Rule of thumb: You should put your money in index funds with very low fees.
What’s an index fund? It’s a way of investing in a bunch of different stocks and bonds at once. That way, is one of them goes down, you’re still OK. This is called “diversification.”
What’s a “very low fee”? You should be paying less than 0.25% in fees per year – hopefully a lot less.
Our favorite: Wealthfront. It’s completely free for the first $10,000 you invest. After that, Wealthfront has very low fees (0.25%), automated diversification, and an easy website. Wealthfront automatically allocates your investment across a number of low-cost index funds.
Other good ones are Vanguard and Betterment.
Many people get ripped off by letting high-fee money managers or financial advisers invest their money. “High fee” to us means anything higher than 0.25% per year. Don’t do this.
Here are three more things to remember.
- Don’t check your investment account every day. Once every few months is fine. Once you have it set up, don’t change anything, even if it goes up or down.
- Picking individual stocks is for geniuses and idiots. If you are not a genius, do not pick individual stocks.
- Remember that this money in your investment account is for long-term goals like retirement. Put money in, don’t take it out!
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