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

Before I fully learned how simple investing really is, I made it my mission to learn everything I could about it. I read all of the personal finance classics, listened to podcasts, talked to people more experienced than me.

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

Dave was the kind of guy who’d step out of his office and tell us all how his stocks were up $40k that day (but never down, how odd…) He always knew the right times to pull money out of equities and into bonds before a market downturn (none of which actually happened while I knew him, but still cool).

Dave taught me that for every stock you’re invested in, you need to be willing to spend at least an hour per week following news, research, and analysis to know if you need to make a move.

Absolutely everything Dave taught me was wrong.

Exhausting analysis, complex strategy, and the emotional roller coaster of market timing is 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 building a wealthy life without convoluted strategy, overpaid advisors, or lying awake stressing at night.

And the best part? Absolutely anyone can do it well. I’m going to say that again, because the people who really needed to hear it think I wasn’t including them: ANYONE can do this.

“But I don’t spend all day researching and writing about money like you do.” 

You can do it.

“I was never good at math, I have no head for that stuff.” 

You can do it.

“I wouldn’t even know where to start.”

Start here, and then go from there. You can do it.

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. Not by a long shot.

I’m going to walk you through everything you need to know. More importantly, I’m going to show you how little you actually need to know. And I’ll walk you through how to get started with your own simple investing plan today.

Active Vs. Passive Investing

When I refer to simple investing here, what I’m really talking about is what’s known as passive investing.

If pop culture is to be believed, investing is all about flashing red and green numbers on charts, clever deals and strategic trades, expensively-dressed white men yelling into phones to “BUY!” or “SELL!” — that’s active investing. Dave was an active investor.

Active investing is the process of analyzing a mix of financial, economic, even political information, trying to select the right investments and trade them at the right times. The goal is to earn a return on these investments that outperforms the average, or “beats the market.”

Passive investors, on the other hand, 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. Gain what the whole market gains, on average, instead of any specific outlier. They achieve this through simple, diversified investments like index funds.

As the saying goes “forget the needle – buy the haystack.”

Up ahead, I’ll show you why this simple, passive approach is the best thing that ever happened to investors.

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 a number of 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 on its own, 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 extremely low-cost. You pick the investments yourself (don’t worry, we’ll get there), you trade quite rarely, and you only sell when you’re ready to cash out. Very little movement means very few costs.

It’s Reliable

One of the biggest fears that holds people back from investing is risk. From the outside, we see some people become billionaires trading stocks, while others go broke, lose their home, and everything else. 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. 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, the overall stock market, despite short term ups and downs, always goes up over time

simple investing graph for the s&p 500
Pictured: The S&P 500, despite day-to-day ups and downs is always on the rise

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 common 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 whom we can pay to make sense of it all for us.

Here’s the good news: you can ignore almost all of 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. It becomes pretty enticing to have an advisor “just handle it” for us. 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 really crazy thing: most investment advisors underperform the S&P 500 index, and will overcharge you for the privilege. A passive investor, on the other hand, can just buy the S&P 500. 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, frankly, exhausting. You need to know all the jargon, do a ton of research, and stay on top of financial news. You live in anxiety over what your portfolio is doing, whether you’re missing opportunities, and if now is the time to bail out.

Passive investing takes a small amount of effort upfront, and then basically none ever again.

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. No research on my portfolio, no analysis of data and reports, no lost 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). I just sat here writing about my trip to Iceland.

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 the 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, we are really bad at predicting the market. Over time, almost no one consistently makes 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, by not trying to win at all, by simply “settling” for the boring, “average” returns that any passive investor can easily claim, you actually put yourself well above the average.

Even if we set aside all of the personal and emotional reasons that simple investing is the way to go, the basic fact of the matter 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 are helpful for new investors to know.

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

Step 1: Identify Your Investing Goals

Like with any big 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:

Investing goals serve two purposes. The first is motivation. We’re more likely and more able to reach any goal when we have a clear picture of our why. Don’t invest just to have more money. Invest to do something that will improve 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. Are you planning to use it in two years? Ten years? Or maybe at a specific age (looking at you, 60+)?

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’re going to start your simple investing. That is, 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 make use of any type of account that suits your goals and gives you an advantage on taxes. For instance, if retirement is your main focus, then 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’ 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 in it. This is going to 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 is all anyone needs to have a fully diversified portfolio of US and international stocks, bonds, and real estate.

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

Option 2: DI (mostly)Y

Choosing a few index funds on your own will always be the best option. And I’ll reiterate, anyone can do this successfully. But if you’re still not convinced, and a little extra guidance would help you sleep at night, then you also 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. 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, no stress.

Again, you can never save more than by doing it yourself. But if you’re absolutely determined not to believe me that you can do it, then this is the way to go. Simple, cheap, and effective.

Step 4: Fuel the Fire

At this point, you’ve done all the hard parts. At least, all of the daunting parts anyway. 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 actually 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 whole article, you now know at least 90% of what you need to be a successful passive investor. 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. Better yet, check out the financial freedom archives right here at Smarter and Harder.
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.

2 Comments

  1. Miki said:

    Love this post a lot. You gave the example of investing for the purpose of buying a house, or paying off a house. Any chance you can write (or have written) more about that specifically?

    December 9, 2021
    Reply
    • Sam said:

      Yes, and that’s definitely a topic that’s on a lot of people’s minds right now! I definitely have some debt-related topics coming up in the near future that may scratch that itch, and there’s some more real estate-centric content on the horizon as well!

      January 7, 2022
      Reply

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