Yahoo Finance Ramit Sethi: ‘You’re Losing Money Every Day You Aren’t Investing’ — How To Overcome 3 Main Obstacles
In a recent Linkedin post, financial commentator Ramit Sethi — who’s also the host of Netflix’s “How To Get Rich” — urged investors to overcome their reluctance to invest by noting that “you’re losing money every day you aren’t investing.” While this might sound like a truism, Sethi is using the expression as a way to compel readers to jump into action.
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After all, as Sethi explains and many financial advisors agree, investing in and of itself is relatively simple. It’s the act of actually getting into a routine of investing that is the hardest part. Here are the major obstacles to investing, according to Sethi, along with suggestions on how to overcome them.
They Don’t Know WHERE To Start
Even though financial services have become much more user-friendly these days, for someone who has never invested before, even knowing where to start can be daunting. This is particularly true for those who aren’t yet comfortable with the idea of working with financial services firms via the internet.
Sethi says that he advises beginning investors to choose one of three firms: Vanguard, Fidelity or Schwab. Sethi himself uses Vanguard, according to his Linkedin post.
While those are all three popular and reputable firms, there are plenty of choices for beginning investors. Even full-service firms like Merrill Lynch and Chase now offer online investing options with $0 commissions for most stocks and ETFs, so cost is hardly an issue anymore for investors choosing the go-it-yourself option. Another option is using a robo-advisor, such as Betterment, Wealthfront or countless others. Robo-advisors can manage your portfolio using a series of ETFs for just a 0.25% annual fee.
If you feel more comfortable working with an advisor face-to-face, that’s also a good option for a beginning investor. However, you’ll have to be prepared to pay sometimes high fees for that service.
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They Don’t Understand HOW To Start
As for the specific ways that you should invest, Sethi outlines “how” in his post. Once you’ve picked the firm you’re going to work with, Sethi says to find the target date fund they offer that matches the year you will turn 65, or the date you plan to retire. For example, if you’re 30 and plan to retire at age 65, you’ll need a 35-year target date fund. As of 2023, that would mean you’re looking for a target date fund that matures in 2058.
A target date fund adjusts your allocation based on how close to retirement you are, with investments becoming more conservative as you approach your target date. For example, if you are 25 and your target date fund matures in 65, your initial allocation will be high in stocks and low in bonds. But by the time you reach age 60, your target date fund will be fairly conservative, with perhaps 80% in bonds and 20% in stocks, or something comparable.
Once you’ve found the right target date fund, Sethi says to begin regular, automatic investments. Ideally, you’d start by investing $1,000 and then set up monthly automatic deposits of whatever you can afford, be it $50, $100, $1,000 or even more. Automatic investing is key because then you don’t have to worry about remembering to invest — and you also remove emotion and rationalization from the equation. If you’re responsible for making your own investments every month, it’s far too easy to talk yourself out of making a contribution.
They Don’t Think They Have Enough TIME
If you follow Sethi’s steps, you won’t be able to use the excuse that you don’t have enough time to invest. After you pick a firm and your target date fund and begin automatic investing, the whole process will be more or less out of your hands.
Your money will automatically begin to grow through the combination of monthly contributions and the returns of the fund itself, without you even lifting a finger. While you should monitor your performance, the sum total of all of your investing efforts won’t take much time at all.
Other Options
Sethi’s advice makes sense for beginners because it’s easy to do and it’s a good way to get invested right away. Other investors and advisors suggest simply buying an S&P 500 index fund on a regular basis.
An S&P 500 index fund will track the daily returns of that index, which is commonly used as a proxy for the stock market’s performance as a whole. While returns can be variable, the S&P 500 has returned over 10% annually over the long run, and it has never lost money over any 20-year rolling period.
Famed billionaire investor and CEO of Berkshire Hathaway Warren Buffett, for example, has often said that buying an S&P 500 fund is the best option for the average investor. In Buffett’s words, “Consistently buy an S&P 500 low-cost index fund. Keep buying it through thick and thin, and especially through thin.”
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