When I graduated from college, I was blessed to be ‘forced’ to do some investing research. That actually is a great blessing for a young investor.
I took a job with a church who allocated $2,000 per year to retirement. I wouldn’t directly receive that money, but they would send a monthly check to an investment of my choice.
It was a blessing because it forced me to learn how investing works, investing strategies, and so on.
Many of you, however, are never ‘forced’ to do your research. The result is that you think, “I’ll start investing later”. That’s a very poor choice when you’re younger because those early investing years are crucial.
There are also a lot of not so young investors who simply lack confidence. They’ve heard stories about people losing 50% of their retirement in the market, and they want nothing to do with it. I personally still have confidence in the markets for investments 5 years or longer.
Investing Tips for Younger and Less Confident Investors
1. Sound Mind Investing Funds or Investing Strategies
Sound Mind Investing is a Christian organization that teaches you about investing and provides you with a lot of easy-to-do investing plans.
As an example, they have something called a Just-The-Basics Strategy. As a newsletter subscriber, you get access to their suggested asset allocation (something I can’t publicly post).
For example, if you are 25 years old and are willing to have a 100% stock holding, they’ll tell you what percentage of your total investments you should purchase within each fund type, and they’ll suggest specific funds to invest with. The only problem is that most of the suggestions have a higher minimum purchase amount (+$3,000).
Update: I just found out that SMI is using ETF recommendations as part of their Just-the-basics strategy. Get more details here.
An alternative for people who will struggle to reach higher minimum investment amounts is to use their fund and asset allocation suggestions and find a comparable Exchange Traded Fund (ETF). You can find many places that have free ETF purchases. (I use Charles Schwab.) Simply purchase the suggested allocations in the form of an ETF instead of an Index Fund.
Sound Mind Investing also has a mutual fund call SMIFX. However, I wouldn’t suggest purchasing those shares until you read, understand, and research about the Upgrading Strategy.
Betterment is an easy to use and easy to set up investment company. When you sign up for an account (as a bonus you can actually get $25 when you invest $250 or more), you’ll answer a few customized questions about your time frame until retirement or until you’ll want access to the money. I signed up just to test their services, and it was extremely simple (but I can’t give a full review yet because I haven’t used it enough).
As a new customer, you’ll need to set up an automatic deposit of at least $100 per month, and you’ll pay a .35% service fee for a balance below $10,000.
Essentially, here’s what happens: you deposit your $100 and they’ll automatically invest it into ETF. They’ll determine the asset allocation based on the timeframe you have until you need the money. The longer it is till you need the money, the more aggressive you’ll hold stock funds between small and large capitalization funds. There are both value and growth funds in the portfolio.
It’s not foolproof, but for a person starting out investing with less than $5,000, it could be hard to find a less hands off, effective, diversified approach to investing without paying many fees.
Of course, you can do all this for yourself without fees. I buy no fee ETFs from Charles Schwab. But it takes time to go and enter the market orders, and it might not be worth the time if you have a smaller account balance. You will want to do appropriate research about asset allocation since that is a huge part of investing.
3. Target Funds
Target funds are similar to what Betterment is trying to do with less customization. Let’s say I’m planning to retire in 2040. I’d buy a 2040 target retirement fund like VFORX. This particular fund comes with a $1,000 minimum investment and a .19% expense fee.
Once you buy that fund, the powers that be at the mutual fund company will determine what your asset allocation should be and an appropriate balance of a variety of different types of stocks.
Key questions that will help you determine which of these investing options is best:
- How much of a hands off option do I want?
- How often will I be investing?
- Do I understand the basics of the investing world?
- How much money do you have to invest?
As a new investor with less than $5,000, my suggestion would be this - just do something. Any of these three would work well as a younger or newer investor. With that amount of money you’ll be investing, none of these could be a bad option (compared to doing nothing), and you’ll definitely learn some things along the way.
This post is not investing advice. If you want investing advice, you should seek out a licensed advisor. I’m highlighting some of your investing options, but not directing you to purchase any shares in particular.
Can you think of any other suitable investing tips and options for younger and less confident investors?
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