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Things I Learned When I Started Investing Strategically

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Things I've learned by investing strategically and simply

I started investing the day I signed up for my employer’s 401(k) plan at my first job out of college. At the time, the idea of investing seemed entirely passive. And that was just fine with me. I didn’t fully understand investing, and I had much bigger fish to fry, like scoping out the next happy hour deal than trying to figure it out.

Fast forward through a few years of investing only in my employer-sponsored retirement plan to when I began to realize the power of money. It turns out that you can have a method to your investing madness and ultimately make your money work for you. What a novel idea!

It became clear that sitting idly by and expecting my investments to make me rich wasn’t helping anything.  So when I began to take an active role in my money and started thinking about strategic investing, I learned a lot really quickly.  And it was those lessons learned that I use to drive my investment strategy today.

What is Strategic Investing?

To me, strategic investing means defining rules of the road that will enable you to make investments that minimize risk, maximize returns, and are easy to explain. To develop my strategy, I considered all of my lessons learned and assessed them alongside my short and long-term money goals, risk tolerance, and time horizon.

The overarching themes of the investing strategy I’ve developed are:

  • Invest only in what I understand, believe in, and can explain to others.
  • Make putting money into each investment as straightforward, simple, and hands-off as possible.
  • Break down larger investments into manageable recurring contributions.
  • Re-evaluate not only investments, but contribution amounts regularly.

Understand Your Investments

One of the biggest lessons I’ve learned investing is how critical it is to understand what you’re investing in.  For years after I began 401(k) contributions at my first job, I just assumed my company was investing the funds for me.  I didn’t know that I had authority over how I chose to invest that money.

So a few years later, when I left that job and rolled the 401(k) into my Roth IRA, I felt like it should have been worth more.  I can’t say for sure now as so much time has passed, but I can’t help but wondering if my investment sat in cash for years, missing out on growth.  In hindsight, I should have understood more about the structure of a 401(k) plan, what I could do with the investment, and when I could retrieve the money.

Understanding your investments means having a firm grasp on:

  • The type of account you’re using. Is the investment held in a 401(k) plan, IRA, taxable brokerage, etc.? Each account has different restrictions on how much you can invest, when, and if money is pre or post-tax. When you understand the types of accounts you have and may want to have in the future, it also makes it easier to determine your tax burden later in life.
  • How liquid or illiquid the investment is. Retirement-focused accounts, like a 401(k), 457, 403(b), or IRA, are considered to be fairly illiquid investments. That means if you need the money before a certain age, often 59½, you may have to pay the penalty for early withdrawals. So before you start dumping 20% of your income into your employer 401(k) plan, understand the implications and make sure you can handle making the investment and not having access to that money for several decades. It can be wise to find a balance of illiquid retirement accounts and taxable brokerage accounts to give you the best of both worlds.
  • The underlying funds that make up the investment.  It is quite likely that your contributions into an employer-sponsored retirement plan are set to a default investment.  And that investment might be more conservative or more aggressive than you’d like.  If you don’t take time to research how the money is invested, you might be in for a shock when you look at the account total and expect that it should have experienced more growth.

Once you determine the liquidity, types of accounts, and underlying fund choices you plan to use, it’s much easier to decide how much to allocate towards each account.

Automate & Make Investments Hands-Off

Here’s something I know to be true. If I don’t automate my financial investments, I probably won’t make them. It’s not that I don’t want to build up my financial portfolio and save for the long-term. I just always manage to find something else I need to spend my money on when it’s available.

This is why participating in an employer-sponsored retirement plan can be so valuable. With the money coming out before it hits your paycheck, it saves the burden of having to make that investment decision every two weeks.

Automating my Roth IRA contributions through Vanguard and my taxable brokerage investments through Acorns has amplified those investments immensely. The money is taken out before I notice it’s gone, and I can see my accounts building each month which encourages further contributions.

Break Down Investments into Manageable Weekly Chunks

When I first started contributing to a Roth IRA, I made monthly deposits. With a $6,000 maximum (that I wanted to hit yearly), it ran me $500 each month. It caused me physical pain when I felt that $500 withdrawal come out. I felt like it was slashing my usable income in half, and that was seriously hard to swallow.

By transitioning from a monthly investment to a weekly investment, I am barely noticing it at all. My $500 monthly investment is now a $115 weekly investment. And while that may still be a lot for some, it feels far more doable to me.

The beauty of weekly investments is that you can set the recurring amount to only what you can handle and then look to increase it over time. Starting small has big benefits, and you can often contribute far more than you initially believe.

Use smaller more frequent chunks to meet your investment goals

Figure Out How Much You Can Do (It’s More Than You Think)

I initially opened an account with Acorns because I was looking for an easy way to invest outside of my standard retirement accounts. But I wasn’t yet ready to open a taxable brokerage with a big player like Vanguard (nor did I meet the $3,000 minimum investment to get started).

I viewed Acorns as a tool that could help me invest with limited funds and help me get in the habit of investing more regularly. I started with $5 a week. Truthfully, it made me laugh. $5 a week? What good was that going to do?

But here’s what happened. I didn’t miss it. So I increased my contribution to $10, then to $15. I’m now investing $35 per week. And when I look at the long-term growth projections for that account, there’s a lot more impact. After all, $35 a week is $1,820 per year.

The practice of increasing small contributions over time taught me that you can often afford to invest more than you think. And by starting small and doing only what you can, it exposes just how much more you can handle. I encourage anyone to start investing with just dollars a week. You might be amazed at how much more you’re willing (and excited) to do once you see the account begin to build.

The Bottom Line

Investments are powerful tools that, when used correctly, can accelerate the growth of your assets tremendously. But investing without sound principles or an overall strategy can leave you no better off than where you started. Take care to:

  • Do research to understand your investments, including the accounts you’re using, the assets in your portfolio, and when you can retrieve the funds.
  • Automate as many of your investments as possible.
  • Break down your larger contributions into smaller, more doable amounts.
  • Re-assess how much you’re investing regularly and up contributions if you can.

I learned a lot of lessons the hard way. Taking the guesswork and emotion out of investing means you have a leg up. If you can put principles in place to guide your strategy, decisions become simple. And simple is always the best strategic investment in the long run.

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Written by Brooke Joly

Brooke Joly is a Charleston, SC-based writer and wellness blogger helping people create healthy, sustainable habits. She has a passion for assisting people in taking control of their finances to live the financial life of their dreams.

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