The goal here is a practical explanation of how a US citizen can invest money with an evidence-based, long-term approach. My view is that many people delay investing for a few reasons: (1) they know loss is possible and fear it; (2) they don’t fully appreciate the immense long-term benefits of wise investment; or (3) they mistakenly think investing is a time-consuming activity that demands ongoing research and stressful decision-making about which companies to invest in. I think many people are hesitant to even start researching because there are simply too many options, which implies that there are many ways to make the wrong decisions.
This document will attempt to resolve those obstacles with concrete explanations and suggestions. It's important to understand:
- The investments available to you as well as their risks and possible returns.
- The psychological challenges of investing, and how to navigate them.
- The different types of accounts in which you can invest, and the rules of retirement accounts and others.
- How taxes influence rational investing.
- How investing interacts with other parts of personal finance, such as paying debt, saving and budgeting, insurance, housing, fraud prevention, estate planning, and financial independence/retirement.
At the end is a list of resources and important vocabulary with links, which provides an overarching summary of the concepts you should understand before you start investing.
Before you begin reading, you may want to start with some introductory material.
This series of ten short videos slowly introduces the basic concepts of investing and assumes zero prior knowledge. I've created a YouTube playlist of the videos at that link. (Two videos in the series are skipped deliberately, because they contain descriptions that don't apply to the investments in this guide.)
This video is a great explanation of the principles of financial markets and the approach to investing that will be applied here. Even those with some knowledge about investing will benefit from the discussion.
You can see the descriptions of each section below, as well as my estimate of how long each section takes to read at a slow speed suitable for processing new concepts. Throughout the guide, many hyperlinks to accessible resources are included to make it easy to learn more than is presented in the text. You may want to click on them as you read, or return to them afterward. The time estimates include only the main text, and not the time taken to click to the hyperlinks or read the footnotes. The total, excluding the advanced topics, is three hours and change.
The author can be reached at bright.tulip711@simplelogin.com (random alias to avoid spam, not my main email).
Click here for the next section — Introduction to index funds
All sections:
- Cover page - you are here | 2 min
- Introduction to index funds - the most important vehicle for long-term investing | 14 min
- Thinking about risk - how bonds work, and the risks of different investments | 20 min
- Tax-advantaged accounts - intro to tax-advantaged investing | 20 min
- Your psychology - enforcing your own rational behavior is the hardest part | 18 min
- Investing for retirement - how to invest for and during retirement | 16 min
- Guidelines for personal finance - rent vs. buy, paying debt, estate planning, and other topics | 34 min
- Building a stock portfolio - how to think about selecting stock funds | 15 min
- Fund proposals - specific portfolio suggestions | 19 min
- Advice - seeking professional financial advice | 5 min
- Practical information for execution - gritty details to read before you start | 14 min
- Taxes - how taxes work and how to invest with taxes in mind | 38 min
- Vocabulary and further resources - an organized list of resources and what you need to know | 5 min
- Advanced topics - for informed investors with mastery of the basics | 45 min