Short Simple Investing

Working your way to financial freedom.

note these steps assume you are in your 20-40s and have a significant amount of time before choosing to work less (on the order of decades).

  1. Open a checking account
    • I recommend Chase or Bank of America since these are big global banks and also also offer investment accounts.
    • Preferably pick an institution that has been around a long time and has an excellent reputation.
    • It's convenient if the bank has a physical presence, but banking is increasingly digital, and the ease of use of electronic services is often more important than physical presence.
    • To keep things simple, I recommend having a single checking account.
  2. Open an investment account
    • It's convenient if it's the same institution as your checking account.
  3. Save money
    • If you don't have a lot of spare cash to save, examine how you can increase income and reduce expenses. You must save to invest.
    • Your checking account should help you understand your income and expenses.
  4. Determine 'float'
    • float is the amount of cash you maintain in your checking account to pay bills and in case of emergency.
    • How much cash you need to have available in your checking account to pay monthly bills? How much cash you need in case of an emergency? How many months do you want to be able to sustain being unemployed?
    • Maintain the level of float you determine in your checking account, only invest what you have above your determined level of float.
    • Your level of float may change over time depending on your life circumstances, level of risk tolerance, and potential large purchases. Reevaluate the amount of float you need as your life circumstances change.
  5. Move money to invest
    • Move any money above your float from your checking account to your investment account.
    • I recommend doing this monthly, quarterly, or when you reach a specific balance above your float.
    • It's sometimes possible to automatically move money to your investment account by directing a portion of your paycheck to your investment account.
  6. Buy Index funds
    • I recommend Vanguard Index funds, specifically VOO or VTV.
    • Do NOT buy individual stocks. That's just gambling. There is extensive research that shows it's nearly impossible to beat an index fund. 1
  7. Wait
    • Do NOT pay attention to what the market is doing.
    • Do NOT sell your investments.
  8. Continue to save and invest

Reference

  1. Hebner, Mark T. Index funds: the 12-step program for active investors. IFA Publishing, Inc., 2007. ↩