Nobody needs a hot tip to start investing. The results of most long-term investors depend on a few dull choices: how much they save, how long they stay invested, what they pay in fees and whether they sell in a panic.
Compound growth and fee drag
Watch what a one-percent fee does over a long horizon. Works in any currency.
What an index fund is
An index fund owns a broad slice of the market, such as a large stock index, rather than trying to pick winners. A broad fund spreads your money across hundreds or thousands of companies at low cost. Research over many years shows that most actively managed funds fail to beat comparable indexes after fees.
Fees compound too
An extra one percent a year sounds small. Over decades it can take a large fraction of your final balance, and it does this whether or not your fund has a good year. Enter a fee in the calculator below and see the difference. Check the expense ratio, plus any advisory or platform fees on top.
Risk you can live with
Stocks can drop sharply, sometimes by half, and they can take years to recover. Money you need within about five years usually belongs in safer holdings. Bonds and cash reduce swings in exchange for lower expected long-term growth. Choose a mix that you can hold through a bad year, since the worst outcome is selling at the bottom.
A sensible starting order
- Build a starter emergency fund.
- Take any employer match on retirement contributions.
- Pay off high-interest debt.
- Keep maxing tax-advantaged accounts where you can: 401(k) or IRA in the US, RRSP or TFSA in Canada, ISA or SIPP in the UK, NPS or PPF in India.
- Use a taxable brokerage account after that.
Speculation, kept in its box
Crypto, single stocks and options can be fun and can pay. Give them a fixed slice of your money that you could lose in full, and do not add to it after a loss. If a stranger, an influencer or a group chat promises guaranteed returns, treat it as a scam until proven otherwise.