This article is brought to you by Wealthsimple.
I recently wrote about how I’m learning to spend despite being a pinch-penny. That article sounds breezy, but it’s taken me a long time to get to that point. And there’s still one area of finances that is really tough for me: investing. In my mind, investing equals big risk — and risks freak me out. If I could, I would cram all my money into a big mayonnaise jar and bury it in my backyard.
This, I have been informed by multiple people, is not a solid investment strategy. It helps to remember that I’m already doing several smart things, like building up my emergency savings and socking away enough for a chunk of bills somewhere safe (this last one ostensibly for emergency situations like hurricanes when cash is king, but also partly because I’m a tinfoil-hat-wearing conspiracy theorist — a topic for a different article/therapy session). But while savings accounts are great for shorter-term goals, they’re basically useless when it comes to bigger things like retirement. My savings account earns something bananapants like 3 cents per month. Let’s say I want to save 2.5 million dollars — I could retire…well, never.
On the other end of the spectrum sits my 401(k). It’s a fantastic thing to have (love that company match!), but it’s super long-term. I can’t withdraw money until I’m 59-and-a-half without incurring harsh penalties. Essentially, I heave money into that account and otherwise pretend it doesn’t exist, because the funds aren’t really available to me, at least not anytime soon.
So what’s in between? What could help me pull together a house down payment faster, fund that crazy cross-country road trip my husband and I have always talked about, or even head into retirement early?
Investing. There’s that scary word again. “Let me save up the enormous amount of money required to invest, then spend every spare minute analyzing the stock market trying to figure how and when to buy and sell.” Which of us mere mortals has the time or intestinal fortitude to do that? And for as long as I’ve been paying attention to this stuff, the only other option besides becoming an amateur day trader seemed to be to hire “a guy” — a Financial Advisor who could do your investing for you. I don’t know about you, but I’m as interested in trusting a random stranger with tens of thousands of dollars as I am in, say, living in a time before penicillin or the 19th Amendment.
I’m not the only one intimidated by all this. A 2016 Bankrate survey found that only one in three millennials is investing in the stock market. When asked why they weren’t investing:
- 50% of respondents said the thought of losing money in a bad investment is an obstacle; 35% said the amount of money they believed to be required is.
- 31% said they don’t know whom to trust to help them invest.
- 24% said they don’t know how to get started.
So two-thirds of people around my age think they don’t have enough money and don’t trust anyone to help them. What are we supposed to do?
Bankrate’s answer is simple: Suck it up, buttercup. Yes, investing is risky. But where there’s risk there’s reward — and as long as you’re not putting all your eggs in one basket, the time to start is a year ago. The younger you are when you start saving and investing, the better off you’ll probably end up, thanks to the the powers of compound interest. Fortunately, technology may actually be on our side (for once) in the war against fear of investing. We don’t have a spare ten grand or know Dow Jones from NASDAQ, so an online investment manager like Wealthsimple may be just what the doctor ordered.
When I first heard about “robo-advisors”, I didn’t think it sounded any safer to trust my money to an algorithm than to a person. But then I remembered that most 401(k) accounts work exactly the same way: you deposit your money, and the account manager helps it grow by investing it for you. My guess is that online investment managers seem riskier just because they’re new. In a few years we may consider them a required piece of our financial strategies.
Starting with a small investment, I can open an account on Wealthsimple, and their nerdy algorithms will manage a portfolio for me. I can tell them my goals and level of risk tolerance, and away we go. The algorithm does all the hard work, and I can interact with a human employee and manage my account as tightly or loosely as I’m comfortable with. Sometimes the act of investing is less intimidating than trying to figure out what to invest in. My favorite thing about Wealthsimple is that they offer portfolios with stock from socially responsible companies, as well as those that comply with Islamic investing principles. Sound good? TFD readers get a $50 cash bonus when they sign up. You can get started with Wealthsimple any time.
If you’ve already got a decent emergency fund and are interested in dipping your toes in the investment waters, an online investment manager might be a good option. Do your research and go slowly, but don’t forget that this is about your money and your future — and a little risk could mean a solid reward.
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