January 22, 2024
You’ve become more established in your career. So you should start making more sophisticated personal finance decisions, right? Maybe. But probably not.
You might be surprised to hear that, for most people, your finances don’t need to get more complicated as your income or wealth grows. A simple investing approach can work when you’re young and poor. And that same approach can work when you find yourself in your highest income-earning years.
Darius Foroux recently wrote an article entitled, “5 Simple Investing Ideas, Executed Strictly.” It’s so rare to find a finance article with a title like this one. So I want to highlight his ideas and briefly discuss their importance.
Two of Foroux’s ideas, in particular, seem worth sharing. First, he talked about dollar-cost averaging:
“Dollar-cost averaging (DCA) is an investment strategy in which you invest a fixed amount of money in a particular investment on a regular schedule, regardless of the price.
This not only ensures consistent investment over time but also reduces the impact of volatility on the overall purchase. The idea is that by investing a consistent dollar amount, you’ll buy more shares when prices are low and fewer when they’re high.
This strategy has two main advantages. First, it eliminates the need to time the market. You don’t have to worry about buying at the ‘right time’ because your investment is spread out over time. Second, it mitigates the risk of making a substantial investment at a single point in time, only for the value to drop shortly after.
DCA is a disciplined strategy that focuses more on the habit of investing rather than reacting to market conditions, making it a practical approach for long-term investors. The simplicity of this strategy shows that investing doesn’t need to be complex to succeed.”
Foroux also emphasized that you should “avoid what you don’t understand.” He writes:
“One of the most valuable pieces of investing advice is to avoid entering into financial arrangements or investing ideas that you don’t fully understand.
The lure of high returns can sometimes blind us to the inherent risks associated with certain investments. Not only does a lack of understanding about an investment often result in loss, but it will also mess with your sleep!
To me, that’s the biggest reason I stick to what I know. For example, I avoid crypto and complex financial instruments.”
In personal finance, complex investing approaches can feel empowering. We face so much uncertainty about the future that we want to believe we’re capable of taking risk off the table. But a basic, passive, low-cost investing strategy has consistently proven most effective over the long term.
For your days ahead: 3 perspectives, 2 articles, and 1 idea from me.
1 / Five simple investing ideas to start the year (editor’s note: from the article discussed above!)
2 / Personal finance may not have any true ‘magic’ hacks, but these tactics come close.
3 / How to think about growing your money as you approach 40.
1 / Paying off a mortgage early: a good strategy or are you better off investing?
2 / A step-by-step approach to determining how much to save each month for retirement.
I grew up with a poster of Claude Monet’s The Thames Below Westminster in my house. For this reason (I assume), Impressionist paintings are probably my favorite form of art. I have the same poster in my office now, and I jump at a chance to visit a museum that displays Impressionist paintings. So I was interested to hear a story recently about how the most high-profile Impressionist painters actually became famous. The circumstances have a lot in common with many aspects of our personal finances. Here’s a snippet:
1 / “Favorable outcomes, in art or in finance, are at the mercy of countless external factors.
With money, the question, ‘Am I on track for retirement?’ seeks to bring certainty to one of the most stressful uncertainties that we face. And in fairness, retirement saving progress does include a real element of control. We can control how much we save and invest each month.
But there’s still an insidious emphasis on the outcome. The ultimate answer may still be decades away, and many of those external factors still can change in unpredictable ways. Interest rates may not move in our favor. Stock market returns may lag our expectations. Housing and college costs may outpace inflation.
Focusing on what we can control will position us to take advantage of many opportunities. But a bit of luck may be needed for the ideal outcome, just as Claude Monet experienced.”
You can read more in Monet & The Reality of Luck.
I hope these articles help! Please feel free to send me an e-mail at firstname.lastname@example.org with any follow-up questions. You also can subscribe to my newsletter here to learn more about how you can turn your money into memories with your family. I typically send the newsletter twice each month.
If you found value in this article, you may also enjoy reading:
Hi, I’m Kevin. I’m the founder of Illumint and a financial advisor in Washington, DC. I specialize in financial planning for Millennials like you. As a Millennial father and Certified Financial Planner™, I empower our peers to invest with confidence and flexibility. If you’re new to Illumint, I’m glad you’re here – you now have access to free personal finance tips written specifically for Millennial parents. I encourage you to read, watch, or listen to the ideas I share about exchanging your money for memories with your kids. And then when you’re ready, please send me your thoughts & questions!
Once each month, 904 Millennials like you receive my free personal finance tips & links