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Investing

Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn't, pays it. ~Albert Einstein
Investing wasn’t the original purpose of this doc, but part of the goal of budgeting is to build savings you can invest. The best way to build long-term wealth is to budget well and invest your savings over many, many years. Eventually, your money helps you make more money!
NOTE: Investing has risks. You can lose money! Make sure you have enough money set aside in your Emergency Fund before you start investing.

Ways to invest

There are lots of ways to invest. Wealthfront and Titan are set-it-and-forget-it options that make it really easy to put yourself in a diversified portfolio. While you get less control, their diversified portfolios will tend to do better than trying to pick individual stocks yourself.
Wealthfront
Referral link
https://wlth.fr/1XnPq2F
⁠
gets you $5k managed for free.
Wealthfront automatically puts you into a highly diversified portfolio and has a number of techniques to reduce your tax liability on gains. They explain a lot of this in detail on their website.
I think this only makes sense to use if you have at least $10k to invest.
Betterment is similar, but I like Wealthfront’s approach slightly better.
Both Betterment and Wealthfront offer an option to automatically deposit cash for you. Wealthfront calls it Autopilot; Betterment calls it Auto Deposit.
Titan
Referral link
share.titanvest.com/F3xMg87g2cb
⁠
gets you a 25% discount on fees.
Titan puts you into a targeted portfolio of growth-oriented stocks. Since it is less diversified, it can be a bit riskier than Wealthfront, but I like the mix of stocks they pick. They also send a lot of educational material to their customers, which is great if you want to understand the markets.
Chase YouInvest, Robinhood, Charles Schwab, etc.
These accounts offer free stock trading, but you have to pick stocks yourself. If you do go this route, be careful not to put too much money into any one stock or industry, as this increases your risk. Generally speaking, most investment research advises against this route.
Buy a house
When you have enough saved, buying a house is a great way to build long-term wealth. There are tax benefits, real estate tends to go up in value over time, and you get a place to live that is yours. You can also buy an investment property that comes with income and the same benefits.
Education
While this isn’t a financial investment per-se, investing in yourself is one of the best things to do.
Start a business
This is probably the riskiest option, but can lead to great returns if you’re willing to work hard and focus on creating value for your customers.

Tips on investing

One of the biggest things to avoid in investing is emotion! It’s easy to irrationally try and pull out your money when the market is down to avoid future losses, and put more in when it’s up. Think about it, though: how do you make money in the stock market? You buy low and sell high. You wouldn’t decide not to buy a car because it went down in price, and you rush to the dealership when the prices go up. This is important to remember when investing.
To get around this, don’t try and time the market. Don’t deposit or withdraw money based on what you think will happen in the market. Instead, deposit and withdraw money based on how much you’re able to save (the more the better). Research shows this leads to better returns on investment.
If you’re eligible and can set aside the money long-term, try to use a 401(k), Roth IRA, or other tax-advantaged investment account. The federal government gives these accounts tax advantages, allowing your gains to compound faster because taxes aren’t being taken out. Just keep in mind they’re designed to be held until retirement age, so you can get penalties for withdrawing early. More on this on the
More Resources
⁠
page.
If your employer offers matching on their 401(k), make sure to contribute as much as you need to to max this out. It’s essentially free money!

Why invest?

The magic of compound gains/interest (essentially the same thing) is a huge part of how you build wealth. While your income may go up over time, making savings easier, starting early is very important because the longer you’re invested in the market the more likely it is that you get bigger gains. Play around with the settings below to get an idea of how it works. Even a moderate return on investment results in high growth over a long period of time.
Options:
First Deposit:
9/1/2024
⁠
(automatically updates to the beginning of next month)
Amount deposited per month:
0000
1500
⁠
⁠
For reference, in your answers on the
Questions for you
⁠
page, you estimated you’ll save about
$2,100.00
⁠
per month after your Emergency Fund is full.
Interest rate / rate of gains:
0000
9.53
⁠
% per year
For reference, average market returns from 1928-2016 were 9.53%/yr. However, it fluctuates wildly.
Monthly interest/gains:
0.7615%
⁠
per month (compounding)
Summary of forecasted returns
After Year
Total You Deposited
Total Interest/Gains
Final Balance
1
5
$90,000
$24,410
$114,410
2
15
$270,000
$309,077
$579,077
3
30
$540,000
$2,307,543
$2,847,543
4
45
$810,000
$10,924,002
$11,734,002
There are no rows in this table
⁠
How your money grows over time
2
⁠
How much interest/gains you get every YEAR
2
⁠
Forecast of Gains/Interest (by month)
2
⁠

Ways to invest
Tips on investing
Why invest?
Summary of forecasted returns
How your money grows over time
How much interest/gains you get every YEAR
Forecast of Gains/Interest (by month)
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