The Ultimate Guide to Simple Investing: Everything You Need to Know

It took a tremendous amount of learning about investing for me to understand how simple it is. When I first started learning about money, I read every personal finance book and listened to every podcast I could. I also routinely sought out the advice of mentors more experienced than I was.

There was one mentor, a work colleague, who particularly caught my attention. Let’s call him Dave.

Dave was the type of guy to step out of his office and tell everyone how his stocks were up $40k that day (but never down, oddly enough). He always knew the perfect times to pull his money out of stocks before a market downturn (none of which actually happened while I knew him, but it still seemed impressive). Dave would spend hours each week poring over the markets and financial news to stay on top of everything and make the right moves.

Absolutely everything I learned from Dave was wrong.

Exhausting analysis, complex strategy, and the emotional roller coaster of market timing are not the road to real wealth. Incredibly simple investing is.

Simple Investing is for Everyone

Simple investing is one of the three pillars of financial freedom. It is a core component of a life where you’re in charge of your money, not the other way around. It’s a means to build a wealthy life without a convoluted strategy, overpaid advisors, or lying awake stressing at night.

And the best part? Absolutely anyone can do it well. 

If you’re aching to finally take charge of your financial future, or you feel like investing is just too much, like there’s no way you could wrap your head around it, you’re not the only one.

Below, we’ll take you through everything you need to know to start your simple investing journey today.

Active Vs. Passive Investing

When referring to simple investing, we’re really talking about something more commonly known as passive investing.

If pop culture is to be believed, investing is a high-adrenaline affair. It’s all flashing red and green numbers on charts, clever deals, strategic trades, expensively-dressed brokers yelling into phones to “BUY!” or “SELL!” 

The excellent news is most real-world investing is nothing like that. What you see in the movies is what’s called active investing. Dave was an active investor.

Active investing typically involves analyzing a mix of financial, economic, and even political information and using this information to make profitable trades and investments. The goal is to earn returns on these investments that outperform the average or “beat the market.”

On the other hand, passive investors focus on simple, consistent strategy and patience. They don’t try to outsmart the masses or beat the market. Instead, they aim to match it. As a result, they gain what the overall market gains instead of any specific outlier. They achieve this through simple, diversified investments like index funds.

A common investing adage goes, “forget the needle – buy the haystack.”

Simple, passive investing facilitates a more peaceful financial life. Yet what may surprise you is that it’s also the far more effective way to grow your money.

Why Simple Investing is Smart Investing

It’s Cheap

As always, good old-fashioned saving is one of the biggest drivers of wealth. It’s just as true in your investing strategy as anywhere else. Active investing to beat the market comes with several costs:

• Management fees to your advisor or fund manager
• Transaction fees for every trade
• Taxes on moving your money around

Each of these may seem small, but they add up fast. Not only that, but their impact over time due to compounding can be disastrous to your portfolio.

One of the greatest strengths of simple investing is that it is incredibly low-cost. You pick the investments yourself (don’t worry, we’ll get there), rarely trade, and only sell when you’re ready to cash out. Very little movement means very few costs.

It’s Reliable

One of the biggest fears holding people back from investing is the fear of risk. From the outside, we see some people become billionaires trading stocks. In contrast, others go broke; they lose their homes and everything else. So how can we be sure we won’t be one of the latter?

Both of those people were taking the wrong kinds of risks. Both were active investors who bet heavily on specific outcomes. Passive investors don’t get rich overnight. They never go bust, either. Instead, they rely on simple, steady growth that starts slow and explodes over time.

Simple investing sticks to the growth of overall markets rather than single companies or products. A single company’s share value may hit the stratosphere or the sewers, and no one can reliably predict which. On the other hand, despite short-term ups and downs, the overall stock market always goes up over time. 

It Makes Sense

I have long argued that almost none of the complex numbers and terms in personal finance matter. That’s especially true when it comes to investing. Investing feels extremely complicated to most people because it is designed to feel that way.

One of the largest industries in the world is built around smart fancy people moving money around in smart fancy ways. They constantly produce new esoteric concepts, metrics, and investment vehicles. They invent these things, in part, to confuse and bewilder the everyday investor into feeling like there’s just no way we can figure it all out ourselves.

How odd it is, then, that they’re the same people we can pay to make sense of it all for us.

Here’s the good news: you can ignore almost all that junk. Simple, passive investing makes sense. It’s easy to understand, and it’s easy to do.

You’re in Control

Would you say any of these things about your doctor?

• “I told him to just give me whatever diet he personally uses; I don’t even look at it.”
• “She doesn’t even show me the X-Rays; that stuff just confuses me.”
• “He’s the guy my parents use, and that’s good enough for me.”
• “She ran a 5k in 2008, so she knows what she’s talking about.”

If you don’t do this with your health, then why would you do it with your money?

When investing gets overly complex, it gets intimidating. Overwhelming, even. Having an advisor “just handle it” for us becomes pretty enticing. We hand over all control and awareness of our financial life to some third party.

But it’s your life. Your money. Shouldn’t you be at the center of it? 

And here’s the crazy thing: most investment advisors underperform the S&P 500 index and will overcharge you for the privilege. On the other hand, a passive investor can buy the S&P 500 just as it is. Just like that, you can perform better than most smart fancy brokers. All for a fraction of what they would have charged you.

Save Time and Energy

Active investing is just that: it’s active. Frequently trading single stocks and trying to beat everyone else is exhausting. You need to know all the jargon, do a ton of research, and stay on top of financial news. As a result, you live in anxiety over what your portfolio is doing and when it’s time to make your next move.

Passive investing takes a small amount of effort upfront and almost none thereafter.

My investment portfolio has grown by about 30% in the last year. Do you know how much I did to research, track, and strategize my investments? 

Absolutely nothing. I did no research on my portfolio, no analysis of data and reports, and I lost no sleep. 

How did I do it? It’s the easiest thing in the world. My money is spread out across a few index funds, mainly tracking the US stock market. The US stock market has had an excellent year (as a whole, mind you). 

The market will have good years, and it will have bad years. In either case, I rest easy, knowing my plan is the same. Stay on the ride, and watch it go nowhere but up over the long term.

Boring Plan, Extraordinary Results

So, complex investing strategies are tiring and expensive, and they require handing a lot over to third parties. But all of that is still worth it for better returns, right?

Well, cool your boots for just a second.

Did you know that the average investor earns below-average market returns? Sounds like a paradox, but it’s true. 

Collectively, people are not good at predicting the market. Over time, a vanishingly small number of people consistently make predictions that perform better than the market did as a whole. Plus, by even trying, you’d have weighed yourself down further with all the added expenses.

The baffling thing is that you put yourself well above the average by not trying to win. Simply “settling” for the boring, “average” returns that any passive investor can easily claim is practically unbeatable in the long run.

Even if we set aside all of the personal and emotional reasons that simple investing is the way to go, the basic fact is that simple investing performs better.

Simple Investing: How to Get Started

So investing — good, healthy investing — is simple. There is a ton of terminology and junk that you don’t need to know to be a successful investor.

But there are a few things that you do need to know.

Even if you’re a complete beginner, have no fear. I’ll walk you through everything you need to get your own simple investing strategy up and running in no time.

Step 1: Identify Your Investing Goals

Like with any significant pursuit in life, simple investing starts with goals. Specifically, what are you investing your money for? What are you using money to achieve in your life? For example:

• Pay for your kids’ education or your own
• Buy a house
• Pay off a house
• Retire comfortably
• Reach full-blown financial independence

Investing goals serve two purposes. The first is motivation. We’re more likely to reach any goal when we clearly understand our why. Don’t invest just to have more money. Invest so that you can empower meaningful changes in your life.

The other reason investing goals are so important is because of the timeline. When you expect to need the money impacts how you should invest it today. For example, are you planning to use it in two years? Ten years? Or at a specific age?

Step 2: Make a High-Level Plan

Based on your goals from step 1 and your unique life situation, it’s time to figure out how and where you’ll start your simple investing. What type of investing account(s) will you use, and where will you open those accounts?

First, you want to find out if you can use any type of account that suits your goals and gives you an advantage on taxes. For instance, if retirement is your primary focus, a retirement account like a 401(k), 403(b), or IRA is an excellent option. Saving for college? A 529 plan or similar can give you a huge leg up in getting there.

If there is no tax-advantaged option for what you’re doing, OR you’re looking to invest in something a little more flexible as well as in those specialized accounts, then a plain old, taxable brokerage account is what you’re after.

Knowing what accounts you already have or have access to (like through your employer) is a great starting point. Where you open any other accounts is up to you, but it’s worth a few minutes of research. I like Vanguard, but there are a number of large brokerages that will take care of you with low fees and good service.

Step 3: Create Your Portfolio

Now that you have your high-level, simple investing strategy worked out, all you need is to select a few basic investments to go into it. This will seem like the scariest step, but I promise you, it’s not that bad. Remember: simple simple simple investing is the whole point here.

Here are two great (and easy) ways to go about it:

Option 1: DIY

The simplest, most cost-effective option is to select your own portfolio of a few index funds. Set it and forget it. 2-5 good index funds are all anyone needs to have a fully diversified portfolio of US and international stocks, bonds, and real estate.

Here are a few excellent guides for getting started with selecting your own index funds:

• The 3 Fund Portfolio – Nicole @ Clever Girl Finance
• 3 Simple Portfolios for DIY Index Investors – David @ moneyunder30
• The Best Vanguard Index Funds – Steve @ The Frugal Expat

Option 2: DI (mostly)Y

Choosing a few index funds on your own will always be the best option. But if you’re still not convinced, and some extra guidance would help you sleep at night, you can’t go wrong with a robo-advisor.

Robo-advisors, like Betterment or Wealthfront, charge super-low rates to create and manage a passive investment portfolio that fits your situation and goals. Also, unlike traditional human investment advisors, robo-advisors are built to offer simple, cost-efficient portfolios that work for everybody. No upselling you on complex strategies, no exorbitant fees, and no stress.

Step 4: Fuel the Fire

At this point, you’ve done all the hardest parts. You have built your very own super-powerful, super-efficient wealth-building machine. All that’s left is to start pouring in the fuel.

You know what investment accounts you’ll be using, what you’ll be investing in, and most importantly, you know exactly why you’re doing it. Now comes the fun part. Now is the time to put your money where your future is.

The beauty of passive investing is that once you’ve gotten through the steps above, you barely ever need to think about it again. All you need to think about is feeding it. Figure out a plan to start adding to your investments regularly. Better yet, automate your investing, so you don’t even have to think about that.

Start Your Simple Investing Journey Today

There you go. Everything you need to build life-altering wealth through simple investing. And best of all, you can do it with minimal effort and spend more time enjoying your life. Sleep easy at night, knowing that even while you rest, your money is hard at work building your future.

If you made it through this article, you now know at least 90% of what you need to be a successful passive investor. However, if there are gaps you’d like to know more about, I encourage you to go out and find the answers, or ask me in the comments below. 

What are you waiting for? You can do this, and you’re ready. Every day that you wait to get your simple investing portfolio started is another day of missed opportunity. The first step is the gateway to everything. The rest comes after. Take the first step to changing your whole financial future today.