6 ways to start investing in 2022 (in priority order)

1. Contribute to retirement to max out your employer’s match

  • First, contribute to your 401K, at least up to your employer’s match, if applicable.  This is free money, so don’t pass it up. It‘s an investment that will pay off in the long run

    • The 2022 new limits are:
      • 401K employee contribution: $20,500
      • 401K employer contribution: $61K (may not exceed your total compensation)
      • Roth IRA: $6,000 (unchanged)
        • Roth IRA income limit: phases out at $129K-$144K (single)
      • These limits change if you’re married filing jointly, if you’re over 50, and in other circumstances

2. Pay off debts

  • To start paying off debt, pay the highest interest rate debt first. If you don’t have any debt, or if you’re starting with a low-interest rate debt, consider investing the money instead. It is important to pay off your highest interest rate debt first because the longer it takes to pay off, the more interest you will end up paying. When you pay off a debt, be sure to keep it paid off. If you decide to go back into debt and charge on that card again, it will just take longer to get out of debt. You may want to create a budget for yourself so that you can track how much money is going towards your debts and how much is going towards other things. If you don’t have enough money each month for your debts and other bills, consider getting a second job or cutting back on spending in order to save more money each month. You may also want to try saving up some extra money before starting your payoff plan so that you can use that money towards your debts
  • Generally, any debt that’s charging a rate higher than what you can make investing should be paid off before using that money to invest (~7% is a good rule of thumb)

3. Buy low-cost index funds

  • These minimize costs while gaining diversification. No financial advisor is needed
  • Unless you have or can develop an articulable and sustainable advantage over other investors, it’s best not to invest in individual stocks
  • Consider investing available funds in a Roth IRA first. A Roth IRA will give you more flexibility than a 401K because you can withdraw contributions at any time without penalty and without taxes.  So if you need some cash for an emergency, just pull out your contributions (not your gains, which will be taxed).  And ∫. Most people will also have access to a traditional IRA (or “non-deductible” IRA) through their employer or other sources such as banks or investment companies.  IRA’s are similar to Roth IRAs in that contributions can be withdrawn at any time without penalty and without taxes.  However, unlike the Roth IRA which is funded with after-tax dollars, traditional IRA’s are funded with pre-tax dollars so the withdrawals in retirement will be taxed at ordinary income rates
  • Some of my current favorites that I’m invested in are:
    1. VOO, SCHD, QQQ, VXF, VBK, VIIIX, VPMAX, FREL, SCHH

4. Automatically contribute out of each paycheck

  • This removes a constant decision point, that way, the money is automatically deducted from your paycheck and invested without you having to do anything
  • It also lets you check your investment account less often. You should always be prepared for some bad luck along the way – losing money on one investment does not mean that all of your other investments are doomed. It’s like getting struck by lightning – yes, it can happen, but over long periods of time the chances are small enough that it doesn’t make sense to worry about it
  • Do not try to beat the market or chase after hot stocks – if you do this then you will almost certainly underperform an index fund that simply holds most of the stocks in the market (such as SPY). The main reason why people fail at investing is because they try too hard – they read financial news stories and trade on tips; they try to predict what Apple stock will do next; they buy individual stocks instead of just buying into a well-diversified index fund like SPY or VTI; etc…   Investing requires little effort beyond opening an account and setting up automatic contributions – everything else beyond this point takes more work than it’s worth.
  • I aim to invest 50% of my post-tax income

5. Skip an emergency fund/savings account

6. If you must, set a % for speculation

  • If you can’t resist the hype of Crypto or the Wall Street Bets speculations, make sure you decide on a percentage of your net worth you’re willing to lose to these bets. This is similar to going to Vegas and only taking out the amount you’re willing to lose in cash – and walking away when it’s gone
  • I use 5% and invest in Crypto, primarily BTC, ETH, and BAT and well as a few other microcaps, incredibly speculative names