Do something today that your future self will thank you for.
Hooray! You’re here! Which means you’re likely ready to pull this exciting, important lever for your future success. Just in case you’re still on the fence, here’s an example of why I wish I’d done what you’re about to do when I was just starting out. At 16, I inherited $10,000 from my great grandfather. Of course I wanted a car, and a fancy one at that. My father helped me buy a used Isuzu Rodeo with just about all of that money. If I had bought a less expensive car and invested $5,000 in a low-cost index fund that tracked the total stock market, that $5,000 would have likely become $87,000 by the time I’m 65. And that’s assuming a conservative growth rate of 6% per year. (In real-life numbers, it would already be worth $43,000 and would have grown at a rate of 9.09%). By the time I’m 75, it would likely be worth $155,000. Instead, the car and all of its value are long gone and it took me another 15 years to start learning about investing.
That’s why I’m here! Simply knowing my options and making a slightly different decision could have turned $5,000 into over $155,000. I don’t want other teachers to miss out on any of these opportunities!
For years we invested in a mix of index funds outlined in The Million Dollar Portfolio, written by Tom and David Gardner. I will always be grateful to the Gardner brothers for their wit and keen ability to explain investing to someone who knows nothing about it. Then I read The Simple Path to Wealth and realized I could get the same returns with a much simpler approach, which is what I’m doing now. Here’s how you can do it, too:
- Open an account with Vanguard (Fidelity and M1 are comparable options!). It can all be done easily online (unless you’re under 25 or so, then you may need to print and mail a form. But if you’re under 25 and doing this–DEFINITELY keep going!! Your future self will buy you champagne and roses!!) It will likely be a Roth IRA or Traditional IRA. See Part 1 to help you decide. Vanguard also has an excellent comparison here. When you get to the step about dividends–choose to reinvest. This means that when some companies pay you for being a shareholder, you reinvest that money and buy more stocks. (Vanguard will do this automatically for you once you pick that option.) This is a great way to keep your money growing and avoid paying taxes on your earnings before you’re ready.
- Once you link your bank account, you’ll transfer money into your Settlement Fund. This is a money market fund that is basically like a savings account. It will also be called your “sweep account” because it’s the fund that money comes out of when you buy shares and it’s where the money goes when you sell shares.
- Purchase your first index fund! VTSAX (Vanguard Total Stock Market Index Fund) is where I started. Like the name says, it’s a mutual fund that holds every publicly traded company in the U.S. It has a $3,000 minimum. If you don’t have an initial investment of $3,000, no big deal. You can take whatever you have and buy shares of VTI (which I also own shares of). This is an exchange-traded index fund. It has the same companies as VTSAX but you can buy it in any amount. The difference between mutual funds and exchange traded funds is very small, and both will have the same effect in terms of your investments. Even if you only have $50 to start with–it’s totally worth it! We all start somewhere! (I’m not legally allowed to recommend specific funds, so please make decisions that work for you and align with your goals!)
- To buy a mutual fund or exchange-traded fund (ETF) just go to the My Accounts tab at the top of your homepage and click on the Buy & Sell. Vanguard will walk you through the steps from there. (If you’re buying a mutual fund, just go with the Market order when you get to that drop-down. The other options are a bit more complicated and don’t make a significant difference in the end result.)
- If you have any questions, Vanguard is remarkably helpful on the phone. Call them up and let them walk you through any steps you need.
- Celebrate!! Have a latte, a glass of red, a cookie, or treat yourself to a movie or a manicure. You’ve just given yourself a HUGE gift!
Now keep learning! Subscribe and read about this stuff in more detail. Share this post with a teacher friend and start the conversation! Join our Facebook Group. Talk to your friends. Call Vanguard and ask them questions. Call me if you want some one-on-one help. Keep taking action one step at a time and you’ll continue to see the huge benefits that being financially fit can bring!