The biggest change has been the uptick in Tara’s business. Tara started a small business right around when Rhett was born, but just recently has started to pump a lot of time and energy into it. Things have gone really well for her and continues to be a good thing for our family. Check out her shop here. 

We refinanced our home.

Mortgage rates continue to drop to record low levels and home prices continue to rise in the area we live in. Our home appreciated $80k in value a year and half after we bought it! The refinance lowered our payment and got rid of PMI. With the renters in our basement, our portion of the mortgage is now only $600 :). Having the smaller payment has allowed us to save more, have more fun and enjoy our home more. Our home has been such a blessing to us. 

Covid-19.

Like everyone in the world, we were highly affected by covid-19. My job at BYU decided to make everyone who could, work from home. Luckily for me, I was already making a plan to work from home before everything went down so I was ready to make it happen. I moved my entire office setup to Tara’s crafts room and have loved being home all the time. Working from home has definitely changed my outlook on my job and the future of my job. I have so much flexibility because of this and I love it! If I want to eat lunch with Tara and the boys, I just walk upstairs and can be back to work at a moment’s notice. I also can work from anywhere in the US. In fact, I took 8 days to go to Idaho and worked from there. One of the bright spots of this dumb virus!

Investments.

Almost all of my investments took a sharp decline because of covid-19 and the subsequent “recession”. In March, I saw most of my investments go negative before bouncing back to new highs this August. The market has been acting strangely in my opinion. It certainly made sense for the market to drop when everything shut down because of the virus, but it didn’t make sense when the market quickly rebounded despite record highs for unemployment. There was definitely a lot of pessimism to go around, but the stock market kept chugging along. Most recently, however, the market took another sharp decline and may continue with the election tomorrow. 

Net worth.

Our net worth has grown since the last time I gave an update. Our home continues to grow in value and our investments rebounded from the downturn. Accounting for our home value minus what we owe plus our current investments + cash, our net worth is now $133,680. Not bad for being negative in early 2017. 

Thanks for reading! If you have any questions or any future articles you would like from us, please feel free to leave a comment below, or email us at thefundfamily@gmail.com

Index Funds

My #1 choice for investment strategy relies on index fund and more specifically, total stock market index funds. I buy 2 different index funds called VTI and FZROX. Both are basically the same; they cover the entire stock market in the USA. There are a few reason I choose these funds over everything else.

1. Low Fees
2. They don’t charge commissions to buy
3. I understand them
4. I can manage them myself, without having to pay someone

Low Fees

VTI currently has an expense ratio of .03% and no commissions to trade. The .03% ER makes it so you only pay 30 cents per $1,000. FZROX has zero fees. That’s right, ZERO. Because of that, I’ve started putting most of my money into FZROX.

I have always believed that I am the sole person who will take care of my money the best. I don’t want to trust anyone else with my money because they won’t treat it as carefully as I will. Paying someone else to take care of MY money makes no sense, especially if I can do it for free. Vanguard and Fidelity make that very easy.

Understanding Index Funds

One of the biggest deterrents for people not managing their own investment accounts is their lack knowledge. You could spend loads of time trying to understand yield curves and R squared. I try to stick to some basic truths. JL Collins has the best series on stock market advice. I highly recommend reading his series. I follow the same beliefs and would recommend them to anyone.

There are a couple of things to look for when in index funds. 1. The price.

There are a couple of ways to find the price. You can simply google the ticker name (FZROX) and it should pull up with the current price. Or you can go on the site where you will purchase it and search for it there.

2. Risk Potential.

Stocks are “risky”. When you buy index funds, there is always the chance that you could lose money. My advice would be to go into buying index funds with the idea that you are in for the long-haul. “The market always goes back up” -JL Collins.

3. Portfolio Composition.

It’s always a good thing to know what you are buying before you buy it. The portfolio composition has a list of companies in the fund and a list of categories those companies belong to.

4. Rate of Return.

This may be the most important thing to know! How much money can you make on the index funds that you buy?

If you already own VTI or FZROX, you can look in your portfolio for balances and rate of return:

Active v. Passive Investing

There is much debate over which approach is better. Because I don’t have vast amounts of knowledge on investing strategies, I try to keep it simple. I also don’t plan to use my money anytime soon so I can leave my money invested, without having to worry about it.

These are some of the basics to picking winning investments. This approach has allowed me to grow my net worth in the past 3 years from -$10k to $35k. Not only has it grown $45k, I also get to keep most of it since I am not paying commissions or hefty fees.

I would love to help you start investing! Feel free to email me at thefundfamily@gmail.com or comment on this post. Let me know what you do to invest as well!

KIDS!

Shortly after I got my job at BYU Tara and I got pregnant with our first child, Rhett. One of the best things about working at BYU has been the benefits, especially the health care benefits. We’ve always wanted to have kids, but having good insurance made it a lot less stressful on us financially. Rhett was born October 2017 and then 21 months later, Jack was born in July 2019. I am super grateful that I have been able to provide a solid foundation financially for them because of my job.

We Got out of Debt

3 years ago, we were in a small amount of debt and had zero assets. Our debt came from two sources: a car loan and a student loan that amounted to about $10k. Because of this job, we were able to get out of debt and start putting money in our asset column.

We Grew Our Assets

Once we were out of debt, we started saving aggressively. I wrote an article back in August 2018 on how we save 40% of our income every month. We have been pretty consistent at saving close to that every month, despite buying our first home in November that same year. Once we bought our home, our focus shifted from high yield savings to index fund investing. We were already putting money away into my 401k every month, but we wanted to have more short-term investments. We started putting more money into our Vanguard account where we buy an index fund called VTI. Most recently, however, we started putting more money into a Fidelity index fund called FZROX (I plan on writing another article on this soon). Because of good market conditions and our aggressive savings rate, I’m happy to say that we now have over $35,000 in investments! In 3 years we went from -$10k to $35k, a $45,000 difference. Tara and I are super happy with where we are at, but feel like we can accomplish so much more!

We Were Able to Travel

Tara and I have always wanted to travel the world, but haven’t really had the money to do so. BYU has given us those opportunities. They offer 22 vacation days a year that also include 12 paid holidays. Those vacation days carry over every year which often means we have lots of extra time left over. Not only do I get vacation days, BYU sends me on work trips that I can bring the family along for. Our trips have included Italy, Disneyworld and an upcoming trip to Cancun.

How I view “jobs” now

My job here has been a huge blessing in our lives in a lot of different areas. It really has laid the foundation for us to grow in so many different aspects of our lives, not just financially. Having said that, I still realize that long-term I don’t want to have a “job”. Working at BYU may be the best case scenario for me, but I still want to have financial freedom one day and the ability to say: “I don’t have to rely on this job”.

Our long-term goal is still the same: we want to be financial independent. My job here at BYU has been the biggest catalyst in us getting closer to that goal and we are super grateful for that! It has been really nice being able to reflect on my 3 year work anniversary and all the things that have changed!

Avoid Debt.

We hope that this will be something that you guys (our kids) will get sick of hearing from us. Avoiding debt also helps teach important lessons about saving and interest. Our hope is to help them not be “normal” as Dave Ramsey would describe and think of debt as a burden, not a ticket into the “good life”.

Save first, Spend Later.

One of the best things we’ve done with our money, is made our saving automatic. Every month, money is deducted from our accounts and added to our “FU” money accounts and our investment accounts. Every month we do this, our money continues to grow. It has helped us not worry about having enough money to save at the end of the month because it forces us to live off of what is left after saving.

Learn How to Budget.

Budgeting is such a simple thing, but is so easy to overlook. It’s amazing to see the difference between the months when we budget and the months we don’t. Making and keeping to your budget will even make spending money the things you want a lot more fun. It takes away the guilt that can sometimes come with purchases because you know you have planned to spend that money.

Invest.

Investing doesn’t have to be complicated. You can learn a few easy techniques and do it all yourself. Doing it yourself will save you lots of money in the long run because you won’t be paying someone else to do it. Just like with saving, always be putting money away before you spend it. 

Learn to be Frugal.

There will be times in your lives when you won’t have loads of cash. Being frugal is the best way to make your money last a long time. Even when you are making loads of cash, being frugal is an excellent way to keep that cash around. Your mom and I have been through times where we had to stretch every dollar we had. Luckily both of us are naturally frugal people, but it is something that can be learned and perfected. Best way to practice this is to budget.

Always Be Learning.

There is always going to be new things to learn and keep up with, especially when it comes to financial literacy. Your mom and I love to listen to audiobooks to help us stay motivated and on the right path. Never be complacent. 

We hope that this will be something that will be taught in our family by example. Some of the best lessons we have learned in life have been through watching our parents. We will probably make mistakes as we go through our financial paths, but hopefully we can provide you with the best tools to make your own financial path successful. 

We love you!

Mom and Dad

We Bought a House

In October 2018, we bought our first house. We had been saving up for quite a while and were happy to finally find something that fit in our price range. If you haven’t read about how we got our home, read it here.

While our house has been really nice to have, it has also stood as our biggest hindrance to FI. Our mortgage is the biggest expense we have and the only debt we have. Tara and I have talked on multiple occasions and have agreed that paying off our house is our top priority going forward. This follows Dave Ramsey’s baby step 6 and is the second to last baby step.

We’ve done our best to make sure our home is a blessing and not a burden. The best thing we’ve done is remodel our basement to have a mother-in-law apartment that we rent out. This helps offset our mortgage costs and helps us save for other things. To read about the remodel process, go here.

We Invest and Save

Ever since we got married, Tara and I have always had a really high savings rate. After we paid off all of our debt in 2017, we started to invest very seriously too. In total, we invest or save about 30% of our income. Our favorite investment is an index fund called VTI through Vanguard. We use that for our personal investments, as well as for our two sons’ college/mission funds. 

We welcomed another son into our family last week, but have already been saving for his future. It was decided early on that we would start saving for both of them even before they were born. As of right now, we put $50 for each son into Vanguard. My goal is to up that amount to $100 each in a year. We aren’t sure how we want to go about giving our sons that money yet, but are open to suggestions if anyone has them.

I recently discovered a new index fund called FZROX through Fidelity. They are a total stock market index fund just like VTI, but have ZERO fees. I also like how they are only $10 per share, but I’m not sold on moving all my money over to it yet. I will write an article on it soon to go over my experience thus far. 

A big chunk of our saving is going towards FU money. If you don’t know what FU money is, read more about it here. Not only does FU money help in unplanned emergencies, it also gives peace of mind. Tara and I both agree that having a big chunk of cash lying around would feel really nice, so we’ve put a decent amount of money towards that. 

I put our FU money into Marcus for a while until just recently when they lowered their rate from 2.25% to 2.15%. Which I was happy with them for the most part, but another account I had with Wealthfront had just announced that they were offering 2.57%, so I decided to switch over. I still have my account open with Marcus, so I may go back at some point. 

My 401k continues to grow. I put in 5% to get the 4% match. I am not super fond of the investment options that they provide nor the fees they take, but you can’t beat a 4% instant return. My work also provides a free 3.5% of your salary every month that helps out. 

I got a raise at work

In February I got a raise at work. 10% increase. I was pretty excited, especially since I didn’t expect it to be such a big increase. I like what I do at my job a lot and can see myself staying there for 5 more years or so. My work also has a pension plan if you stay for 5 years (I have been there 2.5 years). Plus, they have really good benefits that allows me to have babies without breaking the bank. 

 We cut back spending

A few times this year, Tara and I have had a “no-spend” month. We basically only spend money on the essentials like food and gas for an entire month. We aren’t perfect at this because we often get invited to something like a birthday dinner and don’t want to turn it down. 

These no-spend months help keep our expenses in check. We aren’t typically big spenders anyways, but we do love to eat out. We usually end up with an extra $500-$1,000 the month we do these and we highly recommend trying it!

Passive income and Side hustling

Although this hasn’t had a huge impact, we have started making some money on the side. Our blog has earned about $200 since the start of 2019 and continues to make us a little bit of money. 

Tara started a business selling home-sewn baby clothes called Baby Gowns Co. She launched her business about a month ago and has been able to make decent money.

I have also been referring businesses to a company that processes credit cards for merchant accounts and gives me a portion of every business I refer on a monthly basis. 

Besides saving more FU money, accruing passive income has been our 2nd most priority. Passive income and FI go hand in hand and is one of the fastest ways to get out of the “rat race” and into FI. Hopefully we will have more updates on this to come. 

Net Worth

I’m not totally sure how to calculate our net worth with our house. I’ve seen some people only calculate the debt portion while others subtract the home’s worth by what they owe. For now, I am not going to include our home in our net worth.

Our liquid net worth has grown substantially since we started blogging in 2018. There’s been some market volatility, but that really hasn’t hurt us too much. Plus, having a decent chunk of our money in online savings accounts has made it so they haven’t been touched much. 

We plan on continuing to have increases in our net worth from year to year, just like this year. With our savings rate and compound interest, we will start to grow substantially in the coming years. 

Thanks for reading! We have really enjoyed being able to share our road to FI with you and hope you have enjoyed it too. If you have questions for us, feel free to comment below or email us at thefundfamily@gmail.com. Feel free to share your road to FI as well. 

I really enjoy this book and would highly recommend it to anyone who wants to become wealthy in the simplest way possible. Collins lays out complicated things, like investing, into very simple terms and makes it easy to understand. I love everything he teaches and follow it closely. Here’s some of the main points of what he teaches and how we apply it.

Avoid debt

This one is pretty self-explanatory, but is always a good reminder. The main point that JL Collins makes is that debt will seriously inhibit your path to wealth and should be avoided as much as possible. “Carrying debt is as appealing as being covered with leeches, and has much the same effect.”

Build up “FU” money

FU money grants you the ability to have options and to be able to say “no”. This is probably my favorite concept of his. I love the idea of being able to have my options open and a good amount of money set aside.

The market always goes up

The stock market is a volatile but through those years of volatility, it has always managed to go up. If you view your investments as long term, you will be far better off than trying to time the market.

You can invest on your own, without an advisor

Collins suggests investing in Vanguard funds and doing it by yourself. With a little bit of knowledge about index funds, you can easily manage your own portfolio, without having to pay advisors. Collins suggest a total stock market index fund called VTSAX or a similar one (we buy VTI).

This book may be the only book you will ever need to meet your financial needs. It’s simple, yet gives you essential knowledge for wealth building. To buy the book you can find it on audible or with the link below. Leave comments if you have any questions or if you’ve read the book already.

We were prepared

Luckily, a few years before, Tara and I had decided that we needed to prepare for something like this to happen. We had started an emergency fund and made sure that it would be enough to sustain us for a few months. This extra money gave us peace of mind and made my job loss a lot less painful.

We knew the emergency fund wouldn’t last and promptly decided that I would need a new ways to make income. The first thing I did was file for unemployment. This was a hard decision for me because there is a stereotype and stigma around unemployment, but this is what the system is for- to temporarily help people who need it. This gave us a portion of the income that we had expected while I was working and helped us while I searched and worked towards a new job.

Tara had a part time job at the time, but was able to pick up a few extra shifts to help with expenses. That extra income was a huge help!

Immediately started looking for new options

It was at this time that I decided that I wanted to explore a new field. The one I had been working in wasn’t what I had hoped it would be and I needed a fresh start. One day, a letter came in the mail advertising a master’s program for web development. I had worked in computers before and it was always something I was interested in and felt good at, so I investigated as to what it would take to get a job in that field. I quickly learned that it was something that didn’t require a specific degree and that I could teach myself how to do it. My dad was instrumental at getting me started on the right path by pointing me to places like freecodecamp.org and codecademy.com. Once he introduced me to these sites, I was hooked. Instead of working 8 hour days, I was studying and practicing code.

Within 3 months of studying, I was introduced to a man who worked at the university nearby. He asked me about what I was studying, the experience I had and told me about the openings they had in the universities IT department. He said that they usually will hire people without a lot of experience and urged me to apply. I had never thought that I would be someone that could get a job at a university, especially having very little experience in that field, but  I followed his advice and applied. After 4 different interviews, I was offered the job with about triple the salary I’d been making at my previous job.

Why being let go was one of the best things to happen to me

This job allowed Tara and I to become debt free, start investing, go on cool vacations and do so much more with our lives. We are about to buy our first house and all this was made possible because I was let go. I look back and think of where I might be today if I had stayed in that job and “comfort zone”, even if it wasn’t something I enjoyed or even wanted, and I can’t help but be grateful for how things have worked out. That is why being let go was one of the best things to happen to me.

Thanks for reading! I would love to hear if you have ever had a similar experience or situation. Leave us a comment below and make sure to follow us on your favorite social media platforms.

“By failing to prepare, you are preparing to fail”

Benjamin Franklin

Before we dive in, let’s revisit the idea of financial independence. This may or may not be a phrase you are familiar with, but it is one that is a consistent theme in our blog. Financial independence means something different for everyone, but for my wife and me, it means having the flexibility to do what we want when we want. It means having our money work for us so we don’t have to trade our time for money our whole lives. It means freeing up our time to spend it more with family and less in the business world. Regardless of what financial independence means to you, it is going to take work. A lot of it. It is going to take learning, preparation, and dedication. But it helps to get a jump start of managing your money properly. This is why we’ve categorized four essential funds to help people create financial safety nets, build wealth, and enjoy life along the way.

So without further delay, here are the four essential funds you should start right now, in order of priority and importance!

Emergency Fund

If you don’t already have an emergency fund, this should be your first and only priority until you have at least $1,000 saved up for a rainy day. Just last year, life hit us pretty hard. We just incurred a bunch of  unexpected hospital bills relating to our daughter’s birth, then the catalytic converter in my car needed to be replaced, shortly thereafter my clutch started going out, and on top of that all, I had graduate tuition to pay for the upcoming semester. That was a lot of money in a short amount of time. Luckily, we had an emergency fund that helped soften the blow quite a bit.

Start making a conscious effort to put money aside until you build up that $1,000, then continue until that $1,000 becomes three months worth of living expenses. Life comes at you fast, but if you are prepared, it won’t be the end of the world.

Check out Casey’s article on 5 Reasons Why You Need an Emergency Fund Now for more tips and suggestions on building your emergency fund!

Investment Fund

Whenever I think of investing, I think of the parable of the talents found in Book of Matthew in the New Testament. The parable talks about a man who gave a certain amount of talents to his servants according to their abilities. To one he gave five, to another two, and to the last he gave just one. The man then traveled away for a season and came back to see what his servants had done with these talents. The servants who had received five and two talents both doubled their lots, but the servant who only had one remained with one. Why? Because he was scared and buried his talents.

Now, this can be interpreted many ways, but when it comes to investing, I view the talents as the money these servants had earned. They didn’t all earn equally, but they all had equal opportunities to double what they had earned. Although the servant with one talent could’ve done the same, he let his fears get the best of him and he buried his money away where it did him no good. I think it’s easy for us to have these same fears. “What if the stock market crashes again?” “What if I make a bad investment?” These are all legitimate concerns, but we would be foolish to only put our money in places where it is literally losing value due to inflation, like a savings account.  Or even worse, just live paycheck-to-paycheck because we we are too enticed by the newest gadgets that we forget to invest for the future.

Don’t just work for money, let your money work for you! Getting started with investing isn’t that hard and it makes all the difference. I love the thrill of investing and watching my money grow. Sometimes it loses value too, but that’s ok because the market always goes up. Wherever you are at now, start putting aside money from every paycheck. Eventually, work up to be able to put 15-20% into investments. You’ll be glad you did!

Check out this article on 6 Principles for Successful Investing and this article for why Vanguard is a great option to get started! And keep an eye out for our future posts about how to pick winning investments!

Fun Fund

Now that we have addressed the two most important funds for building financial flexibility and wealth, let’s focus on what we all actually want to put our money towards: DOING FUN STUFF!! While we are definitely proponents of making wise financial decisions and saving money, don’t forget that life is short. Have fun along the way! Set aside money from each paycheck to be able to go and do fun things you enjoy, that way you aren’t taking money away from other aspects of your finances to pursue our hobbies.

If your hobbies are inexpensive, all the power to you! I recently listened to a podcast where this individual talked about how all of his hobbies required an upfront investment that wasn’t necessarily cheap, but allowed him to have loads of free fun once that investment was made. Camping, mountain biking, photography, paddleboarding, and many other things are all great examples of this! And having a fun fund to utilize to make these investments can make all the difference in your path to becoming financially independent.

Vacation Fund

If you follow us, you know that we all love to travel. Sometimes I feel like I work to fund my travels. So building off the fun fund, don’t forget to plan and save for vacations! Vacationing is something that has really strengthened our marriage. We love to get out and experience the world. It seems like the minute we get back from a vacation, we are immediately wanting to figure out where to go next. One thing we are going to work on going forward is planning further ahead so we can more adequately save for these trips over longer periods of time. If I know we are going to have a trip in a year that costs $1,200, then I know that I need to save $100 a month until that time so that no money will come from any form of savings we have.

If traveling far away from home isn’t your thing or it’s not in the cards with your current financial situation, don’t forget the option of discovering your own backyard!

I fully plan on retiring some day. I plan on traveling the world with my wife once that’s the case. But we often talk about how life is short and you never know what your circumstances are going to be when, or even if, you get to that age. We want to have fun and experience the world along the way! That is why this is an essential fund we continually work on now!

Let’s recap! First, work on your emergency fund. The last thing you want is a car fix or an emergency hospital visit to break your bank account and leave you desperate. Once you feel comfortable with your emergency fund, start building your investment fund and work up to saving 15-20% and investing it somewhere where your money will work for you. Don’t stop investing in this fund until you are retired! All along the way of becoming financially independent, don’t forget to have fun and vacation! Set aside money to be able to do this without hurting your other financial goals.

With these funds in place, you will be living life and enjoying the journey to financial independence! Do you have any other funds you would add to this list? Let us know in the comments below.

FEES

The number one reason why we invest with Vanguard is because of their low fees. They don’t charge commissions for trading, which separates them from the rest of the pack.

The only thing you pay for when buying and trading Vanguard funds is their expense ratio.

For the index fund that I buy, VTI, I only pay .04%. Some funds have an expense ratio of .1% for comparison. I’m sure it comes to no surprise that the less fees you pay, the more money you get to keep. Having the low fees from Vanguard seems like a no-brainer when it comes down to making more money.

You are in control

With Vanguard funds, I am in charge of where my money goes. I have always believed that I am the sole person who will take care of my money the best. I don’t want to trust anyone else with my money because they won’t treat it as carefully as I will.  Sure, there is more responsibility on my shoulders to make the most of my investments, but that’s something I’m comfortable with. Many people use financial planners to invest for them, but Vanguard easily takes out the middleman and allows you to do it on your own, which saves you lots of money.

Free education

Vanguard provides plenty of resources to learn about what you are investing in. They breakdown most everything to make it simple and easy to understand. I don’t have a degree in finance, nor do I spend copious amounts of time studying things related to finance, but Vanguard makes it easy to understand.

Returns

The Index fund that I have most of my investment in, VTI, has performed well for me. This index fund covers the entire stock market in the US, which allows me to not worry about things like timing the market or researching companies in depth. If you are like me, we don’t have the time to do that.

These are the main reasons why we invest with Vanguard. If you would like help setting up a Vanguard account, or if you have any general questions about investing, feel free to ask below in the comments, or send us an email at thefundfamly@gmail.com and we will walk you through it all.

Investing doesn’t have to be complicated and you don’t need any fancy degree or work experience to do it.  Anyone can be successful at it too! But to be successful, you need to understand some core principles behind investing. Below are 6 simple principles that will help anyone succeed when investing! Take a look and let us know if you have any additional principles you follow!

1. Start early 

The earlier you start investing, the more compounding interest will take effect and benefit you big time. Compounding interest, put simply, is interest earning more interest. As your interest earns interest, linear growth becomes exponential and suddenly the dollar you originally invested is worth much, much more.

For example, the graph below shows two different investors. One invested $10,000 (“Investor A”), the other $35,000 (“Investor B”), assuming a 10% annual growth rate. Can you guess which line is which?

If you guessed the blue line is Investor A, then you are absolutely right! How is this possible? By starting early, and letting compounding interest do its thing. In this example, Investor A put aside $1,000/year from age 21-30 and never put aside another dime. Investor B started investing at 31, also putting aside $1,000/year, and invested until he/she was 65. Investor A’s $10,000 investment was able to gain more momentum and capture the positive effects of compounding interest more than Investor B, who ended up investing more over a lifetime. This goes to show, we need to start early! (And really, we should be a mixture of the two investors by not only starting early, but continuing to invest the money throughout our lives, and not just for a few years.)

Ideally, we all should’ve started investing as kids, but if you are anything like me, you had no idea investing was a thing, let alone knew how to do it. But it’s not too late to start now, regardless of how old or young you are. Investor B may not be as well off as Investor A, but Investor B’s $35,000 still turned into almost $300,000! So wherever you are at in life, just start ASAP!

2. Diversify

Let me tell you a tale of two stocks from personal experience.

Stock 1:

I had known that I wanted to invest for a while now, but lack of know-how kept me from doing so. Finally, I had a friend kind of show me the ropes a little bit and I went for it. One of the first things I invested in was a stock of a company that I only knew because I knew and respected one of the VPs. I didn’t really know what the company actually did. At the time, the stock was trading for about $35/share and I bought around 11 shares. In the first month or two, things were great! My investment went up by $20 or so and it felt great. Then the volatility and reality of stocks showed its ugly face and over the next few months, the investment went from trading in the mid-$30s to a whomping low of about $12. I had seen my investment lose roughly 65% of its value in probably less than year. Yikes! It took another year or two just to break even, and at that time I cashed out as fast as I could.

Stock 2:

Fast forward a year or two from the investment in the first stock. I had learned a bit more about investing and had made better choices since then. One day, I happened to look into Apple’s stock and noticed that it had dropped to about $99 a share, when it had once traded for much more than that. I decided to jump on that and purchased a grand total of 1 share! But hey, I was a poor college student, so I couldn’t do much more. I held that stock for almost two years, and during that time I watched that stock go from $99 to about $176 when I finally sold it. That was awesome! Easiest money I’ve ever made.

So why do I tell these stories? Well, quite simply because I wouldn’t recommend investing in stocks at all. Sure, one experience was positive, but the other one was quite painful. Principle #2 is all about diversifying. What are we diversifying exactly? We aren’t just trying to diversify what we own, we are trying to diversify risk. Owning stock in a single company is by definition, the opposite of diversifying your risk. You are literally putting all your eggs in one basket, hoping that the basket doesn’t fail you. So if you decide you want to invest in stocks, keep this in mind.

In order to diversify risk, you want to own a variety of shares in companies that are in a variety of industries. This means, not investing all of your money in technology alone, but investing in utilities, consumer products, etc. The easiest way to diversify your risk is through mutual funds or ETFs that track indexes such as the S&P 500.  A little research can go a long way when it comes to diversifying risk. We will have future articles outlining how to do this research and try to make it as simple as possible!

Now, keep in mind there will always be some form of risk involved. But without risk, there is no reward. The key is being wise about the risks you take.

3. Seek low-fee investments

The last thing you want for your investments is to see a lot of value lost through high management fees or other expenses. This is why you want to find ETFs (exchange-traded funds) and Mutual Funds that have low management fees and expenses. Anytime you look up a ticker symbol of an ETF or Mutual Fund, it will tell you the fee rate. It doesn’t take a genius to know you want this number as low as possible.

ETFs that track an index (such as “SPY”) generally have very low expense rates that can be less than 0.1%. This is due to the fact that they are not actively managed by fund managers who are trying to outperform the market (and who usually fail to do so). A good rule of thumb is to try to find funds that have net expense ratios of 0.6% or less, but the lower you can get this, the less money you’ll lose on fees with your investment.

4. Avoid investment vehicles you don’t understand

If you read our Steps to Wealth Building article, you know we are fans of K.I.S.S. (keep it simple stupid), and the same applies here. Complicated investments are rarely worth it. Most of the time people are just taking advantage of others’ ignorance and making a fortune off of fees and commissions. Investing in the market as a whole is a simple way to invest and it’s proven to be a great long-term investment. You don’t need complicated. If you don’t understand the investment, chances are it’s not worth it.

5. Take advantage of employer matches on 401(k).

This is pretty simple: any employer match is an immediate return on investment. So take advantage of this! Our recommendation is to invest just enough in the 401(k) to receive the maximum match. The rest of your investment should target tax-advantaged instruments such as Roth IRAs.

6. Invest for the long-term

Remember, investing isn’t about right now, it isn’t about 5 years from now: it’s about the long-term! So try not to get too caught up in the natural volatility of the overall market. Things happen, prices change. But in the end, the market always goes up. Check out this graph of Gross Domestic Product (GDP) over the last 40 years.

GDP is a measure of overall economic and market health and the graph shows that is has always trended upward.  The gray bars that occur periodically are recessions and their respective lengths. You’ll notice that recessions seem to happen every 5 or 10 years. This can be scary for a lot of people wanting to invest. But this shouldn’t stop you from investing. Recessions happen, but if you keep your mind-set on the long-term, these recessions shouldn’t phase you. Invest, and let your investments sit. They will assuredly rise and fall, but in the end, the market always goes up.

The other big reason to invest for the long-term, is to take advantage of tax law. Any investment held over 1 year is no longer subject to your ordinary income tax rate, but will now be subject to a much more favorable capital gains tax rate once the investment is sold.

As the table shows, the capital gain rates are much more favorable than ordinary income tax rates. So make sure that when you invest, that you hold it longer than a year if possible! Keep more money in your pocket.

Recap

Let’s do a quick recap of our 6 principles for successful investing:

1. Start early
2. Diversify
3. Seek low-fee investments
4. Avoid investments you don’t understand
5. Take advantage of employer matches on 401(k)
6. Invest for the long-term

These are simple principles that will help you to become a wise investor. Look out for our future articles that will go more into detail about investment strategies, and investment research!

Are there any other principles you abide by when investing? Comment below!