11 Reliable Tips For When You Need To Invest Money

If you remember only one thing from this article, remember this:

Time and return rate matter the most when you invest, so start now with whatever you can, no matter how small. 

You can’t always control the return rate you get, but you can control how much time you give your money to grow. Give it as much time as you can, and you will be surprised how much you end up with (see Sophie’s and Olivia’s stories).

After five years of consistently investing, I went from a net worth of $26K to $1M. I could afford to take a year off to travel and write guilt-free because I had exceeded all my investment goals. The only secret is that each month, I invested no matter what was happening in the market, and I left my money alone to grow undisturbed. 

Related article: How To Invest Money Now In 3 Seemingly Simple Steps

Here are 11 things you can do today to invest:

1) Clarify your investment goals and timeline

Are you investing for retirement or to generate income now to cover your expenses? Will you sell your investment in 3 years or 30 years? Different investment goals and timelines need different approaches. For short-term investing, you may prioritize preserving your capital and invest in stable assets like short-term CDs (certificates of deposit) or US government treasury bills. For long-term investing, you may take on more risk in your investment approach for a higher rate of return and invest in low-fee equity ETFs (exchange-traded funds) that track the entire US stock market.

2) Open a high-yield savings account

What kind of bank account do you have? Does your bank pay you interest on the money in your account? How much interest? If you are like most Americans, your money is in a bank account, earning less than 0.01% in annual interest. 

Did you know several banks offer high-yield savings accounts where you can earn as much as 4% in annual interest? That’s more than 400x what you make from most banks. If you have $5,000 in savings, putting that in a high-yield savings account will earn you more than $200 after a year instead of 50 cents (two quarters). 

Banks like Ally Bank and Synchrony Bank allow you to open a high-yield savings account with no monthly fees, no minimum deposits, and no minimum balance. You can save as little or as much as you want while earning about 400x more interest. 

You can save as little or as much as you want while earning about 400x more interest. 

3) Set up direct deposit to your high-yield savings account

One of our mantras at Simplified Wallet is “Pay Yourself First.” Most people have their paycheck go to their checking account, and they spend first. They save whatever is left over at the end of the month. 

We recommend flipping this. Pay yourself first means saving first for your financial future before you spend. You can start where you are, whether it’s saving $100 or $1,000. The key is to build a savings habit and let your money grow consistently over time. 

For example, I have my paycheck split into two – a set amount goes to my checking account to cover my monthly expenses, and the rest goes directly to my savings account. This ensures that each time I get paid, I automatically save. Suppose you get paid in cash or can only select one bank account for direct deposit. In that case, you can set up a recurring automatic deposit from your checking account to your savings account.

4) Contribute to a tax-advantaged retirement account

Depending on who you work for, you can contribute to different tax-advantaged retirement accounts, e.g., 401k, 403b, 457b, or Thrift Savings Plan (TSP). If you are self-employed or work in the private sector, you can contribute to a 401k plan. The other options are used when you work for the federal government, state or local government, public schools, and non-profits. Whichever one your employer offers will provide tax benefits as you save for retirement. 

We will use the 401k as an example, as it’s the most common one. If you have a traditional 401k, you contribute to it before tax. Your investments grow tax-free in your account. You only pay taxes when you withdraw funds after retirement. If you have a Roth 401k, you contribute to it after tax. Your investments grow tax-free, and you don’t have to pay taxes when you withdraw funds at retirement. 

Having your investments grow tax-free is a great benefit. For example, if you earn dividends on investments in your 401k, you pay no income tax on these dividends. Instead, you can reinvest them and grow your nest egg faster. Take advantage of this and contribute to a 401k or TSP. 

5) Increase your 401k contribution until you max it out

Because of the tax benefits and withdrawal restrictions, 401ks are fantastic ways to start investing. Your investments can grow without losing money to taxes. Also, you leave your investments alone to grow undisturbed because of the early withdrawal penalty. 

The IRS sets the contribution limit each year from tax-advantaged retirement accounts like 401ks. For 2023, the limit is $22,500. If you can, you should contribute up to the limit. If you can’t, contribute as much as possible and increase your contribution whenever you get a raise until you reach the limit. 

If you max out your retirement contribution every year for 30 to 40 years, you can accumulate over $1 million, partly from your contribution and partly from your investment return. 

6) Open a traditional or Roth IRA

Once you have maxed out your 401k, the next step is to contribute to a traditional or Roth IRA. You can contribute to a traditional IRA irrespective of your income, but Roth IRAs have an income restriction. The IRS also sets the contribution limit for IRAs. For 2023, the limit is $6,500. 

With a 401k, you are restricted to the investments offered by your employer. However, with an IRA, you have more options. For example, I have an IRA with Fidelity and a 401k through an employer. My 401k has 20 investment offerings – all mutual funds. In contrast, my IRA has thousands of investments, including stocks, bonds, commodities, mutual funds, index funds, and ETFs. 

An IRA is an additional way to let your investments grow tax-free. I buy income-generating assets (like dividend ETFs) in my IRA, so I don’t have to pay taxes on the income. Instead, I reinvest the income (typically dividends). 

I buy income-generating assets like dividend ETFs in my IRA, so I don’t have to pay taxes on the income.

7) Open a brokerage account

If you have maxed out your 401k and IRA contributions, it is finally time to open a brokerage account. Brokerage accounts do not have the same tax benefits as 401ks or IRAs, but there are no limits, so you can invest as much as you like. Consider what you want to invest in and pick the brokerage account that meets your needs. 

8) Invest in low-fee diversified assets

Fees drag down the actual return from your investments. You want to pay as little as possible in fees to maximize your investment return. Most people can invest by buying a zero-fee or low-cost (less than 0.1%) ETF or index fund. 

You can find ETFs and index funds that invest in stocks, bonds, commodities, real estate, or other assets. Investing in zero or low-cost ETFs or index funds is a simple way to invest in a diversified asset (instead of putting all your eggs in one basket, you put them in many baskets). 

If you want to spend as little time as possible investing, buy zero or low-cost ETFs. There are many complicated investment strategies, but purchasing low-cost ETFs gives you the most bang for your buck if you’re short on time. You do your research to identify the right ETF for your needs, then you continue buying the ETF until you reach your goal or your investment needs change. 

Fees drag down the actual return from your investments

9) Resist the impulse to follow the crowd without doing your research.

Investors have FOMO (fear of missing out). Resist the temptation to follow the crowd blindly. Always do your research and know why you are investing in an asset. 

When tempted to follow the crowd, ask yourself: Why am I investing in this asset? What do I know that justifies my belief that my money will grow? Is this investment aligned with my financial goals and my timeline?

If you can’t resist the FOMO, only put in money you can afford to lose. 

10) Automate your investing

Time and consistency are your best friends in investing. Once you decide on your approach, automate whenever you can. For example, if you want to invest long-term in an ETF that tracks the US stock market, buy the ETF every month. You can automate transferring money to your investment account and buying the ETF each month. Setting this up takes a few minutes, and you invest by default each month. 

Life is busy – between work and your social life, it’s easy to forget to invest. You put it off for another time and then forget. Automation helps you invest without doing anything. 

In 2017, I often had money sitting idle in my brokerage account. I remembered to deposit money into my account, but I would put off deciding what to invest in. Automation became my new best friend. I set up a recurring monthly deposit from my savings account to my brokerage account. Then I set up recurring buy orders for low-cost ETFs that tracked the market. After setting this up, I never had money sitting idle in my account.

Automation helps you invest without doing anything

When I made time to do additional research and decide on other investment strategies, I paused the automation, made my investments, and then restarted the automation for the next month. How are you investing? Could you automate some steps in your process? If you are hesitant, try it for a month or two. You will be surprised by how little time you need to spend on investing once you set up your automation.

11) Start small with advanced approaches and grow your investment when you gain expertise

There are many ways to invest – from rental real estate to art investing. However, you don’t know what you don’t know. You can start small if you are trying out a new investment approach. You can do your research and learn the hard lessons with small amounts of money.

You can increase your investment amount after gaining experience. For most people, it is better to take a simple approach to investing. You are more likely to underperform the market with complicated strategies. You can start with stable assets like government bonds or diversified assets like low-cost ETFs. As you improve at investing, you can expand to other areas.