A common response I get from talking to young professionals about their finances is a general uncertainty around investing. “There are just too many options out there”, “I don’t know where to start”, or “well I’ve heard a lot about crypto and NFTs recently, maybe I’ll start there”. I get it, investing can be a lot to a newbie. You work so hard for your money, try to be responsible with it, and would like to see grow. Unfortunately when it comes to investing advice, there is no shortage of it. It seems like every YouTuber, TikTokker, and Twitter personality has opinions and advice on stocks, and that’s just in the digital realm!

Everyone learns differently, but I always learn from examples so I wanted to open up and share how I personally approach investing. Before you dive in, if you’re curious, I would recommend reading a few other articles that’ll explain my investment strategy. Firstly there’s Short, Medium, Long term investments, which is the first question I ask myself – when will I need the money again? There’s also Why I’m obsessed with 8% which was an eye opener for me and how I invest, and also Why my investments are boring. Finally, there is a recent one How to invest in index funds. Spoiler alert but a lot of my investing is in index funds, so you might as learn how to invest in them yourself if you’re not already.

Finally, I’m not an investment professional, I’m not a certified financial advisor, I’m just a personal finance junkie who has been writing about my personal finance topics for 9 years. Your situation may look different, your goals may be different and your risk tolerance might be different. But hopefully me sharing my story will give you ideas to ponder yourself!

Keep the mortgage current (debt)

Debt can get a bad rap as you get into the personal finance world. Phrases like “Debt is dumb, cash is king” might lead you to have one idea about debt whereas other people talk about good debt vs. bad debt and then others just accept debt as a part of life and roll with it. For me, I fall into the good debt vs. bad debt category. Debt is just borrowing against your future for something in the present. If you’re borrowing to better and grow yourself in the long run (i.e. house, college, reasonable automobile), then it’s wise to borrow against the future because the future is looking brighter. However, if it’s for something you’ll enjoy today and it’ll be gone tomorrow (i.e. credit card debt IMO), then it’s probably not the best use to borrow against your future for.

Mrs. Money and I have had debt on our personal finance journey, but worked hard to pay off student loans. We don’t take car loans; although I have come around thinking they are not the worst idea. The main debt we have now is our house. In the past I paid extra on my mortgage each month, until a friend pointed out and got me thinking about the interest rate I was essentially getting by paying extra on my mortgage. At the time I was paying about 3.5% in interest and my friend challenged me to think about investing that money in other areas i.e. the stock market. Fast forward this idea really got ingrained in me, and I think a lot about having my money work hard for me. Right now my mortgage is 2.6%, and I still believe I can do better than that. So, I don’t pay extra on the mortgage but I do pay the required monthly payment each month. I view that as getting a 2.6% return on my money, by paying down that debt.

Automatically contribute to 401(k) and ESPP

Now that I’ve made sure all my debts are being serviced, I’m ready to start investing. One thing that I’ve learned about investing is that it takes a lot of discipline to keep doing it. Even a personal finance blogger like yours truly can find it difficult to prioritize investing and saving. There are just so many bills, so many things to buy, so many experiences to have or restaurants to eat at. So, in an effort to ensure I prioritize my investing, I like to do so automatically, preferably in a manner that it gets pulled out of my paycheck so I don’t even see it.

To this end, I participate in my employer’s 401(k) and ESPP (employee stock purchase program), both at 15%. On top of coming out of my paycheck before I even see it, there’s also so great benefits to it. With my 401(k) there are tax benefits – either I pay tax on it now and won’t when I start using it when I retire, or I don’t pay tax now but pay taxes later on them. I’m probably 30ish years away from retirement so that’s 30 years of my money growing without paying taxes. Not a bad deal. With my ESPP, I get to buy my company’s stock at the lower price of now vs. 6 months ago, plus a 15% discount. So that’s basically a guaranteed 15% gain on a 6-month process (the program buys stock every 6 months).

That’s 30% of my salary right there, so definitely not a small chunk of change. Whenever I feel a bit bad about not saving or investing as much as I could be, I remind myself I’m already setting aside 30% and that makes me feel better.

I love automatically investing – it takes the thinking out of it as well as the temptation to spend the money in other places!

Index Funds

I’ll spare you the long soapbox speech of why I mostly invest my money in index funds. I’ve tried to ‘beat the market’ but for every winning stock I pick, I seem to pick a losing stock too. Despite my best efforts, I can’t seem to do much better than an index fund.

For money outside of my 30% (which admittedly hasn’t been as much as I would have liked as of late), I put most of it into index funds. It’s a no-brainer way to invest in a fund that historically has done quite well, while not being nickel-and-dimed on fees. I put most of my investing money into $VTI, which is a Vanguard Total Market Index fund. I keep this money in a regular brokerage account, which means I’m not getting tax benefits like in my 401(k), but it’s still paying more than a savings account is!

Gambling

With about 5% of my non 401(k) investable money, I do allow myself to take more risks with the money. As discussed in my article on Slow and Steady growth, I am not a ‘bet the farm’ type of an investor and keep my investments relatively boring (i.e. index funds). I do however love stocks, I’m always checking the market, reading articles and watching a handful of stocks. With that 5%, I buy individual stocks. In the past I’ve also put money into ‘riskier’ investments like peer-to-peer lending (i.e. Lending Club, which throughout my time investing with them I got on average a 5% return), or most recently, crypto (Why I changed my mind on Bitcoin). Really it’s a small percentage of my overall assets but it allows me to have a little fun, win a little, lose a little and stay current on overall economic trends.

Summary

To summarize, when it comes to investing, I: first make sure I’ve got a good handle on paying down debt, I then invest in tax advantage accounts like retirement or the kids’ college funds and I do this through work so I don’t even see it in my paycheck, then with any leftover I put 95% of it into index funds and then with 5% I make riskier investments. It’s not a super fun or exciting investment strategy but it fits my risk profile and I believe will pay off in the long run with slow and steady growth!