Before we begin: Taking stock of my current investments
Before looking at how I want to invest moving forward, I needed to look at how I'm investing now.
As a part of my eighth grade Civics class, I had an assignment in which I was “given” $10,000 to “invest” in the stock market.
Over a period of three weeks the class was charged to follow each of our stock picks and see whether our initial investment appreciated, and the stocks we picked went up in value, or whether we lost money and the overall value of our stocks went down.
At the end of three weeks, I had made more than $300 (No thanks to my heavy investment in Caterpillar). Success! Who thought a guy could make a 3% profit in less than a month with zero experience. I was pumped. Too bad this was just an assignment and the money wasn’t real. This was my first step in becoming a participant in the engine that drives the world’s economy.
There’s a big problem, though. Unlike my eighth grade Civics assignment, I don’t have $10,000 laying around that I can use to grow personal wealth through investing. And neither do the majority of Americans in their 20s and 30s.
In this newsletter, Evan Invests, I’m going to explore the world of investing from the perspective of the everyday investor by making small investments every month. The plan, at least to start, is to invest an additional $50 per month on top of current contributions to my company-sponsored retirement plan.
In addition to the stock market, I plan to see what it looks like to make money in cryptocurrency, commodities, potentially buying shares of real estate and more.
But first, I want to take another look at my current investment portfolio.
TL/DR Take Aways
Top Line:
In this newsletter, I’m going to explore the world of investing, by investing, to see what it looks like to make money with various types of investments.
In five years of work since graduating college, I’ve amassed about $20,000 in several Roth IRA accounts containing index funds. This is more than the median amount of $14,100 for Americana between 25 and 34 years old.
Bottom Line:
While conventional wisdom supports my current investment strategy, I still want to talk to a financial professional to get feedback on my current investments to see if a different mix of index funds would perform better than the ones I currently own.
Where my investment portfolio stands today
In five years of work since graduating college, I’ve amassed about $20,000 in several Roth IRA accounts containing index funds.
My currently investment portfolio:
Vanguard International Dividend Appreciation Index Fund Admiral Shares
Vanguard Mid-Cap Growth Index Fund Admiral Shares
Fidelity 500 Index Fund
Invesco International Small-Mid Company Fund Class R6 (Invested with Fidelity)
I’ll save you the hassle of looking up those funds. Basically, following the advice of colleagues at my first job, I bought two Vanguard index funds of stocks, or shares of ownership in a company. One fund consisting of American stocks. The other fund consisting of international stocks.
And when I arrived at my current position, I repeated the formula with Fidelity.
Stocks are considered to be risky when compared to other traditional forms of investment, and they also promise higher returns. The stock market goes up and the stock market goes down. At 28 years old, I have time to ride the waves before retirement, so the risk is outweighed by the promise of high returns.
If you don’t know what an index fund is, imagine for a moment one of the candy baskets your grandmother gave you on Easter.
She did not cut costs this year, and that basket has all the candies you love: Snickers, Butterfingers, Kit Kats, Hershey’s bars, Reese’s Cups, Skittles and M&Ms. Grandma can rest assured that because she has provided you with a broad selection, you’ll be satisfied, even though you really don’t care for Kit Kats.
Just like the basket of candy on Easter ensures grandma that there will be at least a few sweets you enjoy, the basket of investments in an index fund gives investors the benefit of owning a small portion of several investments, while reducing the risk of one of the stocks in that basket losing value.
So far I’ve bought my index funds as a part of Roth IRAs. With this type of account, I purchase my index funds with money that is “after-tax” with the government’s cut already taken out. You can also buy investments as a part of a traditional IRA where you pay taxes when you withdraw funds.
Beyond the company-sponsored retirement accounts I’ve put money toward, I haven’t done any other formal investing.
There are several reasons for this: A lack of awareness about how to wisely invest, a level of disengagement connected to the fact my employer invests retirement funds for me, and not choosing to prioritize investing with my extra income.
That’s why I’m so excited about diving into the world of investing. After five years of passively investing, I’m going to expand my horizons and see what other opportunities exist beyond the trusty index funds locked-away in my Roth IRAs.
What does the average retirement portfolio look like for Americans 25 to 34 years old?
Everyone’s financial situation is different because everyone’s life looks different and one person’s financial goals are different than another’s financial goals. But for the purpose establishing a benchmark figure, let’s take a look at how much the typical American who is 35 years old or young has in their retirement account.
An American between 25 and 34 years old has a median retirement savings of $14,100 according to Vanguard’s How America Saves 2022 report, as cited in CNBC.
That’s median, not average. In other words, half of all Americans 35 and under have less than $14,100 in their retirement fund, and half of all Americans in that bracket have more than $14,100 in their retirement fund.
Vanguard’s report also includes average figures, but I won’t list them in this post because I didn’t want numbers to be skewed by the very wealthy.
According to the report the median retirement savings is $1,800 for an American less than 25; $36,100 for an American between 35 and 44; $61,500 for an American between 45 and 54; $89,700 for an American between 55 and 64; And $87,700 for an American 65 or older.
If you don’t know how much money you have in your retirement accounts, then I would encourage you to look the number up. I have the Vanguard and Fidelity apps on my phone and check them at least once a week.
Don’t have any retirement funds? Begin contributing to a company-sponsored retirement fund. Or, if your workplace doesn’t have one, set up an account with Fidelity and put a little bit of money from every paycheck into the Total Market Index Fund.
Again, I’m not a financial advisor, so you need to do your own research when it comes to investing.
That said, I can tell you with total certainty that if you don’t have a retirement account today, it’s important that you start one as soon as you’re financially able. If you’re like me (and most Americans) you don’t have a huge amount of extra cash to put toward investments. Your investing will likely be done in small amounts, relying on consistency and the power of compound interest.
Time is of the essence.
So where do I go next?
There is a school of thought in the investing world (filled with people much smarter than I am) arguing that no investor can consistently outperform market averages. This hypothesis is why my colleagues at my first job advised me to begin investing with index funds.
If even the most seasoned financial manager can’t consistently beat market averages, then why am I even beginning this journey at all? Why not just direct all of my money toward my company-sponsored account?
There are several reasons.
First, market averages can be beat, even if it’s unlikely. The well known names on the business news channels are well known because they consistently beat the market averages. Does the name Warren Buffett ring a bell?
I want to learn more about investing and how financial markets work. Including what it looks like to try investment strategies beyond just buying index funds of the top stocks in the American stock market.
Second, there are more types of investment and investment opportunities today than at any other point in human history. So why would I settle for just investing in index funds?
Third, when I invest in something, I’m not only expecting a financial return, but I’m also casting a vote of confidence in the thing in which I invest. In capitalism, I can vote with my dollar. Remember when GameStop’s stock shot up in value in January 2021 thanks to social media hype?
So if there are multiple ways for me to earn a profit, I want to explore what it means to invest in things I support.
But before I get ahead of myself, my first step is going to be talking with a financial advisor, and other friends who work in the financial industry, to make sure that my current mix of index funds constitutes the wisest investment strategy I can make with my current amount of retirement funds.
I’ll report back next week.