I would have loved some sort of a roadmap laid out for me when I started over a decade ago. The goal of this page is to do just that, so that you can start building wealth today.
View this page as a reference sheet; a pathway along which you’ll progress; a general framework, from which the details branch off. I would suggest taking a brief look at all the steps first, and then slowly working through them in order. I’ll be updating and adding new resources below as things change. Links below will open in a new tab so that you can keep this page open. You can bookmark this page for later using Ctrl+D on Windows or Command+D on Mac.
Disclosure: Some of the links on this page are referral links. At no additional cost to you, if you choose to make a purchase or sign up for a service after clicking through those links, I may receive a small commission. This allows me to continue producing high-quality, ad-free content on this site and pays for the occasional cup of coffee. I have first-hand experience with every product or service I recommend, and I recommend them because I genuinely believe they are useful, not because of the commission I get if you decide to purchase through my links. Read more here.
1. What is the Stock Market?
Investing in the stock market is one of the most powerful and quickest ways to build wealth. First let’s explore that conceptual framework in which we’ll be working for investing:
2. Build an Emergency Fund
If you’re young, time is on your side. Compound interest is extremely powerful over long investing periods, called your time horizon. Even if you’re not young, it’s never too late to get started. But before jumping into investing, you need to save up 3-6 months’ expenses in an emergency fund for a rainy day. Don’t worry, you can invest your emergency fund:
3. Pick a Broker and Open an IRA
After that, you want to open up a tax-advantaged account like a Roth IRA to avoid having to give money to Uncle Sam unnecessarily. Hopefully you also have a 401(k) account available through your employer. Try to max out contributions to those. You have to open up an IRA and access the stock market through a broker. Personally, I like M1 Finance. But I compared some others below:
Also open up an HSA (Health Savings Account) if you can.
4. Choose an Asset Allocation
Now that you’ve opened an investment account, it’s time to choose what to invest in. But before that, the more important choice is your portfolio asset allocation, the ratio among different asset types like stocks, bonds, gold, etc. based on your time horizon and tolerance for risk. Here’s how to choose an asset allocation:
5. Choose Assets (Use Index Funds!)
Finally, the fun part! Now you pick what you want to invest in. While picking individual stocks like Amazon, Apple, etc. may seem attractive, that’s objectively not the best approach.
The evidence has shown that even most professional investors can’t pick winners that beat the market over 10+ years, much less the average retail investor like you and me. On the 50th birthday of the S&P 500 index, only 86 of the original 500 companies remained. Blindfolded monkeys randomly throwing darts for stock picks have beaten top hedge fund managers not just once, but consistently. A little speculation/picking is fine to keep things fun, just don’t do it with the bulk of your portfolio. This is why broad index funds like VOO and VTI are recommended so often.
To keep things interesting, you can put some picks at no more than 10% or so of your total portfolio. Thankfully, this is extremely easy to set up with a broker like M1 Finance.
What about picking sectors like tech, financials, health care, etc?
Betting on sectors increases uncompensated risk – additional risk without an increase in expected return. You’re increasing your chances of underperforming the market. Some sectors will outperform and some will underperform. How do you know which ones will do which? And during what time periods? What about different economic cycles? Tech has had a huge run recently. Will it continue?
Again, stock picking doesn’t work. Sector bets are just stock picking lite – one small step removed. Buy the whole haystack instead of trying to find the needle. You get exposure to the success of any sector at any given time in a market index fund, while eliminating sector risk.
So now that you know why index funds are superior to stock picking and sector bets, you still have some choices to make. You can choose your own index funds, or if you don’t want to even worry about doing that, use a lazy portfolio.
- How To Invest in an Index Fund – The Best Index Funds
- How to Invest in the S&P 500 Index – 3 of the Best ETFs
- The 9 Best Index Funds for Young Investors (4 From Vanguard)
- The 6 Best Index Funds for Beginners for Long-Term Growth
- VOO vs. VTI – Vanguard’s S&P 500 and Total Stock Market ETFs
Those with a shorter time horizon or a lower risk tolerance will want to diversify with other assets like bonds, REITs, and gold:
- How To Buy Bonds Online: The Ultimate Guide for Beginners
- The Best Vanguard Bond Funds – 11 Popular ETFs
- Treasury Bonds vs. Corporate Bonds – The Showdown
- The 5 Best REIT ETFs To Invest in Real Estate
- Why and How To Invest in Gold for Beginners
- The Best Bond Funds Out There – 13 ETFs
7. Invest in a Taxable Account
Maxing out your tax-advantaged retirement accounts is a great problem to have. After that, you can put any extra money in a normal taxable brokerage account. Investors wanting to invest to supplement their current income will also want a taxable account. Here’s how to invest in a taxable account in a tax-efficient way:
Income investors may have a different goal:
8. Tweak as You See Fit
After you’ve got some experience under your belt (and new knowledge in your head), you may come across things like tilts and leverage; you can employ those things in your portfolio if you feel comfortable doing so:
- The 7 Best Small Cap Value ETFs (3 From Vanguard)
- The 5 Best Mid Cap ETFs (3 From Vanguard)
- The Best Vanguard Growth Funds – 5 Popular ETFs
- The 5 Best Tech ETFS To Get in on the Technology Boom
- The Best Vanguard Dividend Funds – 4 Popular ETFs
- What Is a Leveraged ETF and How Do They Work?
- The 9 Best Leveraged ETFs To Enhance Portfolio Exposure
- Leveraged All Weather Portfolio
- Leveraged Permanent Portfolio
- Leveraged Golden Butterfly Portfolio
- How To Beat the Market Using Leverage and Index Investing
9. Sit Back and Relax, and Rebalance Annually
Don’t try to time the market. Buy and hold. Stay the course. Ignore the short-term noise. Invest regularly. Sit back and watch your portfolio grow, and rebalance it annually. Rebalancing refers to buying underweight positions and selling overweight positions to get your portfolio back to its target asset allocation.
For example, suppose you have a portfolio of 50% stocks and 50% bonds. If after one year your stocks position increases in value by 10% and the bonds position decreases by 10%, the asset allocation after one year will be 55/45. Rebalancing sells the 10% in stocks and buys 10% in bonds to get you back to 50/50. Only do this after 366 days in a taxable account to avoid short-term capital gains taxes.
Thankfully, M1 Finance has a cool dynamic rebalancing feature – automatically directing new deposits to underweight assets to keep your portfolio on track without having to manually rebalance. If you need to manually rebalance, they have a 1-click “Rebalance” button that keeps things easy.
Disclosures: I am long VOO.
Disclaimer: While I love diving into investing-related data and playing around with backtests, I am in no way a certified expert. I have no formal financial education. I am not a financial advisor, portfolio manager, or accountant. This is not financial advice, investing advice, or tax advice. The information on this website is for informational and recreational purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. Do your own due diligence. Past performance does not guarantee future returns. Read my lengthier disclaimer here.