Brainy Chick Finance

Investing

How To Invest With Next To Nothing

Let’s go on an investing journey together. I have $500 to invest, but where do I start?

With Robo Advisors new to the scene, I want to test out how much my money will grow against the traditional investment vehicles. For a year, I will invest $500 into a Betterment (robo advisor) account, Wealthfront (robo advisor) account, and into an index fund and watch to see which one does better.How To Invest with Next to Nothing


Why did I choose these?

Robo advisors are one of the newest investment vehicle to the game, but also one of the easiest for Millennials to take advantage of because of the low fee structure. Betterment has a $0 initial fee – ideal conditions for a first time investor. I chose Wealthfront next because of its competitive nature to Betterment but it has a $500 start cost. This start cost is how I chose how much to invest in each account. Lastly, if the ease of a robo advisor doesn’t have you hooked, then a low index fund should.

Tell me about about this index fund

I will invest in the Vanguard S&P 500 Index Fund. It is one of the largest index funds and has one of the lowest costs, meaning they get less from their fees than anyone else.

To invest in this account, I will open a Vanguard account and invest directly into their index fund.

I’m confused about the index fund.

My first search was for a brokerage account (schwab, td ameritrade, fidelity, e-trade) to invest for the index fund. However, I don’t need a discount broker to do a trade; I can go directly to the source and skip the middle man (or a $7-10 trading fee).

There are a ton of things to invest in, but the main three are: mutual funds, index funds, or individual stocks. If I wanted to put my $500 in a mutual fund, I would then need to understand are mutual funds and understand how mutual funds are categorized (see Morninginstar – value, blend or growth, small cap/large cap). I can see you tuning out, which is why we are not investing in mutual fund.

If I wanted to invest in individual stocks, I would want to do some research, but essentially, I could only by a few shares (less than 5 most likely) because stock prices might be high (Amazon trades at $575 and Netflixt is at $101 at the time of this post) and I would have to but the trade ($7-10 at general brokerages) in addition to the cost of the stock.

Recap for me again:

If we were playing a video game and had to go through levels of difficulty of investment, here would be the breakdown:

  1. Level One – Invest in a Index Fund
  2. Level Two – Invest in a Mutual Fund
  3. Level Three – Invest in an Individual Stock

Robo advisors about be about a Level 1.5 or 2, as it would give you the diversity of index funds (multiple index funds) versus your just one index fund that you would invest in.

Let’s hear about the strategy

As a Millennial, I have many years ahead of me, so I want long term with high growth. Which means that I will buy and “hold” aka don’t sell for a very long time. Since I am investing at a young age and will keep the money in the stock market for a long time, I have the potential for a large growth.

The Set Up

Over the next week, I will be walking you through the set up of these three account and explaining what I selected and why. From there, I will have consistent updates on how the accounts are doing.

3 Major Steps for Millennials to Take to Jumpstart Your Financial Future

Just got a job or are starting a new one or maybe you know its time to take a serious look at your finances. But where do you start? There are three main buckets that should considered: Retirement, Savings, and Investing. These are multi-faceted buckets that can have a ton of complexity to them: read BORING. Here is the nitty-gritty of what you really need to know to jumpstart your financial future. 3 Steps for Millennials to Jumpstart Financial Future

 

 

 

 

 

 

 

Bucket One: Retirement

Pay yourself first by investing in your future aka retirement. This seems like far, far, far, far away, but just like how you remember your middle school days (dang that flew by!) you will want to start early to take advantage of this magical power of compounding (read: amazing way that your money adds up over the years). There are two main retirement vehicles you should take advantage of, the 401k and the Roth IRA.

  • 401K

The 401k is a retirement vehicle that allows you to save for retirement through your company. Some companies even offer a match to what you contribute – hello free money!! If for example, your company matches up to 5%, and if you contribute 5%, you are really contributing 10% to your 401k because the company is putting in money for you as well. Your company will automatically take the money from your paycheck so you don’t even see it leaving your account!

  • Roth IRA

The Roth IRA is an additional retirement account that you can open at pretty much any brokerage account from Charles Schwab (fancy, fancy) to those who just want to begin investing (Betterment or Wealthfront). You can contribute up to $5600 a year. If you choose the “Roth” version versus the “traditional” you get taxed now (typically in a lower income bracket) and your money grows tax free. Basically, whatever money is in the account when you retire and want to take a distribution (a chunk out), that money is yours – The Gov’t cant tax you again on it!

Bucket Two: Savings

Wait, I thought Retirement was savings. Yes –  that is true, but what you save for retirement is what you will live off of when you are older. Here, we are talking about some of items on your major Big Kid List. Traditionally, people like to to have some bigger savings goals for things like a:

  • House
  • Wedding

These tend to be 5-10 year horizons. I like to put this money into a brokerage account and invest it. WOAH, a what? Brokerage account: an investment account where you can buy stocks, bonds, mutual funds, index funds, etc. But I don’t know how to invest! Its okay, you can follow a Stock Market investment newsletter (like Motley Fool – my fav!) or invest in something you know (like Marvel, GE, Nike, etc), or if you want to distribute your money across the investing world, try a mutual fund (a group of stocks nicely wrapped in one) or an index fund.

Still a lot of work? Yes it can be. Not your forte but you still want to save? Try a Betterment account where you can set your goal and they will adjust as you get closer to your goal target date.

I like to keep my savings in investment accounts because you still have the opportunity to grow your money versus having it sit in a traditional savings account with little to no benefits.

There are of course smaller savings goals like building an emergency fund, a fun fund, or a travel fund. These can be funded in 1-2 years and should be replenished after it is drained.

Smaller savings

  • Emergency (3-6 months of expenses covered)
  • Fun Fund ($1k or more to spend however you WANT)
  • Travel ($1k-$2k if you want to travel internationally or $500-$750 if you want to travel across states)

Now say you have checked off all of the above items. Nice job! You doing more than 85% of your Millennial peers. The last bucket is how you can grow your wealth through investing.

 

Bucket Three: Investing

  • Growing your wealth

You can grow your wealth through investing in the stock market, in real estate, in business, in art, or collectables. You can even grow your wealth by investing in yourself. Get another degree or take some classes or join a work association. All of these investments could allow you to earn more, thus growing your wealth.

All of these are easier said than done, but half the battle is having the knowledge and the direction where to go. Its better late than never to start growing your financial future.

Top 3 Robo Advisors For Easy Investing

Are you ready to invest but don’t quite know where to start? A robo advisor might be right up your alley. Some believe that a robo advisor is the next generation of investing. Some believe it is convenient. And for others, it might be a great vehicle to learn more about investing when they are beginners.

Robo advisors are a type of advisor that provides portfolio management with little to no human interaction, allowing them them to charge low fees. Essentially, a smart algorithm takes your money (some as low as $100) and invests it for you. Wha-la and done! Most robo advisors invest in Bonds, Mutual Funds, Index Funds, etc.

So who are the top players? Here is an overview of some of the more notable robo-advisors.

 

Betterment

Betterment Review: Nerdwallet

-Costs to open: $0

-Fees: $0-$10k is $3/mo without auto deposit. $10k-100k is .25% annually, $100k+ is .15% annually.

-Set goals for your investments (Safety Net, Retirement, General Investing)

-Auto-deposits

-Includes Tax Loss Harvesting

– 12 Asset Classes/Allocations

 

 

 

 

 

 

Wealthfront

Wealthfront Review: Nerdwallet

-Costs to open: $500

-Fees: First $10k managed for free. .25% annual advisory fee.

-Auto-deposits

-Includes Tax Loss Harvesting

-11 Asset Classes/Allocations

 

 

 

 

 

 

 

 

 

Schwab Intelligent Portfolios

Schwab Intelligent Portfolio Review: Nerdwallet

-Costs to open: $5k

-Fees: $0 Advisory Fees

-Includes Tax Loss Harvesting ($50k minimum)

-54 Asset Classes/Allocations

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