Why invest? 

Investing allows your money to grow over time. Allowing time for your money to grow is important because the cost of goods and services also increases over time, which is a concept known as inflation. Rising costs essentially lead to a decrease in the purchasing power of uninvested funds, which is why some people may say that you’re “losing money” to inflation if you do not invest. 

Another important concept to be aware of is compounding interest. Compounding interest is when you earn interest on the money you originally invested (i.e. your “principal”) plus all the accumulated interest you earned. Compounding interest is an extremely powerful concept that will allow your investments to grow faster than expected.

Read more here.

What can I invest in?

Investment opportunities include but are not limited to the following:

1. Stocks 

2. Index Funds (ETFs, Mutual Funds) 

3. Bonds 

4. Certificate of Deposit (“CDs”)

5. Money Market Fund

6. Marketable Commodities (artwork, collectibles, precious metals, etc.)

7. Real Estate (rentals, REITs, syndications, house flipping, etc.)

8. Cryptocurrency 

9. Venture Capital 

10. Small Businesses

Which investment style is recommended?

Listed below are some common investment styles. The bolded options are recommended by many successful investors and will be discussed later. 

1. Index investing

2. Value investing—popularized by Warren Buffet

3. Growth investing 

4. Market Capitalization investing (small vs. large cap)

5. Speculative investing—absolutely NOT recommended.

When should I buy?

There are two main methods:
1. Dollar Cost Average (DCA)
2. Lump sum

Dollar-cost-average investing is when you purchase a certain amount of assets at regular intervals, regardless of market conditions. For example, you may invest $500 monthly into the stock market.

Lump sum investing involves investing everything you have all at once. Instead of investing $500 monthly, you may invest $6,000 all at once.

There is no wrong method. If you want to participate in both the highs and lows of a volatile market and reduce risk, then dollar-cost-average investing may be your choice. However, if you value simplicity, lump-sum investing may work for you.

How to Buy Stocks, Bonds, & Index Funds 

1. Choose a broker and open a brokerage account (investing account) with them. You will use this brokerage account to buy and sell different assets such as stocks, bonds, and index funds (e.g. exchange-traded funds or “ETFs”). 

   Here are some of the most popular brokers: 

   1. Vanguard (known for their low fee index funds)

   2. Fidelity

   3. Charles Schwab
      

2. Deposit or transfer money into your brokerage account.

3. Purchase assets of choice with the deposited funds.

4. Wait for assets to grow over time.

What is an index fund? 

An index fund is a portfolio of stocks and bonds created by financial institutions. The goal of an index fund is to mimic the composition and performance of another financial market benchmark or “index.”

Here are some examples of popular financial market indexes:

• S&P 500

• Dow Jones Industrial Average

• Nasdaq Composite 

Let's break down stock indexes using the example of the S&P 500. This index consists of the top 500 U.S. companies with the highest total value in the stock market. The value of a company, also known as its "market capitalization" or "market cap," is determined by multiplying the total number of shares by the value of one share. For instance, if Company A has 100 shares, and each share is worth $5, then Company A's total market capitalization is $500.

Now, let's shift our focus back to index funds. There are various index funds that mirror the S&P 500 index, and they may include the same top 500 U.S. companies. However, these funds can differ in the proportion of each company within the overall fund. In the example below, both Index Fund A and Index Fund B include the same four companies, but the percentage of stocks from each company varies.

Two Types of Index Funds: ETFs vs. Mutual Funds

1. Exchange-traded funds (ETFs)

1. Passively managed & traded intra-day based on market price. ETFs are passively managed; therefore, they generally have lower fees (i.e. lower expense ratios) than mutual funds

2. Mutual funds 

1. Usually actively managed (therefore may come with higher management fees than ETFs) & are traded on dollar amount

2. Usually high-frequency trades (i.e. high turnover); therefore, more difficult to track from a tax standpoint (short-term vs. long-term capital gains).

3. Includes Target Date Retirement Funds

My thoughts: You can’t go wrong with ETFs or mutual funds; however, I prefer ETFs for their lower fees.