Part 2: Personal Finance 101 — Investing

  1. Banking, Credit Score, Savings
  2. Investing
  3. Debt, Budgeting, Giving


Einstein (maybe?) said “compounding is the eighth wonder of the world.”

Tax advantaged accounts

What is a tax-advantaged account? Usually when investing, you get taxed on the capital gains (i.e. when a stock goes up in value and you sell it), and tax advantaged accounts help you save on that. Also, you know how you’re taxed on your income? Well, some tax-advantaged accounts help with that as well. We’ll get into that below.

  1. 401k or Roth 401k up to employer match. If you’re employer matches some portion of your contributions, make sure you get that free money! Sign up for the 401k amount to be taken out of each paycheck so you never even see it.
  2. Traditional IRA/Roth IRA or max out the rest of your 401k/Roth 401k. Both of these accounts are tax-advantaged, you can read about their similarities and differences here. IRA’s and 401k’s are both accounts used for retirement savings.
  3. HSA. An HSA is a savings account that you fill with pre-tax dollars, that can be used for certain health-related spending (and it’s pretty broad what counts as health-related). You can only get an HSA if you’re on a high-deductible health plan (which may be particularly nice if you’re young and healthy). As of a couple years ago, you can invest your HSA and you should think of it as another tax-advantaged investing account.
  4. Other applicable tax-advantaged savings accounts (they end with SA i.e. Flexible Savings Account (FSA), Limited Purpose Savings Account (LPSA), dependent care FSA). These accounts all let you put in pre-tax dollars and take money out for specific uses. Warning: there’s usually a limit on rolled-over amounts each year, past that point it’s use it or lose it.
  5. Additional brokerage accounts such as a personal investment account through companies like Schwab, Robinhood etc.

Investing allocation

The theme of this article that I hope you take to heart is “aim in the direction of good, not perfection.” When it comes to investing, 20% effort will get you 80% of the way there, so don’t worry about anything fancy unless you’re incredibly comfortable with it.

  • Target funds are super simple, if you want to retire in 2060, you can get a target retirement 2060 fund. You just put money in there (perhaps an automatic withdrawal from your account every month) and then you set it and forget it. They’ll do the allocation and rebalancing for you so you your risk is spread out and rebalanced automatically.
  • Roboinvesting (algorithms doing the buying/selling/portfolio management for you) can similarly be a set it and forget it strategy. Some roboinvesting platforms are free (such as Schwab’s) and some cost money, depends on what you’re looking for.
  • ETF’s are funds that track an index, sector, asset, etc. An extremely popular ETF is one that tracks the S&P 500 index. A computer will invest in the top 500 companies traded on US stock-exchanges, and invest in them proportional to how much they occupy the top 500.
  • To spread out risk in your portfolio (the concept is if one thing goes down i.e. tech stocks, maybe others will go up i.e. real estate), you can buy multiple types of ETF’s. There’s also a lot written about portfolio allocation strategies which I won’t get into here. There are so many to choose from (i.e. S&P 500, track the entire US stock market, US dividend stocks, US gov bonds, Bitcoin/Ethereum prices, Chinese consumer stocks, gold, Canadian offices, Latin America real estate, Chinese company bonds, top European companies, etc.), and you should allocate based on your risk profile.
  • Picking individual stocks is really risky. Most of the market is composed of bots written by stats geniuses, and I don’t know about you, but I’m not a bot-writing stats genius. But even I still invest in individual stocks for fun, because I like certain stocks, because I believe in them, etc. but it’s more of a hobby than it is for long-term financial well-being and I try to reflect its riskiness by making it a smaller portion of my long-term plans.



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