So easy a cave urchin could do it.. Bad, I know..
Hi guys, I wasn’t sure if I was going to continue blogging but I actually got some positive feedback on my first blog post and I enjoyed writing it. Most interesting is that I got a few direct messages asking for a little detail on investing, which I thought was awesome since I had no idea what I was ever going to write about again!
The two questions I got were basically, “What is the absolute easiest way to invest?” (but still be effective), and “How much money does it actually take?” (like I don’t have much to spare so would it even be worth it). If you want to be done with this blog post now then the answers are Index Mutual Fund and absolutely worth it, you don’t actually need any money upfront. If you would like to know a little more of the absolute basics, how not to get scammed or see how much potential $100 bucks a month has, please read on!
We will just take both questions in order and then do a hypothetical investment. First, if you want the absolute basic, simple, hands off, passive method of investing, then it would be to invest in an index mutual fund. Mutual funds are awesome and perform fantastic. It is really unlikely that, unless you wanted to make investing your full time job, you would actually outperform a mutual fund.
Simply put, mutual funds are investment strategies that allow you to pool your money together with other investors to purchase a collection of stocks, bonds, and other securities that might be difficult to recreate on your own. The price of the mutual fund, also known as its ‘net asset value’ is determined by the total value of the securities in the portfolio, divided by the number of the fund’s shares. Note that mutual fund investors do not actually own the securities in which the fund invests; they only own shares in the fund itself. Also, there are small management fees associated with mutual funds as a way of paying fund managers to watch and redistribute assets accordingly.
If you glossed over all of that last paragraph fear not! You don’t actually need to know anything more than that you team up with a bunch of other people who also want to invest and not have to know or worry about anything and just pay someone else to handle it all.
NOW! Most importantly! Do not go to your bank, I know you trust them because you have used your local bank forever but don’t, and do not go to any local institution named “Secure Money” or something else catchy that says they will invest your money for you! I can’t stress this enough. Bob, upstairs of your local bank who your bank sends people to that would like to invest, doesn’t actually do anything for you. Bob just takes your money from you and invests it in the same mutual fund you could have invested in and then skims 1% or more off the top of your investment. One percent or greater! I know that doesn’t sound like a lot but that is enormous! Oh, and by the way, the mutual fund will still take their management fee as well! Don’t get scammed by Bob or Secure Money or anyone else! Also, the amount of paperwork that they will make you do will take 5 times as long as just joining the mutual fund yourself since the government requires Bob to have you sign your life away to them so they can have the ability to scam you.
Now, for the step by step how to guide. The two largest index mutual funds are the Vanguard 500 Index Fund worth 441 billion and the Fidelity 500 Index Fund worth 166 billion. There are a hundred thousand more funds if you would like to be in something like a specific sector but these will have a little piece of every US based pie. Now, you will go to Vanguard or Fidelity’s websites (I linked the funds specifically above so it would be easy to find.) and create an account with them and choose the fund you would like to invest in. I promise it is much faster than doing the paperwork required to hand your money over to someone else. Once your account is made and the fund is selected then you will link your bank to your account to transfer whatever funds you would like to invest. There is no minimum so you could just invest $100 bucks if you fancy. They also have options to set up direct deposit each month to the fund and also have dividends you earn be direct deposited back to your bank if you wanted. This way you literally never have to do anything ever again if you didn’t want to.
And you’re done.
These mutual funds have been returning their members huge average yearly yields and have tiny management fees. For example, the Fidelity 500 Index Fund has had a yearly average return of 13.11% over the last 10 years! That is mental. It also only charges you .015% in management fees. That isn’t a typo. Not 1%, .015%.. That means if you invested $10k they only charge you $1.50 a year, a dollar fifty! Unlike Bob who would want his 1% on top of their .015% for doing absolutely nothing but recruiting you.
Now let’s do a little hypothetical investment using the last ten years and $100 dollars a month. You can do this for yourself if you would like to check my work using this compounding interest calculator. We start by taking 13.11% and minus the management fee of .015% which equals 13.095%. We then compound the interest of $100 dollars a month by 13.095% (13.1% because that’s as many digits as the calculator lets me go) for the next ten year. This comes out to be $22,211.25, about $10,000 more dollars than if you would have just deposited the $100 dollars a month into your savings account! Now here comes the real magic. Lets say you were 18 years old and just put away $100 dollars a month until you retired at age 65. That 47 years of only $100 dollars a month would then be $2,973,833.71. Almost 3 million dollars! Would you even notice $100 dollars a month missing? Would that be something that was worth it to you?
Guys if you made it this far then thank you so much. I don’t know if it is worth it to you to keep writing things like this but if it is please let me know if there is anything you would like to hear about or have questions about because others might be wondering as well. That way I answer what someone cares about and I also have something to write. It’s a win win!
Also, if you would like to hear a little more about the fun of Travel and a little less about boring ol money I would encourage you to check out An Urchins Life which is all about just that.
Thank you again guys,