Simple investing for the not-so-simple
Some things in life are better when they’re harder. Others, not so much. Simple investing is best, as you’ll see. Before you scroll, get the free super-simple investing guide here, and follow along.
Simple investing help you join the Investing Class ASAP
After our years of working in financial services, managing money and following economics, we’ve come to the conclusion that, just as there are four original members of Destiny’s Child, there are four fundamental financial classes. Some folks may be lightly weighted in a few financial classes and some transient between a couple.
But, by and large, most folks are heavily weighted in one of four financial classes.
Like the members of a boy band, each financial class has distinct characteristics that, either positively or negatively, prevent people from changing their class. That doesn’t necessarily mean people are indefinitely stuck. Being money conscious, people can move to a more desirable financial class. By not being money conscious, people can go backward.
Here are the four classes. Once you know in which class you are, you can move up the ladder to join the Investing Class.
1. The leveraging class
Like Stanley Burrell, members of the Leveraging Class spend more money than they have and, therefore, spend on credit. They often get into a cycle of continuous borrowing and find it tough to get ahead, if they even want to, and occasionally find themselves in the Spending Class.
Members of the Leveraging Class may actually have a good credit rating, but they often spend 15%+ for everything they buy because they carry a credit card balance from month to month. They go where fashion sits and are often the proverbial Mr. & Mr. Jones.
Members of the Leveraging Class go to the mall and buy everything on credit.
2. The spending class
Believing “Mo’ Money Mo’ Problems” is the gospel truth, members of the Spending Class spend every penny they get.
Every. Single. Penny.
They rarely have more than a few 100$ bills if they ever join the Saving Class, at all, and frequently join the Leveraging Class. Members of the Spending Class often spend 5%+ or more on everything they buy because they occasionally use credit cards.
Members of the Spending Class don’t have a long and consistent credit history and, therefore, often don’t have great credit scores. They don’t have a lot of stuff, as with the Mrs. & Mrs. Johnes, which make one envious. They don’t have emergency savings nor do they use a lot of credit, so their things aren’t as shiny and new as Madonna dancing on a gondola down a Venice canal.
Members of the Spending Class go to the mall and spend all their Benjamins.If I believe I have to have money to make money, why do I spend all the money I earn?Click To Tweet
3. The saving class
Members of the Saving Class, possibly in an ambitious attempt to make a material girl’s rainy day, are judicious about every penny they spend, but often can’t afford to invest in the stock market due to their stage in life or income, or don’t trust the stock market after multiple market crashes and Wall Street scandals.
Because of our current, low-interest-rate environment, this class isn’t as large as it used to be or should be.
Members of the Saving Class go to the mall and window shop or, these days, drink wine and get into a scroll hole on AMZN.
4. The investing class
Members of the Investing Class take inspiration from the CEO of Hip Hop and invest as much as they can in the stock market and other investments. They experience the power of their money working hard for them and don’t see the value in joining the Saving Class because of America’s anti-savings policies (0.95% interest rate?! Ugh!).
Unlike Merle Travis, they’ve learned to use credit to their advantage and have stellar credit scores. While they have debt, their net worth is positive. Through their investments and debt management, they generate enough money to subsidize their lifestyles. They don’t have to work hard for the money, but it’s fun earning money for nothing.
The Investing Class makes The Joneses want to take out another mortgage on their home, but they likely don’t have enough credit to subsidize a lifestyle that requires seeing all the real opportunities to make money.
Members of the Investing Class own the mall through a REIT in their 401(k) that earns them 10%+ annually.
So, in which class are you? In which class do you want to be? Continue if your answer to the latter was Investing Class because here are the 10 super-simple steps for joining the Investor Class.
10 steps to super simple investing
1. Open a simple investing account online
You can open an Individual Retirement Account (IRA) or brokerage account online as easily as you joined Facebook. Simple investing is so simple, we’ve set up online accounts during lunch while stuffing our pie holes.
Grab your Social Security Number, home address (because not knowing where you live shouldn’t stop you from investing in the stock market) and banking information. Many online firms offer accounts with no minimum balance requirements and no fees (read the fine print).
With such ease and convenience, there’s no reason to not open an account.
Where should you open an investing account? Here are 2 recs.
If you’re an independent investor who likes to go it alone, open an account with M1 Finance. M1 is free for retirement accounts with a minimum of $500 and can be accessed by clicking here.
M1 Finance is a super simple investing platform with automated features. It’s great for individuals who are comfortable managing pre-built and customized Exchange Trade Funds (ETF)-based portfolios (see below), though they can model pre-built portfolios by Wall Street experts and robo-advised models.
• Trading is free
• There are no asset under management (AUM) fees
• There are no account fees (for brokerage accounts with a minimum of $100 and retirement accounts with a minimum of $500)
M1 Finance also allows for socially responsible investing, which is huge for the queer community.
Acorns (more on why we love Acorns below – hint: you only need $5 to join the Investing Class)
Too broke to invest? Wrong. There’s always a way, and that way is investing through Acorns here!
With its spare change savings tool and cash-back rewards, Acorns lets account owners invest in taxable and, for your purposes here, retirement accounts using spare or loose change. It’s a great way to start dabbling in the Investing Class, especially when you think you have no money with which to invest.
2. Set up direct deposits into your online account
Once you’ve opened your online accounts, fund them. Most employers offer direct deposit, which automatically puts your pay into your accounts.
If yours doesn’t (welcome to the 21st century!), set up electronic funds transfer (EFT) or automatic clearing house (ACH) transfers to move money from your bank account to your new accounts. Have your bank’s routing and account numbers.
All these options can be set up to be automatic and recurring. They’re (Taylor) swift, safe options to simple investing to pay yourself first.
3. Buy low-cost Exchange Traded Funds (ETFs) for simple investing
Buy low-cost ETFs, not to be confused with the EFTs above. ETFs, like mutual funds, are baskets of stocks or bonds that trade on stock exchanges (more on all these investments below). Unlike mutual funds, ETFs trade like stocks and have cheaper management fees.
To making buying ETFs cheaper, specifically, buy index ETFs to track established market indices, like the S&P 500 Index for large-company stocks and the Russell 2000 Index for small company stocks. ETFs PRID and SHE are LGBTQ and women-friendly.
For help picking the right investments, click here to get our super simple guide.
4. Diversify your investments
Diversify your investments with large-cap, small-cap, international and fixed income index ETFs and cash. This’ll reduce your risk and increase your reward.
To keep your simple investing super-simple, buy one asset allocation ETF. Asset allocation ETFs are baskets of index ETFs rather than baskets of stocks. The exact mix of an asset allocation ETF is determined by how aggressive or conservative an investor you are. For helping deciding which type of investor you are, click here for our free guide.
5. Start an employer-sponsored retirement account
401(k)s, 403(b)s, 457s, SE and SIMPLE IRAs let you contribute money from their paycheck into investments, usually mutual funds before Uncle Sam gets his dirty mitts on it.
The benefits are threefold. First, if you contribute enough to get your full employer match. That’s free money, bitches. Second, investing pre-tax dollars into a company-sponsored retirement account decreases your taxable income. Third, they let you invest money tax-deferred, meaning you won’t pay taxes on any growth until it’s withdrawn.
Be sure you invest your employer-sponsored retirement account, though. Too many people leave there money sitting in cash and it barley grows with today’s abysmal interest rates. What’s the best way to invest in this retirement account because usually investment options are limited and expenses.
That’s why we recommend using Blooom – yes, 3 Os.
Get investment help from Blooom. Your investment options in company-sponsored retirement plans are often limited and even then, it can be hard to pick the right for you because there’s so much to consider.
Don’t worry! Let Blooom worry for you – you just play supervisor.
Let Blooom do a 401(k), 403(b) or other company-sponsored retirement plan analysis for you, then do the research and provide you truly unbiased advice to build a portfolio that best suits your short- and long-term retirement goals based on the investments that are available to you in your employer plan.
If you have a Traditional or Roth IRA at either Vanguard, Fidelity or Charles Schwab, it can help you manage those accounts, too.
What’s the difference between these types of employer-sponsored retirement accounts? We discuss that on the Queer Money® episode below.
What’s the difference between a 401(k) and 403(b)?
6. Start a Health Savings Account (HSA)
Many employers offer Health Savings Accounts (HSA) as part of their healthcare plans when you have a high deductible for health care. Contributions into HSAs are also pre-grubby mitts and automatic. This reduces your taxable income and lets your money grow tax-deferred.
Withdrawals are tax-free at any time for qualified medical expenses.
Most employers match contributions in HSAs up to a certain amount, too. More free money, bitches!
7. Select automatic annual contribution increases for more simple investing
Most employers that offer these accounts offer automatic annual contribution increases. This lets you set pre-determined annual increases and lets your contributions keep up with wage increases and reduces budget creep.
8. Open an emergency savings account
Open an account at a bank or credit union with no bells or whistles. Don’t get a debit or credit card, decline bill pay and EFT capability. You want bare bones. This money should be easily forgotten about and hard to access.
Set up recurring direct deposits or one-way EFTs into this account. Continue this until you have three to six months’ worth of living expenses saved in this account. This’ll protect you in case anything unexpected happens.
Not enough info for you? On the Queer Money® podcast episode below, we share 5 ways to build your emergency savings account (in your sleep).
The simple way to build your emergency savings account:
9. Open a custodial and/or college savings account
UGMA/UTMA accounts are custodial accounts that let a custodian (you) invest the money contributed into these accounts for a minor (beneficiary). It isn’t necessary that the money only used for college. The growth in these accounts aren’t taxable or are taxed at the minor’s marginal income tax rate.
What are the different types of custodial and college savings accounts? Below are four.
1. Open a 529 Plan – 529 Plans are state-sponsored education savings plans with maximum annual contributions up to $310,000 in some states.
2. Open a UTMA/UGMA account – UTMA and UGMA accounts are savings plans for a child – the beneficiary – with an adult (possibly you) – the custodian. Once a child reaches the age of majority in their state, usually 18 years old, the money in these accounts become 100% theirs to do as they wish – yikes!
3. Open a gift account – This is simply a savings or investment account in which you store money you may want to give to family members. Remember to stay under annual gifting limits to avoid taxes.
10. Assign beneficiaries to all accounts
Add beneficiaries and contingent beneficiaries on all your accounts, and confirm or update them annually. It’s important to note that beneficiary designations supersede wills.
If you don’t assign beneficiaries, your money will flow to your next of kin. Egads! That could be scary
Investment types for super-simple investing
Above we recommend investing your money through your 401(k), Traditional IRA and other accounts but what kind of investments are there. Let’s discuss this. Meanwhile, download our free Super Simple Investing Guide by clicking here.
1. Cash and cash equivalents for simple investing
Cash is the cold, hard green stuff in your wallet.
Cash equivalents, such as U.S. Treasury Bills and bank certificates of deposits (CDs), are extremely short-term investments that are easily converted into cash, unlikely to lose value with high credit quality.
They’re not guaranteed to not lose value.
Money Market Mutual Funds are also cash equivalents. They’re mutual funds that consist of only short-term investments. Even though they’re a basket of short-term investments, they’re considered liquid – you can pull cash out of a money market within 24 hours.
The reward of investing in cash and cash equivalents is that they’re stable and liquid. Money market investments don’t quickly appreciate and depreciate in value. It’s, also, easy to get your hands on cash fast, if needed.
When considering your overall investment portfolio, it makes sense for most people to have at least some money in cash or cash equivalents.
2. Super simple investing with bonds
Bonds are debt instruments that let investors lend money to a government, government agency, municipality or corporation to fund projects and programs. The investor – you – is the bondholder. The government, government agency, municipality or corporation is the bond issuer.
The investor lends money to the issuer. In return, the issuer gives the investor a bond with a specified rate of interest (yield) during the life of the bond (term) and the commitment to repay the face value of the bond (principal) when the bond matures or comes due on an agreed-upon due date.
There are three types of bonds, but the two most common are government and corporate bonds.
Government bonds fall under two categories depending on which area of the government they’re issued. Bonds issued by the U.S./Federal Government are typically called treasuries. There are three types of treasuries, bills, notes and bonds.
The difference in the types of treasures is their term length. Bills mature in less than one year. Notes mature between one and 10 years and bonds usually mature beyond 10 years.
The benefit of U.S. government bonds is that they’re backed by the “full faith and credit of the U.S. government,” meaning they’re less risky.
Also, under the category of government bonds are municipal bonds or bonds offered by cities. Municipal bonds are slightly riskier than U.S. government bonds but less risky than corporate bonds.
Any company can issue bonds to raise capital for corporate investments or projects. Because corporations have a higher risk of default than governments, they typically offer higher yields.
The benefit of bonds is they’re less risky than most investments, excluding cash and cash equivalents. Safety is a double-edged sword, though. An investment or portfolio that is too safe can yield little return, all or most of which can be wiped out by inflation – inflation risk.
3. Investing in stocks
A stock represents fractional ownership in a company and proportional rights to dividends, voting rights and earnings growth. Dividends are profit distributions from the company that can be used to buy more stock or saved as cash.
The money you invest in the stock of a company is directly affected by that company’s overall performance. When the company performs well in the marketplace (i.e., Apple) and its accounting is clean, the company’s stock typically performs well. When a company doesn’t perform well in the marketplace, (i.e. Radio Shack) or its accounting isn’t clean (i.e., Enron), the company’s stock performs poorly or it goes completely out of business.
There are two primary types of stocks for retail or everyday investors such as you and me, common stocks and preferred stocks.
Common stocks offer voting rights, along with dividend and growth benefits that are subordinate to preferred stocks. Common stocks, generally, have a greater chance of appreciation and are appropriate for investors seeking portfolio growth.
Preferred stocks don’t offer voting rights but do have seniority for dividend and bankruptcy claims over common stock shareholders. Additionally, dividend payouts for preferred stocks are often consistent and somewhat predictable. This makes any dividend-paying stock appropriate for an investor seeking income.
The reward of owning a stock is that your money grows when a company performs well. The risk is that you’ll lose when a company performs poorly.
4. Super simple investing with mutual funds
Mutual Funds are a basket of other investments, such as stocks, bonds, treasuries, annuities, cash and more, pooled together to create a unique investment product.
Mutual funds are like little businesses. Managing the mutual fund requires a mutual fund manager, support staff, marketing, research and development. To fund these, mutual funds charge an “annual operating expense” from their mutual fund investors. This fee can be expensive, especially in 401(k) and 403(b) accounts.
There are many types of mutual funds, from stock mutual funds to bond funds to international funds. The most common are index funds that track standard market indices, such as the S&P 500 (for big companies) or the Russell 2000 (for small companies).
The risk with many mutual funds is that their expenses are high, or the fund manager and team perform poorly. The reward, ironically, is that you have a fund manager and team managing some or all of your portfolio.
5. Exchange Traded Funds (ETFs) for cheap and simple investing
ETFs have some of the characteristics of stocks and some mutual funds.
Similar to mutual funds, ETFs are baskets of other investments pooled together to create a unique investment.
Unlike mutual funds that priced once a day and once a daily after market close, ETFs are traded throughout the day and their prices adjust in real-time like stocks.
Similar to mutual funds, the most common types of ETFs are index funds, such as the S&P 500 or the Russell 2000.
The rewards of owning ETFs is that they are tax advantageous, easily provide diversification and have lower fees. Most ETF gains are reinvested back into the ETF and avoid a taxable event. However, some mutual funds are so narrow in focus that they lack liquidity, meaning there aren’t a lot of buyers and sellers, which may make it difficult for you got get in when you want or out when you need it.
6. Real estate investment trusts (REITs)
Remember how we said your friends in the Investing Class own the mall? Well, this is how they’re doing it.
Similar to mutual funds and ETFs, REITs are pooled investments of real estate, and there are many varieties. REITs are essentially a company that owns, operates and finances income-generating real estate. So, buying and selling, fixing and flipping properties aren’t your thing and you still want to get into real estate, REITs are your best best.
Here are some of our favorite REIT trading platforms.
AcreTrader has a simple mission: give investors direct access to the highly attractive asset class of farmland. This is a great way to diversify your portfolio.
M1 Finance REIT
M1 Finance is another trading firm that lets traders invest in real estate through a REIT. This is another great way to diversify your portfolio.
These are all viable and possible ways to increase your income. You just need to figure which one(s) are for you.
Hear our 3-pronged approach to early retirement:
4 stock investing rules you should know about
There are some rules to investing that you should know about, so you don’t get in trouble. Here are the four most important.
1. Front running will put you in investor jail
Front running happens when one investor knowingly buys or sells ahead of other investors. This lets them obtain a better price and unfairly positions the cheated investors.
For example, an advisor or broker trades ahead of their client. This creates a conflict of interest, especially if an advisor trades at his own discretion in his client’s accounts.
2. Shadowing is shady
Shadowing happens when an investor knowingly mirrors the trades of other investors. This is like the “herd mentality” that lets the first investor benefit from the knowledge of other investors.
3. Painting the tape is out of line
Painting the tape happens when traders collude to buy or sell investments to create the appearance of substantial trading activity. This is often done to generate excitement about a stock. They then use this excitement to trade for their benefit either buying or selling.
4. Freeride is not-so-free
A free ride happens when a trader buys stock in a cash account and then sells it without ever actually paying for it.
This is how it happens. The purchase of stocks takes three business days to settle (T+3). If a trader buys a stock on a Monday, the trade won’t settle until Thursday. If a trader buys the stock on Monday and does not have the cash in the account to pay for it, then sells it on Tuesday, the trader committed a free ride violation because they never actually paid for the stock.
More on super simple investing with Acorns
Little by little a little becomes a lot. But people think they need a lot of money to start investing, and they don’t.
We’re here to tell you that you don’t, either.
Here’s one, not-so-secret tip to reach financial security that we alluded to above: Escape the Leveraging and Spending classes to join the Saving and Investing classes ASAP.
This is why we’re as excited to share our new favorite tool with you as we are about this Saturday being the end of our 31 days of Dry July. Because you don’t need a lot of money to join the Savings and Investing classes –you just need $5.
1, 2, 3, 4, $5
This is great news because no other part of our economy is designed for success quite like the stock market – haven’t you wondered why the stock market’s been doing great despite the world burning?
But Schwab and Merrill and Fidelity all have such high account minimums, right? No worries. Acorns is where you want to invest because you can invest with as little as $5.
This is exactly why we signed up for Acorns, and in less than 10 minutes you, too, can sign up for Acorns.
Acorns is a micro-savings app that you connect to a debit or credit card and uses a little trick to help you easily invest by rounding up your everyday purchases to the nearest dollar and investing the difference.
That means a $9.50 purchase at your local grocer will be rounded up to $10 with $0.50 going toward your Acorns investments. Your transactions are so small you won’t even notice you’re investing. We didn’t.
A couple of things we love about Acorns:
1. If you don’t know how to invest
No worries! Acorns uses a robo-advisor model – a growing trend in finance – and invests your loose change in any one of 5 portfolios picked based on your age, goals, income, time horizon and more.
Based on these factors, your portfolio could include any one or more of: real estate, large-cap stocks (domestic and international), small-cap stocks, emerging markets, and corporate and government bonds.
2. If you or your children are in school . . . awesome
If you or your kids are in school and you have a legit .edu email address, you can invest with Acorns for up to 4 years free. That’s amazing and a great way to save and invest to pay off those student loans. Even so, if your kids are between the ages of 18 – 23, Acorns will let them invest for free regardless of whether they’re in school.
3. If you want to invest more than loose change
If you can and want to invest more than your “loose change,” great! You can.
Acorns offers ‘Round-Ups’ that let you boost your loose change investment by as much as 10 times. That’s a $9.90 investment on a $0.99 purchase.
4. If you want to invest more money more regularly
Acorns lets you invest a small, recurring amount of money through direct deposit if you want to invest more than loose change. This will help your investments grow more rapidly, all with this simple app.
5. If you shop
If you’re a shopper – an who isn’t – you can “earn” change back to invest more. Acorns has partnered with some big brands that offer “change back” similar to cashback rewards many of us opt for with credit cards. This money, too, can go toward investments. Brands and rewards include:
• 2% of purchases at Barnes & Noble
• 10% of purchases at Dollar Shave Club
• 5% of purchases on Groupon
• 5% of purchases at New Balance
• And many, many more
6. If you’re ready to swim in the deep end
We liken using credit cards with swimming in the deep end of a pool. Likewise, it’s best to avoid credit cards until you know how to use them and are ready to use them judiciously (something we learned the hard way).
If you’re ready to swim in the very deep end with credit cards, connect your Acorns account to a cashback rewards credit card. Then, with your $0.99 purchase and Acorns Round-Up, you can earn cashback on the total $9.90. With a common 5% cashback reward, that’s another $0.50 toward your Acorns investments.
You can use this trick to boost other credit card rewards, such as airline miles, hotel points and retail rewards.
Over time, Acorns and all these tricks add up and make it easier than ever to join the investing class.
Note: Acorns isn’t free. Acorns charges $1, $3 or $5 a month, depending on the tier you choose, until you reach a $5,000 balance. Once you have $5,000 in your Acorns investments, the fee is 0.25% of the assets in your account and in line with financial advisors’ fees.
We suggest signing up for Acorns “Lite” at $1/month, then use all the tools above to save and invest $5,000 fast. This will reduce your net costs and have you on your way to teddy bear dreams.
Get started today with our super-simple investing guide here, then follow the 10 steps above. Even with just $25 or $50 a month, you’ll build up a balance and gain experience that’ll benefit you for years.
More ways super simple investing can help you win at life:
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