Day 4: Grow Money–Investing for your future

Well, you are halfway through!

Welcome to Day 4 of the 7-Day Financial Wellness Kickstart series! 

If you haven’t read Day 3, click here to review

Today, you’ll learn how to grow money–make money with money–through investing. You might already be investing, so this lesson will become a refresher. But I’m sure you’ll also learn something new. 

Day 4 Money mantraI am an investor.

To some, investing in the stock market is scary and mystifying. I’ve also heard many say that it’s not for them or that they don’t have enough money to invest. 

I want you to know that investing is for everyone. You are capable of investing. And you’re likely already investing too.

If you’re saving money in an account that is earning interest, you’re investing, albeit with minimal returns. If you’re contributing to an employer-sponsored retirement plan like a 401(k) plan, then you’re investing.

In today’s lesson, we’ll focus on investing in the stock market as a strategy to grow money.

I think of investing in stages: for starters, for retirement, and for independence. This lesson is focused on starting, but check the additional resources section for retirement and independence-focused investing strategies.

Before we dive in, I want to say that everything shared is for educational purposes only. And I do recommend you continue to do your homework and seek professional expert advice for your particular situation. 

Okay, with that out of the way, let’s start with some basic terminology.

In simple terms, investing is buying anything that you expect will increase in value and be sold for a profit. You could also think of it as money in a savings account that earns interest. But for this lesson, you’ll learn about investing in the stock market.

The stock market is the general term for the organized trading of stocks through exchanges, over-the-counter, and computerized trading venues. Examples include the New York Stock Exchange and Nasdaq.

Can you really afford to invest? Here’s some good news: things have changed, and most people, including you, can invest with as little as $5.

What to invest in?

You have options, so I’ll break it down for you.

Stocks: a stock represents an ownership stake in a company. The amount of shares owned is the percentage of ownership in a company. Investors purchase shares of companies they believe will be successful and that their shares can be sold at a higher price in the future.

Mutual funds: a mutual fund is an investment tool that pools the money of many shareholders and invests it in a diversified portfolio of securities, such as stocks, bonds, and money market assets. Mutual funds are actively managed and often have higher fees.

Index funds: a type of mutual fund whose investment strategy is to achieve approximately the same return as a particular market index, such as the Standard & Poor’s 500 Index or the Russell 2000 Index, and others. Index funds are generally considered passive investments with lower fees than mutual funds.

Exchange-traded funds or ETFs: a type of investment similar to an index fund except shares in the fund are traded on a stock exchange–bought and sold during market hours. 

Bonds: A bond is a debt security, similar to an IOU. When you buy a bond, you are lending money to the issuer. In return for the loan, the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the principal when it “matures,” or comes due. Some examples include government-issued treasury bonds.

Now that you know the types of investments, how can you start?

How to invest?

You have two account options: tax-advantaged accounts and taxable brokerage accounts.

Tax-advantaged accounts are associated with retirement plans. These accounts enable you to invest in the stock market with tax advantages given by the IRS. The goal is to encourage workers to save for retirement. The most common types are 401(k) plans and IRAs (Traditional and Roth).

In contrast, taxable brokerage accounts don’t have tax advantages. But these accounts allow you to invest in the stock market without contribution limits. Investors use it as part of a wealth creation strategy.

Whether you’re using tax-advantaged or taxable accounts, you have the option of choosing where to invest your money.

Here is a suggested priority list:

  1. Tax-advantaged accounts such as an employer-sponsored retirement plan (401(k), 403(b), 457, TSP, etc). 
  2. Roth IRA (max out your investment contribution per IRS rules).
  3. Taxable accounts (offered by online brokerages that allow you to buy/sell stocks and funds without IRS contribution limits).

Regardless of whether you choose retirement accounts or taxable brokerage accounts, you have the option of choosing where to invest your money.

Where to invest your money?

It all depends on your risk tolerance and commitment to research and executing trades. 

For many, a simpler strategy of buying index funds helps them passively create wealth through inherent diversification and lower risks. However, stocks that are chosen with luck and perfect timing (which are hard to do) can have big rewards.

There are many investing strategies, but we will stick with the basics that work for most successful investors.

Generally, this means investing in funds as opposed to individual stocks. Warren Buffet famously said that low-cost index funds tracking the S&P 500 were the best investment for most Americans. He also said if you believe in a company’s long-term growth, then choosing individual stocks can work out well.

If you want to keep things simple, then build your portfolio with low-cost index funds or ETFs. However, if buying individual stocks is appealing, learn how to research stocks and read charts and reports. 

When to invest?

There’s “no perfect” time to invest. Just start. Some investors have shared the following: 

  • Participate in your employer-sponsored plan first. Contribute the percentage to get the full employer-matching contributions, if offered. Make it simple and choose a target date fund offered by the 401(k) plan.
  • Then, invest up to the annual IRS maximum contribution limit into a Roth IRA. Make sure you invest the contribution (select your investments), not just deposit it into an account. You can choose an index fund or ETF as your investments in your IRA.
  • Finally, use a taxable account to invest for independence and regain back your time. 

Again, everything shared is for educational purposes only. Your salary and income can affect tax-advantage benefits with IRAs. I do recommend you continue to do your homework and seek professional expert advice for your particular situation. 

Day 4 Assignment

Today’s assignment is to get you to think like an investor.

  1. Review your retirement plan. Log into your 401(k) plan or similar account and note the balance, contribution percentage, and annual gains.

Don’t have a retirement plan? If you’re employed, speak with your Human Resources manager to enroll. If you’re currently unemployed, consider opening a taxable brokerage account (see additional reading).

Breathwork exercise: 4-to-4 breathing
Breathwork can quickly and positively affect your feelings.

Today’s practice is the 4:4 breathwork. You’ll inhale deeply for 4 counts and exhale slowly for 4 counts. Repeat 5 times.

1. Take a comfortable seated position and plant your feet on the floor.
2. Relax your shoulders.
3. Envision the tension between your eyebrows to release.
4. Take a deep breath in through the nose for 4 (count up: 1, 2, 3, 4).
5. Pause at the top for 1 count.
6. Release the breath slowly through the nose for 4 (count down: 4, 3, 2, 1).
7. Repeat 4 more times.

Progress check-in

In this lesson, you learned investing fundamentals and the importance of growing your money. You should also have reviewed your retirement plan. 

And that’s it for today! See you tomorrow for Day 5.

With you on the journey,

Jason

Author of Happy Money Happy Life and Founder of The Smile Money

Additional reading

How to invest your first $100

How to invest for retirement

How to invest for financial independence

Helpful resources

Access hundreds of articles on each of these pillars on thesmilemoney.com/grow. Go ahead and dive deeper into areas you need help in right away.

And find the best investing apps on phroogal.com.

Get a copy of Happy Money Happy Life to start investing for a healthier, wealthier, and happier life.

Day 5 Preview: Borrow Money–Building credit for wealth creation

Tomorrow, you’ll learn how to borrow money with a leverage mindset. The goal is to rethink credit as a tool to assist you in your financial wellness journey. We’ll review the basics of credit and how to get your credit report and score.

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