One topic I rarely discuss on Making Sense of Cents is investing.
For a long time, investing was not something I explored deeply in my personal finances. I realize that sounds like a personal finance blogger slip-up, but it’s honest: I was embarrassed to talk about it. We always had some money in a retirement account, but the balance was nothing to brag about. I often excused myself by saying I was paying off student loans, saving for other goals, or simply distracted by life events.
We did have additional savings, but much of it sat in accounts that earned almost no interest. That was a mistake I’ve decided to correct.
Recently I took a step forward and purchased a few hundred shares of Vanguard Total Stock Market Index Fund Admiral Shares and moved them into my SEP IRA. Thanks to recommendations from bloggers like Holly at ClubThrifty and J. Money at BudgetsAreSexy, I decided to try VTSAX. Its low costs and broad diversification appealed to me.
I plan to document and share our investing approach, what we’re doing, and how our retirement savings progress over time. If you’ve been waiting for a nudge to start investing, I hope these future posts will help motivate you.
To begin, here’s a clear, practical investing 101 and beginner’s guide to saving and investing for retirement.
What is an investment?
An investment is something you buy with the expectation that it will generate income or grow in value over time. Investments come in many forms: you can invest in a business, real estate, stocks, bonds, mutual funds, or a range of other assets. Each option carries its own level of risk, potential return, and time horizon.
Note: If you want a clearer view of your overall financial picture, consider using a portfolio-aggregation tool. Tools like Personal Capital let you link accounts—mortgage, bank accounts, credit cards, investments, retirement accounts—and see your net worth and cash flow in one place. It’s free and useful for tracking progress and making more informed decisions.
Why is investing important?
Investing matters because it lets your money work for you. Money left idle in a basic checking account or under a mattress loses purchasing power over time due to inflation. By investing, you give your savings the potential to grow and preserve or increase their real value.
Consistent investing can help you build a retirement nest egg. Without some form of investing, keeping pace with inflation and achieving a comfortable retirement becomes much harder.
But I don’t have enough money to invest
Many people delay investing because they believe they don’t have enough funds. The truth is that even modest amounts can compound into substantial sums over long time horizons. Compound interest means your earnings generate more earnings: interest is added to your principal, then future returns accrue on the larger balance, accelerating growth.
For example, $1,000 invested at an annual 8% return for 40 years grows to about $21,724. If you start with $1,000 and then add $1,000 each year for 40 years at 8%, the result is roughly $301,505. If you begin with $10,000 and add $10,000 annually for 40 years at 8%, you could reach roughly $3,015,055. These illustrations show how regular contributions and time can make a big difference.
What if I lose money in my investments?
Investment risk is real: stocks and funds can decline in value. But every investment carries risk, including collectibles, real estate, or business ventures. Physical items can be damaged, stolen, or lose demand in a downturn. Stocks and funds also fluctuate, yet historically they have rewarded long-term investors who remain patient through market cycles.
Short-term drops are normal; the key is aligning your investments with your time horizon and goals. Long-term investors tend to ride out volatility and benefit from market recoveries. Reading personal accounts and lessons from investors who tolerate short-term losses can help put market swings in perspective.
Practical starting tips
- Start small and be consistent: regular contributions, even modest ones, add up thanks to compounding.
- Diversify: spread money across different asset classes or funds to reduce the impact of any single investment’s poor performance.
- Keep costs low: choose low-cost funds and be mindful of fees that can erode returns over time.
- Match investments to your goals: use retirement accounts for long-term saving and consider taxable accounts for shorter-term objectives.
- Track your progress: use an aggregation tool to see all accounts in one place and review your asset allocation periodically.
- Educate yourself: read reputable sources, learn about risk tolerance and time horizons, and consider professional advice if you need it.
Are you saving for retirement? When do you hope to retire, and what beginner investing tips have helped you start or stay on track?
P.S. I’m not an investment professional. This article is for informational and entertainment purposes only. Always do your own research and seek professional advice if needed.