Welcome! This article is intended for people under 40 looking for simple investment advice.

So, let's say you work for a company. You have a job. This is the first step.

Now, read this article.

This article is a basic primer on how to save money. I would sum it up like this--keep a budget, whether using paper and pen or excel. One column for expenses, one column for income. Review every month, and try to keep your expenses less than 50% of your income. Don't spend on a credit card what you don't have in a bank account EVER. Not even once.

Ok, back to your job. Assuming you are a full-time worker, your company might offer a 401k. They might offer a match program. Here's how that might work:

If you are making 100k per year, and they offer 100% of 1% fully matched, then take that 1%. That's 1000 that comes out of your paycheck PRE-TAX, and then the company gives you $1000 FOR FREE. They might say "we will match you 100% to 1% and 50% to 5%. I would only take the 100% of the 1%, and here's why:

401k programs seem great, but have a dark side. Yes, it is pre-tax, so it means you will take home be able to contribute more to it than if you put funds into it after-tax. But you still will get taxed on this money eventually--when you retire! So, if you are making good money or have a bunch of properties giving you income when you retire, or if the tax rate in America goes up to Finland levels (50%), then paying taxes in the future could be bad. If, in the future, your income level is low and US taxes are low, then your retirement tax hit from your 401k will not be bad.

The thing is--how can you know your tax bracket in the future? The easy answer is you probably can't predict the future. 401ks will also give you a double tax if you take out the money before retirement--early withdrawal penalty!

So, getting locked in with too much money in a 401k can be inflexible and bad if future tax rates are high.


Opening a private investment account is no good. You will pay capital gains tax every time you make money on trades--that's wack! Unless you are like Bradley Cooper in Limitless you can't expect to make enough investing to pay for these transaction costs.

What if I told you there is a legal way to invest with no taxes on capital gains?? It's called the Roth IRA. Take money from your paycheck, put it in here, and invest in anything you like, buy and sell with no taxes. When you withdraw early you pay capital gains tax, but if you keep it until retirement you never pay capital gains tax. 401k also has no capital gains tax, but you get an income tax when you cash out at retirement. Roth IRA is better because you never know if your income tax in the future will be high or lower than it is now (Roth IRA is clearly better if your tax rate is high in the future), and if you don't know for sure, it's better to pick the more flexible option in case of an emergency when you need money, which is the Roth IRA! Roth IRA is so great that the government puts a limit on how much young people

Let's consider the story of my friend Janie. She worked for a company offering 1% match, but she was putting 20% in to force herself to save. I told her that I would only put in 1% that they will match. She was making 50k/year. So 20% is 10k per year. I advised her to put 5500 into a Roth IRA at the beginning of each year. I told her to invest this Roth IRA in a simple index fund and not try to be an active investor. If she wants to force herself to save more, the easy thing to do is perhaps increase her 401k amounts.

Here is the three funds she was invested in, in her 401k:

A Fidelity Fund 1.3% expense fee - this is high, I wouldn't pay more than 1%, in fact my last email had funds with around .1% fees. I like the idea of dividend investing, but at the end of the day it's too much of an active investment style, which is subjective, and thus more risky.

Fidelity Spartan Fund--This is fine - low fees; I had her put 75% of her portfolio into funds like this

A Fidelity Target Date Fund

I tend not to like these YEAR-based target date funds, as they have high fees, but this one is not outrageous

Conclusion: put 75-90% into Spartan, VFINX, SPY or a similar low-cost index fund, and 10-25% into a low-fee bond fund. Anything that does stocks but has high fees above 1% is a ripoff. .1% is more like it. Bonds are a low-growth part of your portfolio which tend to hold value if the stock market tanks.

Of course, you don't have to take my advice. I will say that there is no guarantee that these will be great investments. But here is another good article, some general advice about how to invest passively with index funds.

Avoid: actively managed mutual funds, hedge funds, small stocks, or Chinese/'growth' stocks (no offense, but I know some Chinese people who got burned). Avoid anything that sounds too sexy, unless it's money you don't mind losing 100% of. Active investing is casino gambling, plain and simple. Even just buying one company is undiversified and risky, even if it's Apple.

The only downside to passive funds: They buy the top 500 companies in the world. If X company drops from 500 to 501 in the world, these funds automatically sell all the stock. Which means if it rebounds from 501 to 480 later in the year, the fund will automatically buy it back. So, in essence, they sell low, and buy high on stocks near the bottom of the top 500. This cuts out some of the profit, but I'm not sure how much. Noone has studied it to my knowledge.

Another Story

I know a guy whose company offers 100% 401k matching up to any amount. #CRAY. If he was married, I might advise to take 94.5% of my salary and put it in the 401k (5.5% into Roth IRA). It would turn his 100k salary into 200k. If the wife is making 100k as well, that should be plenty for them both to live on. She can even put 5500 into her Roth IRA. When they get older and need more income to pay for kid's expenses, they can always reduce the husband's 401k%. This is a rare scenario, but I like to think about what I would do if I had this opportunity in my life. I always like to take the guaranteed money from the company in the match. If your 401k is getting too large and you are worried about the stock market tanking, you can always put your money into a short-term government bond fund which has low yields but close to no risk. If your company doesn't offer these investment options, try to rollover your funds into another 401k service--there are plenty out there.

Advanced class:

Motif investing

Using this system, you could invest in the top 30 stocks in the world and just hold it. This would be a no-fee way to get exposure to the best companies in the world. It's not as diversified as the S&P 500. It's an idea I have been toying with personally but for now I just have all my money in SPY and similar funds.

I also like LendingClub.com. It's a way to make money by helping people who need small, short-term loans. You can even open a ROTH IRA through them. It's definitely risky, but it's a unique way to invest, and you can make good returns, and it's kind of fun.

More Info on Why Index Funds are Nice.