How to actually invest with only $100… | Ramit Sethi

Summary

In this conversation, the speaker shares simple yet powerful advice on how to start investing and build long-term wealth. Focusing on low-cost funds and automated investing, the speaker emphasizes the importance of patience and avoiding the temptation to trade frequently. The key steps include selecting a reliable brokerage, investing in diversified funds, automating monthly contributions, and letting your investments grow through compounding interest over time. The speaker also stresses the need to treat investments as long-term wealth accumulation and avoid using them for short-term spending needs.

Takeaways

• 😀 Choose a low-cost brokerage firm like Vanguard, Schwab, or Fidelity to minimize fees when investing.
• 😀 Investing in funds is smarter than picking individual stocks; funds diversify your investments automatically.
• 😀 Avoid trading frequently—investing should feel boring and automatic, like watching paint dry.
• 😀 Set up automatic contributions to your investment account each month to ensure consistency.
• 😀 Aim to contribute 5-10% of your take-home pay each month towards investments, even if it’s a small amount.
• 😀 Don’t check your investments daily—log in only every few months to track your progress.
• 😀 Investing is like cooking a turkey: once it's in the oven, leave it alone to cook over time.
• 😀 Think of your investment account as a long-term wealth accumulator—not a place to withdraw from casually.
• 😀 Use compounding to your advantage: even small regular contributions grow significantly over time.
• 😀 Historical data shows that the stock market tends to offer 7-8% returns after inflation over the long term.
• 😀 To succeed, automate everything—savings, investments, and bill payments—so you don’t have to think about it.

Q & A

What is the importance of choosing a low-cost brokerage platform for investing?

Choosing a low-cost brokerage is essential because high fees can significantly erode your returns over time. By selecting platforms like Vanguard, Schwab, or Fidelity, you can minimize fees and maximize the growth of your investments.

Why should investors avoid using apps that gamify investing?

Apps that gamify investing encourage frequent trading, which can lead to losses. Successful investing requires a long-term, passive approach, not constant buying and selling. Gamifying investment decisions can create bad habits and distract from long-term goals.

How should you approach investing once you’ve chosen a fund?

Once you've selected a fund, the key is to set up automatic contributions on a regular schedule (e.g., monthly). This ensures you remain consistent and don’t overthink or intervene in the market’s natural fluctuations.

What does the analogy of 'investing is like watching paint dry' mean?

The analogy emphasizes that investing should not be exciting or full of daily activity. Like watching paint dry, investing should be slow, steady, and uneventful. The goal is to stay disciplined and avoid making hasty decisions based on short-term market changes.

Why is it not recommended to check your investments every day?

Checking your investments daily can lead to unnecessary stress and temptation to make impulsive decisions. The market fluctuates daily, but long-term success comes from leaving your investments alone and allowing them to grow over time.

What is the benefit of setting up automatic transfers for investing?

Automatic transfers ensure that you are consistently investing without having to think about it. This approach makes investing a habit and prevents you from spending the money elsewhere. Over time, it builds wealth through regular contributions and compounding returns.

How do you calculate how much money to invest each month?

A good rule of thumb is to invest 5-10% of your take-home income. If you're unsure of how much you can afford, review your spending habits and find areas where you can cut back. The goal is to make investing a regular and manageable expense.

What is the mistake your friend made with their investments?

The mistake was treating the investment account like a checking account and withdrawing money when needed. Investments should be left untouched for long-term growth, not used for immediate spending needs.

Why is the 'set it and forget it' approach to investing recommended?

The 'set it and forget it' approach works because it focuses on long-term wealth accumulation without the temptation to make short-term changes. By automating your investments and not checking them frequently, you benefit from the power of compound interest and market growth.

How does compounding help build wealth over time?

Compounding allows your returns to earn returns. Over time, your investments grow exponentially, as the gains generated by your investments start to generate their own gains. This is why starting early and being consistent is key to building significant wealth.