Simple Portfolio Solutions for Terrified Beginners
Temporary options for new investors.
Let’s say you want to get started investing now but you don’t know anything about investing. You don’t have time to learn what an index fund is. You don’t have the mental capacity to understand the difference between a value stock and a growth stock or developed markets and emerging markets. You just want someone to tell you what to do so that you can get your money invested and put off learning for another day.
Every investing beginner needs a temporary solution that’s good enough to hold long term even if it may not necessarily be the most optimal portfolio. Think of this portfolio as a minimum viable product. You probably won’t want to keep it forever, but if you did, you’d probably do just fine. You would make a lot more money compared to not investing at all, even if a better portfolio would involve taking more or less risk.
Too scared to start investing?
Overwhelmed by all the choices?
This post is for you.
I’m going to lay out a few options that are good enough to start investing immediately. You can’t go wrong with these choices while you start your investing journey and in the meantime dedicate some time to learning so you can develop a more tailored portfolio later.
Option #1: DIY Investing at Discount Brokers
First, there are three brokerages that I would recommend to anyone:
Fidelity
Vanguard
Charles Schwab
Without knowing anything about your personal situation, you probably want to start with a Roth IRA. The major exception is if your income is greater than $146,000 (single filer) or $230,000 (married filing jointly). These are all-around great retirement accounts for those just starting. Another great choice would be a taxable brokerage account. These are ideal if you don’t know what you’re investing for or if you want the most flexibility.
What should you actually put your money into? Any of these would be great options:
1. Vanguard Total Stock Market ETF (VTI)
This is hands-down the most important fund every investor should know about. It owns 3,656 stocks as of the end of August. This is virtually every stock in the United States, meaning you’re well-diversified. While I personally also like to own an international fund, I wouldn’t worry too much about that in the beginning, making this a perfect one-fund starter portfolio. While this is a Vanguard fund, you can buy it anywhere just like a stock.
2. Vanguard Total World Stock ETF (VT)
Very similar to VTI, this fund attempts to own most stocks across the entire world. It contains close to 10,000 stocks with a roughly 60% U.S., 40% international allocation, so if you want some international exposure right from the start, this is a pretty good fund to own while you figure out a more custom U.S./international allocation.
3. Target-Date Funds
Target-date funds are diversified investments that own both stocks and bonds across the U.S. and international markets. Their main feature is that they start relatively aggressive with a large exposure to stocks and gradually increase their exposure to bonds as you get older. Pick the fund that roughly corresponds to the year you plan to retire. I should probably mention that these aren’t the best for taxable accounts, but any kind of retirement account makes a great vehicle for them. Vanguard, Fidelity and Charles Schwab each offer target-date funds. Because they are mutual funds, stick to the target-date fund provider of the corresponding brokerage you sign up for to avoid extra fees.
Option #2: Guided Investing With Robo-Advisors
Maybe that’s still too overwhelming for you. Luckily, there’s an even more hands-off option for you: robo-advisors.
Unlike the freedom of your standard brokerage, a robo-advisor holds your hand and makes all the choices for you, down to the actual purchase of investments. All you need to do is answer a few questions about your age, risk tolerance and goals and they will select a portfolio for you. After that, it’s as easy as depositing money and letting the robo-advisor allocate it to your portfolio. Most robo-advisors will charge a fee for their service, but it won’t be large enough to matter in the medium term. If it means the difference between investing and putting off investing forever, it’s hard to put a price on this extra fee.
Any of these are some great robo-advisor options:
1. Betterment
Betterment is the best known of the robo-advisors. They make it simple to invest and the user experience features a clean, modern design absent a lot of legacy brokerage firms. The main portfolio they offer invests across U.S. and international markets. There’s no minimum to invest. The service costs $4 a month but that transitions to a 0.25% annual fee when your assets reach $20,000 or you set up automatic monthly deposits of $250 or more.
2. Wealthfront
Wealthfront is Betterment’s most direct competitor: a modern robo-advisor designed to attract young investors. Where they depart is the investing minimum — you need $500 to open an account — and the amount of freedom you have. In addition to a robo-advisor platform, you can also invest in individual stocks or pick your own portfolio. Wealthfront charges 0.25% per year on your account balance.
3. Acorns
Acorns is mainly known for offering a debit card that rounds up every purchase to the nearest dollar and invests that money for you. They also offer a robo-advisor service with three plan tiers priced at $3, $6 and $12. Most of the most important investing features are offered under the basic tier and there are no minimums. One thing I find mildly annoying is that they seem allergic to using real account names. If you want a Roth IRA, they call it “Acorns Later”. If you want a taxable brokerage, they call that “Acorns Invest”.
4. Fidelity Go
One reason to like Fidelity Go is that it’s built on top of a great brokerage company that offers DIY investing. This makes it easy to transition to that route if you choose to later. There are no minimum investments and no fees if your account has less than $25,000. On balances of more than that, the fee is 0.35% a year.
Think of these options as training wheels. They help you get started but you can choose to graduate later on to a full DIY brokerage. Or you can leave your investments in a robo-advisor forever. It’s up to you.
Just Invest
Remember, even if these aren’t the most optimal portfolio solutions for your goals, they will help you get started investing and buy you some time while you learn more.
In the beginning, what matters most isn’t what you’re invested in per se, it’s that you’re investing. How much money you’re putting in will have a far greater impact than the portfolio. Don’t let perfect be the enemy of good and just get your money invested. You can figure out the details later.