Getting started is one of the more challenging things about investing. It’s not because it is complicated or tricky; rather, it seems more complicated and tricky than it really is. Thankfully, there are a few ways to invest that are easy to get going, and they are not necessarily for beginners. Experienced investors do it this way because it’s easy, low cost, and really works.
1. Your company’s retirement plan
If available, investing through your company’s retirement plan is a great place to start, especially if your employer matches contributions. Find out the maximum amount matched because getting the full match is the first investment to make. Choosing funds within the plan can seem intimidating at first, but these next approaches may work well in your retirement plan too.
2. Target date mutual funds
Target date mutual funds are all-in-one investments that become more conservative by owning less stock as they approach a target date. They are usually a fund-of-funds and have names like “Vanguard Target Retirement 2030 Fund1,” where the year in the name is the target date, and you can choose the one closest to when you might retire. Look for Target date funds that use index funds and have low expenses, below 0.25%.
3. Asset allocation mutual funds
Asset allocation funds can be all-in-one investments and are similar to target date funds, except they do not change over time. The allocation to stocks and bonds remains consistent, and you can choose an allocation strategy that you’re most comfortable with. This may feel more comfortable for younger investors wanting less stock market risk compared with target date funds.
The difference between target date and ad asset allocation funds may not be as significant as it first appears, even if the allocations to stocks and bonds is drastically different. Because most investors begin with small amounts of money and slowly see their balances increase over time, the asset allocation early on has much less impact on that balance than it will in later years. And in those later years, the allocations of both types of mutual funds will be more similar.
4. A 3-fund portfolio
If all-in-one solution isn’t for you, you can get a globally diversified, low-cost portfolio with as few as three mutual funds. By matching a broadly diversified US stock fund with an international and US bond fund, you can build a portfolio that matches any asset allocation you want.
This is what the Simple Investing Plan on this site is. It’s very close to Vanguard’s Lifestrategy Funds but without an international bond fund. The Vanguard Funds also allocate 30% of the stock to international while the Simple Investing Plan is only 25%. The difference is primarily to make the math easier for the Simple Investing Plan.
5. Robo advisors
Robo advisers are investment management services that will invest your money in an appropriate asset allocation for you. It’s similar to asset allocation mutual funds with a few differences. Most robo advisors use exchange traded funds, also known as ETFs, instead of mutual funds. You also don’t have to choose your asset allocation before signing up. As part of the robo service, you provide some information and answer a few questions so a computer can recommend an asset allocation for you.
In addition to the investment expenses, which are usually very low due to the use of ETFs, the robo advisor charges an asset management fee. Look for those fees to be .25% or less. After adding in the ETF expenses, you really don’t want to spend more than .5% on investing. Betterment2 and Wealthfront2 are examples of two popular and low-cost robo advisor companies.
Help to get you started
If you want to manage your own investments but want a little help here and there, you can hire a financial planner by the hour3 to help you settle on an asset allocation, choose investments in your 401K or 4o3b retirement plan, or deciding between mutual funds and robo advisors.
1 I don’t work for Vanguard or get paid to mention them. I just like their funds because they’re among the lowest-cost options available.
2 I don’t work for Betterment or Wealthfront, or get paid to mention them. I have no direct experience with either company and am not making an implied recommendation.
3 I used to work for the Garrett Planning Network, and I don’t earn anything if you work with one of its members.