I'm ready to invest, where do I start?

I’m asking this question on behalf of the community, because I did not see it addressed.

If I have $50/$100/$200 extra per month that I can afford to put into savings, where should I put it?

I don’t have the time or knowledge to learn about investing right now, and therefore I’m looking for something low risk + doesn’t require daily monitoring.

All i’m looking to do is earn a few percent interest, and with compounding, my money will grow over an extended period of time.

What do you recommend? Savings account? CD? Mutual Fund? Stocks?

Thank you

If you do not have the time or interest to learn, you can try using robo-investors. They do all the heavy lifting for you, usually for a small fee. I personally use SoFi Invest which does not charge any management fees.

I opened a Roth IRA with them and set up a $500/mo auto deposit which they take care of investing for me. While there is no guarantee, you can expect to get about 8-12% compounded interest a year with this type of investment as its all in ETFs.

(They also have a product called SoFi Money, which is a cash management account that earns 2% APY on all your spending cash. They give you a debit card, checks, and all the benefits of a checking account, but with the interest you would earn from a savings account. You can manage your investments and regular money from the same account and you are not required to use any of their products to use the others.)

The problem with a 2% return on money saved is that you are wasting your time. You need to make your money work for you so you build wealth.

Additionally, investing in a retirement fund is a waste of time as well because of the fees they take. The fees may be very small but just like compounding can grow your money significantly so to fees grow significantly over time as well.

Your best bet for a very safe investment would be to invest your money is in a low cost index fund like an S&P 500 Index.

Here’s some resources to help you understand more about Index Funds and how IRAs and Savings accounts are a waste of time and money.

The best part is you can invest in an Index Fund for free with Robinhood.

Tony Robin’s book Unshakeable: Your Financial Freedom Playbook by Tony Robbins goes through all the details why IRAs and other retirement plans are actually terrible and how you are actually losing tons of money by investing in them.

1 Like

Tony Robbins: How to Invest Your Way to a $70 Million Retirement Fund | Inc. Magazine

@ralphlasry: A couple of questions:

  1. While a 2% interest is nothing great for making money, i was referring to using it as a checking account. Whats wrong with that?

  2. The SoFi Roth IRA does not charge any fees and all the money deposited goes into ETFs, but with the perk of not paying tax on the gains. Am i wrong?

Getting a 2% return from a checking account is great. As an investment its terrible.

A Roth IRA is just an account. It doesn’t make money. The money then needs to be invested. That’s where the issues start creeping in. Who’s investing that money and where? What are the fees associated with these investments? They all have fees.

Expense Ratios

All mutual funds charge an investor a fee called an expense ratio. The fee is an ongoing percentage charge based on the amount the individual has invested. You’ll see mutual fund prospective reports that show something like “Expenses: 0.21%” or “Exp. Ratio: “0.75%.” This means that for every single dollar you invest into the fund, on an annual basis, the fund takes that percentage from your account. If you invested $10,000 in a fund with an expense ratio of 0.50% you would pay $50 per year in expense-ratio cost. If your balance the following year was $20,000 you would pay $100, and so on. Expense ratios range from as low as 0.15% to more than 1.5%.

Disclaimer: I did not research SoFi Invest so I cant realy speak to its specifics. I’m merely sharing my thoughts about what to watch out for and where to focus your attention.

My personal advice would be to invest some of that money into your education. Buy some amazing courses that will teach you more about investing. No investment will ever give you a better return than investing in your own education.

Next, I would buy some shares in blue-chip stocks and never sell them. Hold them for years. Lets them sit there and make you money.

Personally, my first stock investments were in Google, Facebook, Amazon, Microsoft, Alibaba, and Shopify.

Here’s the kind of returns you would have seen if you invested 5 years ago:

Google - 107% return
Facebook - 161% return
Amazon - 490% return
Microsoft - 218% return
Alibaba - 73% return
Shopify - 1085% return

Every 100% return means I doubled my money invested. Clearly, my best investment was in Shopify which would have given me 10x my money had I invested in Shopify 5 years ago.

Try comparing these returns to index funds or mutual funds or savings accounts and you will see just how small the returns are when buying some of these other stocks. Typically, an index fund will double your money every 7 or 8 years. Compare that with Shopify that would have doubled your money this year alone.

All my stock investing was done with Robinhood’s free app and offers stock trading absolutely free.

Thank you for the detailed reply.

I watched all the videos you posted above.

1 Like

On a related note, isn’t there a capital gains tax on any and all earnings from stocks/index funds?

Is there a way to avoid the tax? Or all the above methods of stock investing take into consideration that there will be a capital gains tax?

I don’t understand this. 401k and stocks are not at all comparible. Depending on your tax bracket, 401k may make alot more sense.

Investing in an index fund may save you on fees, but you must first pay income tax on that money. And if you’re in a high bracket, it may be worth using a 401k even though fees are higher than an index fund (you avoid the high bracket income tax)

Am I missing something @ralphlasry ?

Capital gains only applies once you sell. Until you sell there are no taxes. If you hold onto a stock for longer than 12 months I believe capital gains taxes are lower as well.

I don’t agree. I also may not know enough but from my understanding of how this stuff works, I don’t agree with your assessment.

Allow me to explain.

Everyone has a different situation and what may be beneficial for one person may not be for another.

Every person needs to come up with an investment strategy that meets their financial goals. For some, working 9-5 for 40 years and investing in a 401k or other retirement plans works for their goals. For others, this is the last thing they want to do.

Retirement plans, while they may be pre-tax they also only provide a small return on investment.

Investing smartly with post-tax money can have a significant return that no pretax money could ever have.

If you want to build real wealth and retire early, you want to get as much cash now and find investments with higher returns so you double your money quicker. The more money you invest today with higher returns the quicker you will build your wealth.

This is similar to Robert Kiyosaki’s pet peeve about people investing in Real Estate solely for the tax benefits. People buy properties that don’t make them money just in order to enjoy a small tax benefit. These people never become rich.

The goal is to have as much money as possible making you the most money possible. That’s how you become rich.

So tying up money in an investment with a low return just to enjoy a small tax benefit is literally shooting yourself in the foot. You should probably be taking that money and paying income taxes on it and then putting that post-tax money in an investment that offers high returns.

Does this make any sense?

Yes. Makes sense.

While on the topic of compounding - what does investing in stocks (index funds) have to do with compounding if you don’t ever sell? Stock becomes more valuable, but it doesn’t compound.

So back to my original question, what’s a good low risk investment that has compounding?

(Maybe I’m totally misunderstanding how index funds work)

If a stock pays a dividend and you reinvest the dividend that would be the equivalent of compounding.

If you invest in rental properties and reinvest the rental income you will enjoy the power of compounding.

You can easily grow a $10k investment in a small rental property today to over $1m in just 7 years by simply reinvesting the rental income. Brandon Turner of Bigger Pockets shows you step by step how to go from $10k to $1m in just 7 years in his book called The Book on Rental Property Investing: How to Create Wealth and Passive Income Through Smart Buy & Hold Real Estate Investing

@ralphlasry Are you concerned at all regarding the government opening antitrust investigations on alot of the big-tech companies in regards to their stock?

Not so concerned because when I invest in stocks I’m usually investing long-term, not day trading.

When investing long-term you aren’t so concerned with the short term fluctuations in stock price.

You need to take everything into consideration but just how much weight to give this type of news is debatable.