Sidebar: A Primer on Investing

Phase 2: Build a Routine · Sidebar after Step 6

Boring investing wins.

In short

You don't need to pick stocks. A small set of low-cost index funds, rebalanced by a simple rule, does the job. If an investment can't behave predictably, create value and manage itself, skip it.

Why this comes here

Step 6 is the first time money goes into investments, so this is the moment to learn the basics: Roth vs. traditional, stocks vs. bonds, why fees matter and what to avoid. Set it up right once and you won't have to think about it much again.

How to do it

1. Know the two tax types: traditional is taxed when you take money out; Roth is taxed when you put it in.
2. Own the market through index funds instead of picking stocks or paying for actively managed funds. Compare expense ratios: 1% versus 0.05% adds up to a lot over 30 years.
3. Skip what you don't understand or what can't manage itself: crypto, gold, startups.
4. Choose a stock and bond mix that fits your comfort with risk (a free risk questionnaire helps), spread across six slices: US large, mid and small companies, global companies, investment-grade bonds and high-yield bonds.
5. Rebalance whenever a slice drifts more than 1% from its target, or let a low-cost robo-advisor do it for you.