Investing is one of those things I know I should be doing, but I find totally terrifying. I never click on the Stocks app on my iPhone. I don’t really know the difference between the NASDAQ, the S&P 500, or the Dow Jones. I just know you want the stock market to go up and not down. I also can’t help but equate Wall Street with the asshole bros filling lower Manhattan bars most nights, who drink too much, act rudely toward women, and generally behave badly. Do I really want to put my hard-earned money in their hands? (No.)But I also know that there’s a real connection between wealth and investing. And I’m not ashamed to say that I would like to be wealthy one day. I don’t work in a particularly well-paying profession (I make a comfortable living, but it’s unlikely I will ever count myself among the 1%), so if I’m going to retire one day — or hell, send my kid to college — I realize I need to make some smart investments now. And I’m sure Priya Malani, our go-to financial expert at Refinery29, would argue that at 35, I’m way late to the game. But, she also assures me, it’s never too late to get started.
Unfortunately, I’m not alone. A Fidelity report found that 92% of women want to learn more about financial planning (maybe that’s why you’re reading this), yet 80% aren’t talking about money with anyone; and only 47% feel comfortable discussing money with a professional. As a result, we lag behind men in how much we’re investing and, in the long run, how much money we’re making.
Yes, the gender-wage gap is partly to blame for this lag, but it’s not the only problem. I’ve always felt like I don’t have enough financial knowledge to get started, and I don’t have the time to learn. But putting this kind of stuff off is crazy — not taking care of your finances is like not taking care of your health. I wouldn’t dream of not exercising, so why don’t I spend some more time managing my money? One thing I’ve learned working with Priya is the stuff I previously found super complicated isn’t actually that confusing. And, yeah, it takes a little time to get started. But we’re talking money here. I want it. I need it. So I might have to spend some time getting organized in order to make more of it. That seems like a natural price to pay.
So how much could you really be making if you started investing this week? I ask Priya to crunch some numbers, and here’s one example:
If you start out at 25 with an annual salary of $50,000:
Starting investment amount: $5,000
Annual Contribution: $2,500 (5% of annual salary)
At 65 you’ll have: $465,000*
*Based on an 8% rate of return.
I know what you’re thinking: Who is 25 and makes $50,000?! Who has an extra $2,500 to invest every year?! I have student loans and credit card debt and no fuck-off fund. That’s okay. I wasn’t in a position to put money into the stock market at 25. But some are in that position, and that’s why we’re writing this story — so they can get educated. And you should read it anyway, so one day, when you have some extra cash to work with, you can make smart investments, too. Because men are all over the investment thing, and it’s time for women to catch up.
So where do you even begin? Ahead, Priya and I outline how to invest in 10 (pretty easy) steps. Sure, it’s a little scary, but keep in mind this is a long-term goal. While investing isn’t going to make you rich overnight (or in time for your wedding next year), it can potentially help you achieve all the things you’ve only dreamed of. Men are already getting in on the action. It’s time for them to stop having all the fun (and making all the money).
Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for your portfolio. All investment strategies have the potential for profit or loss and past performance is no guarantee of future success.
Information on this website does not involve the rendering of personalized investment advice. A professional advisor should be consulted before implementing any of the options presented. No content should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.
Before we dive into how to invest, Priya and I are going to burst a lot of bubbles. Before you can even get started, you need to have a strong financial foundation in place. That means you have to have an emergency fund, and you must to be investing in a 401(k) or IRA.
Priya advises that you don’t invest money that you need to access if disaster strikes (your dog requires surgery; your car breaks down; you get laid off — these things happen!). You shouldn’t start investing until you’ve got an emergency fund set up that covers three to six months of expenses. Priya recommends keeping that money in a high-interest bearing account (with these, your savings is still making you money, which is important). She tells her clients to check out Capital One 360, which at writing, offers 0.75% APR.
You should also be contributing to your company’s 401(k) and/or an IRA. Retirement accounts are almost as confusing as investment accounts, but we’ve gone in-depth on the topic here.
Once you’ve got a fully funded emergency savings account, and you’re maxing your contributions to your retirement accounts, it’s time to make the extra money you're able to set aside each month start working for you.
The next step is my favorite step in the process: Determine what you want out of life and start thinking about the money you’ll need to make those dreams a reality. Do you want to own a home? Take a fabulous vacation every year? Send your kid to college? Own a Porsche? Smart investing can help you achieve these mid- and long-term goals.
Of course, we all have short-term goals, as well. You might want to buy that house next year. Or maybe you’ve been dreaming of taking some time off work in the next two years to travel the world. Maybe it’s a smaller goal — you want to buy an awesome sofa for your apartment or you’ve been lusting after a pair of Prada pumps.
Whatever your dreams, take some time to write them down. You can use this form, or whatever format you want. But WRITE THEM DOWN. Seeing them on paper makes it all feel more real and can help motivate you to take the necessary steps to make them come true.
Once you’ve figured out your goals, set aside any money you want to use in the next two years. Priya explains that you shouldn’t invest money that’s going to pay for short-term goals — or anything within five years—because there’s always a risk the market will hit a rough patch, and you’ll lose some in that time. Investing is a long-term strategy. The markets go up and down, but in the long run, you’ll make more money than you would just leaving cash in a savings account. That said, you can start investing in the long-term goals even if you're still working on the more immediate ones. All of this is very personal — you have to make your own financial decisions — but don’t feel you’re held back from long-term planning because you want to achieve your short-term goals first.
To start, put the money you want to use sooner in a high-interest bearing savings account (just like the one that’s holding your emergency fund). Priya recommends giving those accounts the names of your short-term goals, so you can imagine achieving them every time you put away money. There’s something satisfying about fantasizing about the beach days to come every time you transfer $50 into your Bora Bora account.
If you want more help determing these goals, financial advisors like Priya can offer expert advice. (Priya’s Stash Plan essentially takes you through the short-, mid-, and long-term financial planning process.)
Okay, you’ve determined your goals, and you’ve set aside some money for those things you want to achieve in the next year or two (or five). Now you need to decide how much you want to invest in your long-term goals and where to put that money.
There are a wealth of places to invest these days. You could try a robo-advisor like Wealthfront or Betterment. There are more traditional options like Charles Schwab or Vanguard. (Priya highly recommends Vanguard, as it offers several affordable exchange-traded fund, or ETF, options for first-time investors.) Most banks offer some kind of investment accounts, and you can talk with an advisor at your local branch who will walk you through the options. Each of these options come with different minimum balances and different fee structures. Keep in mind, if you start chatting with a representative from one of these firms, you’ll want to ask them if they’re held to fiduciary or suitability standards.
The difference between the two terms is a little complicated, but Investopedia offers a great primer. Basically, what it comes down to is understanding who can sell you what, and what they stand to earn by selling you certain products, so you make sure you’re not talked into buying something you don’t need.
In the next few slides, we’ll give you more details on what you should look for when you begin to invest, so you have more knowledge of the products these companies are selling.
As far as how much to invest. That is entirely up to you. Many robo-advisors have no minimums for opening an account — you can start with as little as $10. More traditional firms do require you to invest a certain amount — and in some cases that can be a pretty big chunk of cash. If you want a basic managed account with Fidelity, you’ll need to invest at least $50,000, though it does offer more affordable investment options with less guidance. But at the end of the day, all of these firms have access to the same ETFs, the difference is in the proprietary products they’re selling.
A lot of people (including me!) have compared investing to gambling. It can definitely feel that way. The markets are volatile; our stereotypical view of stock brokers is that they’re all cavalier young men who aren’t really thinking about the financial security of their customers; and many of us watched our parents and grandparents lose big chunks of their retirement accounts during the 2008 stock market crash. How is it any different than going to Vegas and putting it all on red?
Priya reassures me that successful long-term investing isn’t gambling. But, she does point out the the key to making money isn’t investing in single stocks. Sure, it can seem glamorous to own Apple or Netflix stocks, but that’s not a great long-term strategy. Priya recommends you not put more than 3 to 5% of your portfolio in any single stock.
You’ve probably heard your parents talk about mutual funds. For many years that was the easiest way to invest in the stock market beyond just choosing individual stocks. These days, there is a more straightforward, cost-effective option: Exchange Traded Funds (a.k.a. ETFs).
Research shows (and Priya confirms) that people who aren’t constantly tinkering with their investments tend to do better in the market in the long run. The same goes for money managers. ETFs are passively managed, which means you aren’t paying a high fee to someone behind the scenes to manage your account. As Priya explains it, no one manages your ETF, it’s simply the replication of the index that it’s benchmarked to.
If you just went, “Huh?!” don’t worry — I did the same thing the first time Priya explained it to me me. She shared a more concrete example: An S&P 500 ETF tracks the performance of the S&P 500 Index. Whatever the S&P 500 does, the ETF will do the same, minus a small fee. The fee is usually less than the fees charged if you have a traditional mutual fund. We’re talking a small fee: ETF fees are generally less than .25% of your investment. Mutual fund fees are usually less than .75%. That might seem like a small difference in fees between ETFs and mutual funds, but Priya reassures me it adds up.
Basically, it’s cheaper to invest in ETFs over the long run, and statistically they do better than mutual funds. If you choose to work with a robo-advisor like Wealthfront, the investment plan it sets up for you will include a diverse mix of ETFs. Which brings us to our next topic...
It turns out, diversity in your portfolio is just as important as diversity in the workplace. You don’t want to just invest in one kind of ETF. The key is having a mix, so as Priya explains, in any given year you’ll have some winning ETFs and a few duds, but overall your portfolio will keep growing steadily.
Again, when you work with a brokerage firm or robo-advisor, you’ll be offered a diverse portfolio with a mix of ETFs and sometime bonds. Wealthfront and Betterment both show the breakdown of ETFs they offer when you open an account, and both websites consider your age, income, and goals when they set you up with a plan (amazing what robots can do these days).
A diverse portfolio can be a little scary if you’re constantly checking on the market, because at any given time, your ETFs could be making or losing money. Which is why Priya advises to set it and forget it, which we will touch on more before this story is finished.
Okay, we’ve got diversification and ETFs down. Now we need a solid investing strategy. Which sounds impossible, but Priya promises is pretty easy. She talks about dollar-cost averaging, which is basically a fancy phrase that simply means to invest a specific amount of money at regular intervals (like monthly). Of course, Priya’s got a concrete example to help clear this all up.
Let’s say you wanted to purchase $300 of the S&P 500 ETF:
Method 1: Buy $300 of S&P 500 ETF in January. If the price is $25/share, you’d be able to buy 12 shares ($300/$25).
Outcome: You own $300 of S&P 500 ETF and your cost per share would be $25.
Method 2: Buy $100 of S&P 500 every month for three months.
In January, the price is $25, so you’d be able to buy 4 shares ($100/$25).
In February, the price is $15, so you’d be able to buy 6.66 shares ($100/$15).
In March, the price is $20, so you’d be able to buy 5 shares ($100/$20).
Because the market moves up and down, you’d buy more shares when the price is lower and fewer shares when the price is higher.
Outcome: In method two, you’ve still purchased $300 worth of the S&P 500 ETF, but you’d own closer to 16.66 shares with average cost per share of $18 ($300/16.6) versus method one, where you’d only own 12 shares at $25 per share.
Money is inherently tied up with feelings — even if you have a ton of it (maybe more so?). But your emotions shouldn’t guide your investing strategy, in the same way that it’s not the best idea to go on a huge shopping spree when you’re depressed (or elated, or whatever emotion causes you to act impulsively and make bad decisions).
As Priya says, you need to stay dispassionate about what the markets are doing. So maybe I’m on the right track never looking at the Stocks app on my iPhone. Investing isn’t sexy, Priya reminds us, and when you try to make it sexy, that’s when you get into trouble.
The thing that I find most intimidating about investing is that it sounds like it will take up a ton of time I don’t have to spend (or would rather be spending on other things). But Priya actually promotes a “set it and forget it” strategy. As she explains, individual investor portfolios don’t tend to do well, because we’re always reacting the wrong way to the markets. When they start going up, we buy — often too late. And when they start going down, we sell — when it’s actually a better opportunity to buy, because likely things are about to get better again, and stocks are cheaper.
Priya says she’s found 401(k)s are often individual investors’ best accounts, because the investor sets a strategy at the beginning and then doesn't think about it again. (Of course, she also points out that’s because we’ve forgotten our 401(k) login info and never bother to check on our accounts.) But this lack of fiddling allows the account to ride untouched through good times and bad, which will leave you in better shape in the end.
That said, you should rebalance your account once a year. When the markets go up and down, Priya explains, your individual investments will go up and down, changing from their original allocation. It's a good idea to check on them annually and sell some of the winners and buy more of the losers to get back on track with your original strategy. (Remember: Buy low and sell high!)
In the end, investing is a long-term money-making strategy. Yes, it’s intimidating, but if you’re not relying on that money the next time you feel a cash-crunch, then the process shouldn’t stress you out. It should help you achieve those amazing goals you’ve been dreaming of.
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