hi friends welcome back to the channel it's a new year and for me that means more financial literacy especially in my 20s I'm really focusing on how to allow my money to earn more money for me instead of having to trade my time for money and one of the best ways to do that is obviously through investing but investing honestly sounds like a very overwhelming term where do I start what do I do what do I invest in how do I manage it am I still going to be able to use that money and over
the last couple years I have learned a lot about investing and I thought I would share some of the things that I learned with you now of course before we begin I do have to let you know that this is not Financial advice what works for me may not work for you however regardless I do hope that you find something insightful about this video and learn something new my second disclaimer is that this video is in fact a video about money I know not Everyone likes to hear about money or talk about money we're going
to be talking extensively about money in this video so if that's not your cup of tea then it's probably best to click away now now with that out of the way I wanted to start with when do you start investing you might have student loans you might have car payments that you're making which thing do you prioritize we always hear from people like oh you should be investing you should be investing but when there are a couple of prerequisites that are higher priority that you want to make sure to check off before you start investing
there's actually this incredible happy panda fire flowchart fire stands for financial Independence retire early and I'll pop it on the screen as well as link it down below it actually gives you a very helpful step-by-step breakdown of your priorities I think this chart is actually pretty common in the investing world/ tech industry where they are very into the fire movement but honestly I hadn't discovered this chart until a couple years ago but it's incredibly helpful to figure out exactly which step in the flowchart you belong so to summarize the things that you should be able
to do before you start investing number one of course is to pay all of your day-to-day expenses including your rent utilities food Insurance ETC number two is to make at least the minimum payments on your car loan student loans credit cards Etc and number three you want to make sure that you have an emergency fund of at least 3 months up to a year of living expenses saved up now you might be wondering Mickey 3 months and one year are two very different things which one do I need to save up most people feel comfortable
saving 3 to 6 months of expenses if you are a freelancer a contractor something that's a little bit more unstable or perhaps your paycheck looks very different month to month then I would recommend something between 6 months to one year I personally like to have one year of living expenses saved up just for safety measures because in this economy you never know what's going to happen now it's very important that this money is not just sitting in a regular bank account you want to make sure to put this in a high yield savings account a
tradition bank account has very low or no interest at all in the past there are literally years where I've gotten like one penny for all the money that I've kept in a bank account a high yield savings account works exactly the same as your regular bank account does but the difference is that it actually does pay you interest so depending on how the economy is doing and what the interest rates are the rate that they will pay you will fluctuate currently it's somewhere around 4 to 5% depending on which bank you sign up with it
works exactly the same way as a bank account where if you need that money you can transfer it out right away you can use it right right away but I actually really really like to have my high yield savings account because it kind of puts my money in a different account that I don't see every single day and so I'm not looking at that money in my bank account every day thinking that oh I have this much money to spend that money is kind of segregated and put away now what happens if you just leave
your money in a regular bank account effectively due to inflation the amount of money that you have in your bank account is not going to go as far in the future for example a loaf of bread may have been $5 in the past but next year it might be $7 and if you didn't put your $5 in a high yield savings account then your $5 will still be $5 and you're going to be $2 short to buy your bread to explain it simply let's say your high yield savings account is paying you 5% per year
if you put $100 in at the beginning of the year by the end of the year you will have at least a $105 it's actually a little more than that because most high yield savings accounts compound the amount every month and so it'll actually be more than $5 but that's just the simplest way to explain it it's something that takes minutes to set up you can do it at home and you can find a bank that you personally like I personally have been using Marcus by Goldman Sachs for as long as I can remember it's
the bank that my parents use I've never had any issues with it it's very easy to use but there are so many different high yield savings accounts you can sign up for you definitely don't have to pick that one next up do I pay off my debt or do I invest now this answer really depends on the interest rate of your loan what is your interest rate if it is 7% or higher you're definitely going to want to pay off your debt first the stock market on average returns about 7 to 10% annually and while
that is the average percentage the stock market is unpredictable you don't know exactly when it's going to be high or low certain years will be below that threshold and certain years will be far above that threshold however if you have debt if you've taken out a loan that has 7% interest rate or more that is a guaranteed 7% they will not somehow lower that rate just because the economy is better or worse since the 7% interest on your debt on your loan is guaranteed and it would acve a regardless I would focus on paying off
the high interest debt first now if you have debt that is at a lower interest rate let's say it's somewhere between 3 to 4% then at the very least you want to make your minimum payments but beyond that you may be able to balance investing and paying off your debt simultaneously let's say that you have a house mortgage at 3% interest rate it's much wiser to make the minimum payment on that house then take all of your excess money and invest that instead and for those who have absolutely no debt no loans at all and
you fulfilled all the above requirements and absolutely you should 100% be investing what amount of money should you be investing with again the stock market is unpredictable you don't know exactly when it's going to be high or low so if there is any money that you need immediately immediately meaning within the next 3 to 5 years I would definitely be more cautious with that money and there's nobody on this Earth who can accurately predict the stock market 100% if you need that money immediately within the next couple of years then perhaps investing it in something
volatile may not be the best option if you are saving up for down payment for kids for Education anything that requires a lump sum in the near future I would definitely be more cautious with this money so any money I need within the next two years I have it all just sitting in a high yield savings account because cash is liquid cash is King for when you need it one last stops side now before we jump straight into the stock market and picking individual stocks and doing the whole shebang there's one thing that we need
to invest in first and that's in your future your retirement there is no better investment than in your own future many workplaces offer some sort of retirement plan this can come in the form of a 401k a 403b there are a million different names for these but there are two most important things to know about this account is it pre-tax or post tax pre-tax retirement accounts means that your contribution is coming directly from your paycheck before paying taxes therefore you do not pay taxes on that money now but you will have to pay taxes on
anything you take out all withdrawals are going to be taxable in comparison you have a post tax retirement account such as a Roth 401k post tax retirement accounts means that your contribution comes out of your paycheck after you have already paid taxes therefore your qualified withdrawals made in retirement are actually tax-free you don't have to pay taxes on it again this is a very big deal because over the next couple of decase as your Investments compound you do not have to pay tax when you withdraw this money well how much should I be contributing to
my employer's retirement plan should I just contribute my whole paycheck well you can't actually do that every year the IRS lets us know the maximum amount that you are allowed to contribute to your retirement account in 20124 it is $23,000 now whether or not you want to actually contribute that full amount or take that money and invested elsewhere is kind of up to you the most important thing to find out from your employer is if they offer any sort of match many employers will offer to match a certain amount of your retirement contribution a common
scenario may be that your employer is offering a 100% match on all of your contributions of the Year up to a maximum of 3% of your annual income so let's say you make 100K that means that they will match up to $3,000 of your retirement contributions for that year this is guaranteed money you should always aim to contribute at least the minimum to get 100% of your employer's match and for those who have spare funds you may consider maxing out the entire retirement account through your employer completely you might also want to consider opening up
what's called a Roth IRA Ira stands for individual retirement account a Roth IRA again is post tax dollars which means that your Investments grow tax-free in 2024 the maximum you can contribute to a Roth IRA is $7,000 or $8,000 if you are age 50 or older I personally have all of my retirement accounts my Ira accounts and my investing accounts through Vanguard there are lots of different financial institutions you can do this through Fidelity is another very popular one you can do your own research to see which one works best for you what I would
recommend is that you want to keep all of your accounts in one institution if you can so that you can see all your money in the same place so for example if your employer uses Fidelity then you may consider doing the rest of your Investments through Fidelity as well what's very important about these retirement accounts that I think a lot of people sometimes forget is that you physically need to go into the site anday pick what to invest in just contributing the amount into the account does not actually invest it in anything your money will
not grow you're going to hear a lot of terms for things that you can invest in small cap large cap midcaps midcap emerging funds social Equity Funds there are so many different options how do you know what to invest in a lot of employers will set you up in some sort of Target date fund so the 2060 retirement fund the 2070 retirement fund depending on what year you're targeting your retirement the mix will look a little different so if you're retiring relatively soon then you may have something less aggressive AKA more bonds and less stocks
whereas if you pretty young and you still have a long time until retirement it may have more aggressive things like stocks and less of bonds I think the target date funds are actually great for beginners it does automatically change your Investments as you get older to go from more aggressive to more conservative Investments it's essentially autopilot for anybody who doesn't want to think too deeply about it in the future we can talk about more advanced strategies like the three fund portfolio but we will save that for a different video my rothar I person Ally is
just tracking the S&P 500 also known as a standard and Poor 500 it is a stock market index that is tracking the performance of 500 large companies in the US finally now that we've gotten that all out of the way let's talk about the easiest way that I like to invest as a beginner index funds an index mutual fund or ETF exchange traded fund tracks the performance of a specific Market Benchmark or index such as the popular S&P 500 as close as possible you may be asking what's the difference between an ETF and a mutual
fund so there are some differences including the minimum investment how they're traded and how they're managed the biggest similarity between them is that they both represent professionally managed collections of individual stocks and bonds which makes investing in them much less risky than investing in a single stock so vanguard's version for tracking the S&P 500 you have the ETF version which is vo and then you also have the mutual fund which is VX what is the benefit of investing in an index fund if you think about investing in stocks you may hear somebody say oh I
bought something Apple stock or I bought Netflix stock I bought Snapchat or Tesla let's say for example Apple goes through a huge Scandal and their stocks plummet like crazy if you had bought a lot of Apple stock then you would probably lose a lot of money with an index fund essentially you are buying a basket of stocks the funds manager is essentially buying a representative sample of the stocks and bonds that it tracks so for the S&P 500 it would either be buying stocks from each of those companies or some sort of representative sample now
if one of the things in your basket were to suddenly not do as well it's only one part of your big basket so it would not affect you nearly as deeply as if you had bought only the Apple in the basket so it has a lower risk because it is more Diversified number two it also has lower costs while you do have to pay an expense ratio to buy or sell these it is still far cheaper than paying for a financial adviser or someone to actively manage your portfolio and tell you what exactly to invest
in and now for the most important question are index funds even effective now there's this very famous story from back in 2008 Warren Buffett actually challenged hedge fund managers to see whose Investment Portfolio would perform better his theory was that when you included the fees costs and expenses an S&P 500 Index Fund would actually outperform a handpick portfolio of hedge funds over 10 years lo and behold his theory was right the S&P 500 alone actually outperformed the things that were being handpicked by these hedge fund managers and over the last 100 years you can look
at the track record on average the return of the S&P 500 is about 10% every year which compounded over the next couple of decades until your retirement is an insanely large amount my personal and simplest strategy is to buy index funds every single week I buy and hold which means that I buy it and I do not sell anytime you sell your stock you do have to pay Capital Gains if you made money of course and at this current stage of life I'm not selling anything that I purchase because I don't immediately need that money
that I'm investing there's a saying called time in the market beats timing the market you will never know for certain exactly when the stock market is going to be high or low so I like to use a technique called dollar cost averaging I'll pop up a graph to show you how dollar cost averaging is typically way more effective than trying to time the market and buy it when it's low the way that I do it I have it on autopilot to buy VX every single Monday and it times when the stock market is extra low
I do sometimes go in and buy an extra amount however having it on autopilot and using the dollar cost averaging method ensures that I'm investing in something every single week even when I'm not specifically looking at the stocks or seeing how they're doing but but I know that me buying whether it's $5 higher $10 higher today it's still going to be much lower than me buying it 30 years from now so anything when you think about it in the long run is quite low today I'm here for the long game I'm not trying to day
trade and make a quick Bo if you look at the price of V today the Vanguard 500 Index Fund ETF it's currently at about $445 now you might say to me Mickey I don't have $445 to invest that's totally okay you can buy what's called a partial share so you do not have to have the full $145 let's say you only have $100 or even $50 you can buy a partial share of that and you can contribute the same amount every week or every month this is the easiest and simplest method that I have found
that works for me I'm never sweating or nervous and I know that even in times when I'm not actively thinking about my investing it's set on autopilot so that it's still being done for me I made a YouTube short on exactly how to set up your automatic recurring Investments through Vanguard so if that is your financial institution feel free to look at that video because it can be a tiny bit complicated to set up but once you're done setting that up you never really have to think about it again this was a very beginner's overview
for investing I know it was still a ton of information and it's something that took me years and years and years to figure out just a couple of years ago thinking about all this stuff made my head hurt and it was confusing and complicated and I still have so much to learn about financial literacy I think money can be a really scary topic to think about to talk about but it's so important to be transparent with other people and share advice learn learn from others I've learned to not be scared of money because if you
are scared of your money you will never have the power to control it we're not trying to grind until we die we want to make our money work for us not the other way around if you have any additional questions or maybe you have advice for me and things that you think I could be doing better I would love to see them and hear them in the comments and if there are any topics that you'd like me to speak on for the future please do let me know and I will see you guys next week
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