more on the basics of investing – but I’m pretty much describing this all below as well.

And here’s more on how you make money with investing and why else it’s worth it.

Also, understand that your retirement accounts are being invested! They’re not just saving your money with no growth; they’re being invested. So you need to understand it, watch it occasionally, and make sure all’s okay and you’ll have enough to retire on. And because investing is magical, be investing your personal money too when you are able to. Which is what this post is about here.

1. Saving vs investing.

With saving, your money is just sitting there (and likely losing value), even if you’re saving regularly, as you should be; with investing, your money is growing, and if you invest regularly – which you hopefully are able to do (this can be a $1/week or month or $5k/month, whatever you can afford), your money pretty much is guaranteed to grow with time and any losses you face are temporary when the market isn’t doing well like in a crash.

2. Do not – never, ever, ever – invest all your money. You should have

a) an emergency fund that you contribute to ideally monthly or regularly but don’t use except in, you know, emergencies; the emergency fund should have enough funds to meet your immediate and urgent needs for 3-5 months, experts say, in case of unemployment or job emergencies.
b) a rainy-day fund, which is in addition to an emergency, and which I personally treat as that fund I take money out from when I go over my budget in a special month, some unexpected expenses happen, etc. I call mine an incidental fund. Like the emergency fund, this is in a savings account that I do not touch except when needed.
c) your other funds like vacation/travels so that you’re not relying on your emergency or incidental funds when you travel.

Save these funds in a place like a regular savings account that you can access in case of emergencies or when you need them. In other words, don’t invest this money because you could lose it and you don’t wanna take that risk. High-yield savings accounts exist, like with Barclays or Credit Karma or American Express or Ally Bank; some of the highest rates I’ve seen recently are over 3.35%. This means you’re collecting interest on the money you’re saving, and it’s not a lot or as much as if you were investing, but it could be as much as hundreds a month depending on how much you’ve got in your account. Some Muslims consider these interest-bearing savings accounts haraam, and if you’re one of those Muslims, then go with the no interest ones.

But the idea is, don’t invest this money and don’t just keep it in a checking account where you could accidentally spend it or can’t keep track of how much you’ve got in there.

This whole time, if you have a retirement account (which you should with your employer or have your own if you’re self-employed), like a 401k/403b, if there’s an employer’s match, take advantage; contribute as MUCH as you can up to the max just to meet the match requirements (here’s how employer’s matches work). There’s different opinions on how much you should contribute, and that’s going to be very personal and also a matter of what else you’re saving and where. E.g., if you have a Roth IRA (on which see point 3 below), then have enough in your paycheck to go to your roth ira. But it’s been recommended that you contribute about 10-25% of your salary into your retirement accounts a month. I say start very slow if you’re new to this: try $5/month, $25/mo, $100/month, etc. for a while and slowly go to the 10% or more as you can afford.

3. Once you’ve got your savings taken care of as identified/suggested in point 2 above, THEN do the following:

a) get a ROTH IRA account like yesterday. This is a retirement account in addition to your 401k/403b, and you can contribute up to $6500/year to it in 2023, and the money is NOT taxed when you take it out later at 59 1/2 years old. This, I think, should be your priority. Look more into this. Here’s more on Roth IRAs and how to open them.

Essential information here regarding Roth IRAs: you actually have to INVEST your money! You don’t wanna just contribute it and park it in your money market fund and stop there, like I did the first 3 years I opened my Roth IRA account!!!) What this means is, you buy your index funds or target-date funds or stocks or whatever it is you’re investing in. More on this below.

4. In addition to a Roth IRA, have your own personal investment accounts. These are called brokerage accounts. (A Broker is the firm/company/website you’re using for investment. Popular ones are Vanguard, Fidelity, Schwab, TIAA, etc.)

Where to BEGIN with all this? Well, once you open your investment account, then you consider your options and strategies. If you’re like me – young and comfortable with some risk for your retirement accounts because you are confident and have faith in the market to give you good returns over a long period of time – you might do index funds (see below on these). If you’re younger and comfortable with more risks, you might do more individual stocks and index funds. But maybe go with the safer stocks like big companies (Microsoft? Apple? etc.)

a) Index funds are your BFFs in investing. Mutual funds and index funds are a collection of (hundreds? thousands?) of individual stocks and bonds, sometimes in the same sector (energy? medical? real estate? tech? or a combination of all of these – which is what you want for diversification so that if one sector, like tech, is doing badly one year, not all of your portfolio (your holdings) suffers). And the fact that it’s so many of them in one fund is what makes them safer to work with than individual stocks.

Index funds are mutual funds that are passively managed (i.e., not by a person but automatically/by computers) and you don’t have to pay anyone to manage them for you; they just have an expense ratio, a percentage, that varies depending on the company you’re using – Fidelity, Schwab, and Vanguard have some of the lowest expense ratios, like less than 0.03% at times – and also on the index fund (target-date funds have higher expense ratios than others). For more on index funds, see here for a basic introduction to them, and here for lists of good index funds you might. consider investing in long-term. The S&P 500 index fund is consistently going to be recommended as an excellent choice. Your money could do very well with just this one fund, too – see more on this below.

The expense ratio for, say, S&P 500 index fund with Vanguard is 0.03%, which means that for every $1000 that you’ve invested in this index fund (or in the ETF version), you’re paying 30 cents in fees annually. If you went with the minimum $3000 in the S&P index fund with Vanguard, you’d be paying 90 cents in fees, taken quarterly.

There are many, many, many types of index funds. My personal favorites and some of the safest ones to at least start off with are – and you could have ONLY these funds and do pretty well over the long run – the S&P 500 index fund like the Vanguard one (VFIAX) and/or the Total Stock Market also with Vanguard (VTSMX) or whoever else you wanna go with (Fidelity? FXAIX). With Vanguard and most other brokers, index funds / mutual funds come with a minimum requirement, $3,000 – this means you gotta purchase $3000 dollar worth of this fund, even though that’s not the price of the fund. It’s currently at ~$142 a share. If you can’t afford this $3k but want to get started on investing while saving up for this index fund, see the next point, on ETFs but also? Not all brokers require minimums! Fidelity doesn’t have minimums for a LOT of their index funds. Go with them! Or go with ETFs.

b) ETFs are your other best friend in investing. Exchange Traded Funds. Most index funds have an ETF version of themselves, and the returns are identical but the significant differences are: 1) the index funds have a minimum requirement of at least $1,000 with many brokers, but the minimum for an ETF – ANY! – is $1 with most brokers, like Vanguard. Literally just one dollar. I keep talking about Vanguard because I am with Vanguard. 2) the ETF can be traded (bought or sold) throughout the day like a stock, but the index fund, you purchase or sell and it goes into effect once the market closes, so the price is determined at the end of the market day. 3) this is an important one, in my opinion: you can’t do automate investing with an ETF but you can with index funds. I think this is important because see below on dollar cost averaging, or regular investing whether the market is doing well or not. It’s crucial that you invest regularly even when the market is doing poorly.

ETF examples: the vanguard 500 index fund has an ETF version, the symbol for which is VOO.

For more on differences between index funds and ETFs, see here and google others.

c) Target-date funds are also highly recommended esp if you’re new to investing and don’t wanna take risks (my favorite finance expert, Clark Howard, recommends these highly as a retirement strategy – see here for more); these funds will maximize your returns WHILE taking into account when you plan to take your money out. These are index funds that are for specific years. Say you want to invest your money in a target date close to you retirement year, or 8 years from now or 3 years from now or 50 years from now or whatever year. What this means then is that this fund will invest your money strategically, e.g., more risks in the earlier years and less/minimal risk as it gets closer to the target date.

d) bonds are probably the safest option – but also come with minimal returns/awards (the pattern is generally that the higher the risk, the higher the reward/return/growth). Bonds are loans to a company or the government with a specific interest rate. Many people who don’t believe in interest-bearing savings, like some Muslims, avoid these and by extension, target-date funds because target date funds invest in stocks AND bonds, depending on how close you are to your target date.

The bonds I recommend? Currently, i-series (see here for more) . These are inflation-based bonds, and the rates are currently pretty good (like over 6%). The rate changes every 6 months, and when you buy the bonds, you get that rate for the next 6 months even if the rate changes. Then after that, it changes to whatever rate is currently it.

5. What do I recommend people invest in?
The S&P 500 index fund (with Vanguard or whoever else) and/or the S&P 500 ETF, or both; AND/or the Total Stock Market index fund and/or ETF. The total stock market is all U.S. stocks so is extremely diverse (less risk in case one or two sectors don’t do well), and if you wanna be even more diverse, maybe go with the total world stock market (but the total world stock market doesn’t have as high returns overall).

The S&P 500 index fund / ETF and the total stock market index fund/ETF have almost the same returns over the late 10 years or so. So you may not need both. And also, 80% of the total stock market index fund is the same as the S&P 500, so it may feel redundant to you. But I care about those 20% non-S&P 500 one and believe in them!

Other index funds are real estate ones (which has performed pretty well in the last year! Most things didn’t perform so well! But ~7% average the last 10 years), which is VGSLX on Vanguard; the high dividend yield (companies that pay high dividends), small cap index funds (like small, new companies that are likely going to do very well in the long run, but of course no guarantees; hence this is a risky one but will probably have good rewards), information technology index funds, and so many more. Again, the specific sector ones may not be as safe as the ones that track diverse ones or a collection of multiple sectors, hence my preference for the S&P 500 or Total Stock Market, but you do you.

For each index fund, ETF, bond, individual stock, you can google it and find out how it’s done/performed for the last 10-15+ years. No guarantee it’ll always do that well, but they’re a pretty good idea of whether it’s worth it. So, for example, the S&P 500 ETF and index fund have had an average return of 12.64% over the last 10 years. Since these are averages, some years they’ll perform much higher than ~13% and other years less. Some years/periods, a certain sector will do very well, but there’s no way to predict it. So I assure you – 12.64% is pppppretttyy good deal. This means your money that you put in initially has grown by this much ten years later.

But generally, look at charts to get a very good, clear, visual, illustration of what CAN happen to your money – say you put in $2 a month or $50 a month or more – in a certain fund regularly, and its average return is, say 5%, then use online calculators to tell you how much you might have in 15 years or 5 years or 2 years. The number changes depending on how much you’re putting in.

If you wanna buy stocks, go with the big, famous companies that are doing well and have been doing well consistently. That is, if you’re not comfortable with too much risk. If you’re open to some risk and are young enough to afford some risk, you can afford to go with new companies like small-cap (new, emerging companies) that are projected to do well in the future.

6. Understand dollar-cost averaging! This is very important. It’s when you invest a fixed amount (it’s okay to change it in accordance to what you can afford but generally, be consistent) *on a regular basis*, into your index funds or stocks or ETFs or whatever you’ve chosen. Invest regularly, whether that’s weekly, monthly, or every couple months, or a couple times a year, or daily, or whatever. And invest as little as you can or as much as you can! Begin with $1 a week or a month if you can afford that. Then make it $2, then $5, then $15. Like, whatever you can manage/save. Prioritize it. And put it on automatic. Whatever website/brokers you’re using, you can automate your investments so that each month or week or every three months or whenever you can afford to do so, it’s taking money from your bank and purchasing these equities (whatever you’ve chosen) so that you’re putting in a tiny, tiny amount into your index fund or target-date fund. You can automate for individual stocks and ETFs on Robinhood, but not on all brokers, as I mentioned earlier. So you might have to make the effort and time to actively do it yourself, purchase a small share or half a share or whatever portion of an ETF or a stock on your own time instead of relying on automatic purchases.

Here’s more on dollar-cost averaging.

7. When the market isn’t doing well (i.e., your money is going down, the return is negative, etc.), do NOT panic! Stay calm. Do not impulsively sell everything or even some of what you own. This can be a horrible, horrible idea. It’s actually a great time to in fact buy more because this means everything’s discounted; it’s on sale. So buy more if you can afford to do so, but again, not with all your money – just some at a time, daily, weekly, monthly, etc. It’s just, we never know how long the market is gonna do badly for so you don’t wanna be waiting around for it to keep going down and downer so you can buy when it’s cheapest.

The market will recover with time. It always has. And this is also why you don’t wanna invest all your money and invest regularly. Some days/weeks/months, you’ll buy very cheap; some days, you’ll buy at a higher or expensive price, but that’s okay, because it’ll average out in the long run.

But one way to not act impulsively, like selling things because you see a negative return in your account/portfolio, is to, well, not look at it so often. Keep your contributions automated and modify them if you’re too worried, but don’t altogether stop investing just because the market is bad. In fact, I recommend never stopping your contributions; keep contributing even if it’s just a dollar a month. If you can’t afford this, then we need to have a whole different conversation about money because either you’re not making enough money to save a dollar a month or every few months to invest it (this is not good! I can’t believe we live in a world that would allow this!!), or you’re not budgeting well and are not spending responsibly enough to protect yourself financially. But that’s a different conversation, like I said.

8. Investing is a risk that is absolutely worth taking for money you don’t need within the next 5 years.

The time you put in to learn how a Roth IRA works or how to open a brokerage account is totally worth it. Open one with whichever broker you like. I recommend Vanguard or Fidelity, for instance, but you might already have a retirement/401 k with one company (like TIAA and so you want all your money in one place so you go with TIAA – it’s just TIAA has higher fees than many other places.

8. Terms to look up and keep reading about until you understand them:

a) rate of return (like, the percentage that your money grows depending on how the fund or stock/company you’ve invested in is doing)
b) expense ratio (the fee you have to pay to keep your money in usually a mutual or index fund)
c) mutual funds vs index funds (index funds are passively managed; no one individual person so managing it, so they’re cheaper; mutual funds are actively managed by humans, so they have higher fees BUT all the research shows that index funds consistently do better than mutual funds so the extra fees aren’t necessarily worth it)
d) stocks (a security/equity that gives you a share of a certain company, depending on how much you buy)
e) shares (like shares of a stock – you don’t have to buy the full price; you can just purchase just $3 of a stock, you might decide)
f) dividends (a company’s/stock’s earnings that are shared with you, paid to you, because it’s a dividend-paying stock – famous ones are Verizon, AT&T, Johnson & Johnson, Microsoft, …). Be sure to re-invest your dividends (there’s always an option to do that in your account) so that it’s re-investing because that plays a huge role in the growth of your money, instead of you just collecting this cash. It’s not gonna be large enough for you to do anything with this cash anyway unless you’re investing in millions. So collect the dividends much, much later. They can get pretty high, like in the thousands per month if you invest long enough.

9. What websites/finance folks do I recommend or follow myself?
I get my information on investing from all over. When I first got into it, I read whatever books my library had on it until I understood the basic terminology. I started following YouTubers who talk about investing a lot. I’ve always loved Clark Howard’s finance advice so I highly, highly recommend him. Subscribe to his website (lots of awesome ideas on savings and discounts and investing frequently!). So here are some sources I recommend:
a) https://clark.com/
b) https://www.nerdwallet.com/
c) http://fool.com
d) more sources listed here: http://www.columbia.edu/~tmd2142/6-best-investing-websites.html

Ok!! That’s enough, folks. Happy investing!

Talk to your friends about investing, and if they won’t talk about it, get you more friends who will.

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