Investing 101

You’ve saved some money in your savings account. Good job!

Now what do you do?

Create an emergency fund!

Aim for three to six months of living expenses. Consider keeping your emergency fund money in an online savings account that has a better interest rate than a typical bank.

Now you have an emergency fund. Awesome!

Now what do you do?

Start investing!

If you need the money in less than five years:
Look into CD’s (certificates of deposit). These pay more interest than a savings account.  You can CD’s for different maturities: 3 months, 6 months, 1 year, 2 years. You will earn more money than a savings account. And the longer he CD maturity, the more you will earn.

If you do not need the money in five years:
You are ready to start investing in the stock market. There are many ways to invest money, but the easiest and path is to buy an ETF (exchange traded fund). I prefer Vanguard ETFs because they have historically low fees (like 0.05% per year).

An ETF is a basket of stocks and/or bonds. Because there are many stocks and/or bonds, you get automatic diversification.  The VOO fund, for example, has 500 stocks in it. Each dollar of your money gets spread across 500 companies.

Another way to improve your diversification is to invest in multiple asset classes, like stocks, bonds, and real estate. Some years stocks will perform better.  Some years real estate will perform better. And so on.

Here are few ETFs that represent some different asset classes:
BND – bond market
BNDX – foreign bond market
VBR – small US stocks
VNQ – real estate
VOO – large US stocks
VWO – foreign stocks

Now hold on and try not to panic through the ups and downs of the market!

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