Steve Adcock
Wealth of Geeks
Experts say more than half the population believes that investing is too complicated or challenging for them to be able to handle. But it’s not. Investing can be insanely easy.
Numbers show the less time you spend on your investments, the more money you’ll make. In fact, 95% of day traders lose money over time.
Too often, we assume that our investments need constant monitoring. You might be surprised that most millionaires aren’t picking and choosing stocks and rebalancing their portfolios nearly as much as you’d think.
Investing doesn’t need to be complex or time-consuming. Sometimes, a hands-off approach works just as well. Here are five ways to make investing easy.
1: Traditional 401(K)
Many employers offer traditional 401(k) investments. Use them.
401(k)s reduce your taxable income, which lowers your tax burden dollar-for-dollar. In addition, many companies will match your contributions up to a certain percentage of your salary. In 2022, a 6% company match is typical. This is free money.
To make investing in a 401(k) easy, set up automatic payroll deductions. Most employers that offer 401(k)s will use payroll deductions, so employees don’t have to think about it.
For 2022, the IRS has limited the amount of money you can contribute to $20,500. For 2023, the IRS has increased that amount to $22,500. You can withdraw money from your 401(k) at 59 and ½ without penalty.
2: Roth IRAs
Many employers also offer Roth IRA investments. Roths grow tax-free, making them an excellent option for those who want to take full advantage of long-term investing provided by their employer.
If you think taxes will be higher in the future, and they probably will be, a Roth IRA is excellent.
Just as with a 401(k), most employers who offer Roth IRAs also offer automatic payroll deductions to simplify the investing process.
For 2022, total IRA contributions cannot exceed $6,000 (or $7,000 if you’re over 50). For 2023, the Internal Revenue Service has increased that amount to $6,500 (or $7,500 if you’re over 50).
You can withdraw money from your Roth IRA at 59 and ½ without penalty.
3: Vanguard Brokerage Account
Want to invest more? Open a Vanguard brokerage account.
A brokerage account is an investment account that lets you buy and sell investments such as stocks, bonds, index funds, ETFs, mutual funds, and more. Investment companies such as Vanguard and Fidelity (as well as many others) offer customer brokerage account services.
A brokerage account’s advantage is that it does not contain any contribution or age limits. You can contribute as much money as you like to your brokerage account. Your contributions can be withdrawn whenever you want without penalty, though you will pay taxes on the capital gains.
I am a believer in index funds and ETFs to make investing easy. Index funds and ETFs track a diversified collection of companies automatically. You won’t have to worry about picking and choosing individual stocks.
My favorite Vanguard ETFs include:
• VOO (Vanguard S&P500)
• VTI (Total Market Index)
• VOOG (S&P500 Growth Index)
• VNQ (Real Estate Index)
4: REITs
Want to invest in real estate without being a landlord? Use REITs.
REITs, or Real Estate Investment Trusts , let investors invest in large-scale commercial real estate projects *without buying commercial real estate*. Many REITs, like stocks, bonds, index funds, and ETFs, are traded directly on the stock exchange.
REITs are often transparent and provide investors with a dividend-based income stream and exposure to real estate projects without a significant initial investment. They are also simple and easy to understand for most investors.
Vanguard’s VNQ is a good REIT option, though many others exist.
5: Targeted Retirement Funds
Targeted retirement funds, also known as “Target-Date Funds,” are great options for hands-off investors.
Targeted retirement funds are actively-managed funds designed to expose investors to riskier investment options early in life and automatically transition to less risky investments as the investor approaches retirement.
For instance, the investor will first choose an anticipated retirement year (i.e., 2048). Initially, the investments inside of the 2048 targeted retirement fund will lean heavily toward stocks (which are riskier). Over the years, the investment company will slowly transition the fund’s holdings from stocks to bonds. Bonds are less risky investments and expose investors to less risk closer to retirement.
The primary advantage of targeted retirement funds is their ease. These funds are actively managed, meaning the investment company will completely manage these funds for the investor.
The most significant disadvantage is the fees. With an average expense ratio of 0.51%, targeted retirement funds can be expensive.
In conclusion, these five investment strategies make investing in the stock market and real estate easy and effective. Picking and choosing stocks is not required to build wealth in the market. And, day trading is ineffective for most investors.
Instead, just keep it simple.
