Getting Started

Mountains of books have been written on investing. But these books, along with heroic stories of stock market wins and cautionary tales of catastrophic losses, (to say nothing of the squawking heads on TV) can make the subject incredibly intimidating.

But here’s the worst kept secret of the last many decades: For the average person looking to build wealth, investing isn’t – or “shouldn’t” be  – complicated.

To do well in the stock market, New York Times financial writer Neil Irwin wrote in February 2021, “All you’ve had to do is take the laziest, simplest approach to stock investing imaginable, and have a little patience.” He reiterated the point in a Marketplace radio interview:

“This is not some new piece of, kind of financial advice or personal finance advice. This is what every personal finance advice person has been saying for decades. But the math is clear-cut. You know, if at any point over the last several decades, you’ve had money to invest and just put it in an S&P 500 index fund, reinvested dividends, kept fees low, tried to avoid taxes, you’ve done quite well and you have doubled or tripled your money, depending on the exact time horizon if you had the patience to just stick it out and not overreact to swings in the market.”

Given this, let’s focus on how you can execute this strategy using Index Funds, Exchange Traded Funds, and Target Date Funds. Once armed with this knowledge you should be able to confidently make a decision about what’s right for you.

Investment Products

• Index Funds: This is a grouping of individual assets like stocks or bonds. The most well-known index is the “S&P 500” which contains stocks from 500 of the largest public companies in the U.S. When you buy one share of an index fund, you are buying a small portion of all the companies in that index.

• • Benefits: Index funds (which are technically a type of mutual fund, or in some cases, a type of ETF, by the way) are good choices for long-term investing because they give you instant diversification which means less risk compared to owning an individual stock and fees are generally low because they are “passively managed.” This means nobody is being paid to actively pick and choose which companies are in the index. Better yet, over time, index funds have performed better than actively managed funds.
    
    You’ll want to look for an index fund with an expense ratio of 0.2% or less. While this might not sound like a lot, small differences can make a big difference over time. Don’t even consider funds with expense ratios higher than 0.5%.

• • Considerations: There are different indexes that have more or less risk. For example a bond index is likely to have less risk, but also lower growth, than a stock index. To get your ideal risk vs. growth ratio you may need to manually invest in multiple index funds. Then, depending on how those different funds perform over time, you’ll want to reallocate (i.e. buy and sell) shares in those funds to maintain the right balance.

• • Cost to Get Started: Some index funds – but not all – require an initial investment amount to get started, maybe between $1,000 or $3,000. After you’ve invested that much, additional purchases can usually be made for the cost of a single share of that fund or partial shares with as little as a single dollar of additional investment.

• Exchange Traded Funds (ETFs): For the purposes of the long-term investor, ETFs are very similar to an index fund. Most are passively managed, have low fees, and have produced reliably good returns over the long-term. The main difference is that with an ETF, there usually isn’t a minimum initial investment amount that’s any higher than the cost of a single share of that fund. So if you don’t have a few thousand dollars ready to commit to an index fund, an ETF can be a good way to go.

• Target Date Funds: These are generally a mix of different types of index funds. What makes them special is that as the fund gets closer to its “target date” the types of indexes it is invested in become more conservative – which is generally what you want as you’re focusing on preserving wealth closer to your target date rather than growing wealth (since focusing on growth tends to involve more risk).
  For example, since bonds are generally safer than stocks but also hold less long-term growth potential, a fund that is relatively closer to its “target date”, will have relatively more of its allocation dedicated to bond indexes compared with stock indexes. Conversely, a target date fund further in the future will aim for more growth and will therefore have relatively less allocation to bonds and more to stocks.

• • Benefits: These are your one stop shop to long-term investing. Since the fund’s allocation is automatically adjusted on your behalf over time, its risk vs. growth ratio – stays properly balanced relative to the target date. And you don’t need to do anything. Just buy your shares, and keep buying.

• • Considerations: Because target date funds are “funds of funds”, and it’s possible that each fund has its own set of fees, the expenses associated with target date funds can be higher than an index fund or ETF. This isn’t always the case  – and many target date funds still maintain very low fees – but it’s worth comparing a few target date funds side by side to see how fees compare. Additionally, since age is the only factor in rebalancing, it might not be appropriate for your risk tolerance. (One way to account for this is to select a fund with an earlier date – relative to your “actual target date” – if you have a lower risk tolerance and set a fund with a later date if you have a higher risk tolerance.)

• • Cost to Get Started: It will depend on the fund but many will have a minimum threshold around $1,000.
• Bond Fund: These are similar to index funds. But in the case of a bond fund, the fund is invested only in bonds (not stocks). While there are different types of bond funds, and some which carry more risk than others, the most common goal of a bond fund is to generate income for investors.
  • Benefits: Just like with other funds, you are buying into a grouping of many individual assets (in this case, bonds) and therefore getting a high degree of diversification – and therefore lower risk – within that asset class. Additionally, bond funds tend to have very low investment minimums.
  • Considerations: Typically, bond funds are seen as a less risky investment than stocks but this means that over the long-haul, the returns tend to be lower. Additionally, if you are buying into a bond fund (as opposed to an individual bond) for the purpose of income generation, it’s important to understand that the income generated will fluctuate since the bonds in the fund can change.

Additional Reading

We encourage you to read other online resources so you can be comfortable with your decision. Just try not to fall into the trap of “analysis paralysis.” Remember: the sooner you are invested, the longer your investment has time to grow. When it comes to having success with investing, time is your greatest friend.

If you’re looking for good all around personal finance books that provide particular focus on specific investment choices, here are two we highly recommend.

• JL Collins’ stock series on his blog, or better yet, his popular book The Simple Path to Wealth. This a great all-around personal finance book but particularly well-suited to those interested in the Index Fund do-it-yourself approach to investing. He also provides good detail on Target Date Funds.
• Ramit Sethi’s bestseller I Will Teach You to Be Rich highlights Target Date funds for their beautiful automation and simplicity among a variety of other ways to automate and simplify your financial life.

<< Create Long-term Savings Account

Steps

1. 1. Go to the website of the brokerage company (or if you’re enrolling in an employer-sponsored plan, ask your HR department for a link to their specific retirement plan website link).
   2. Find the “open account” link or button. This is usually quite prominently displayed on the homepage or another main page. 
   3. Provide personal details like Social Security number, date of birth, contact information, employer information. For the employer information, you may need to provide the address and phone number of where you work (or the corporate headquarters details if you work remotely).
   4. Fund your account by transferring funds into your retirement account. If you already have a checking or savings account with the brokerage firm you can often make the transfer and have the funds available immediately. If you need to transfer from another institution, you may need to provide your account number and routing number or link an external account – a process that can take a few days to fully complete (but may be worth it in the end if you plan on making regular contributions). 

Congratulations!

Congratulations! You’ve opened your account. You’re now ready for your next task: choosing your investment and making your first purchase!

<< Retirement Account Setup Checklist

Account Considerations

Consider the following and then review the table below:

• Funding Dollars – Do you want to get a tax break now (fund with “pre-tax” dollars) or in retirement (fund with “post-tax” dollars)?
  
  All things being equal, the higher your income, the higher your tax bracket. The lower your income, the lower your tax bracket. Therefore, if you believe you are in a higher tax bracket now than you will be in retirement, you may want to choose an account funded with “pre-tax” dollars, thus delaying paying taxes on that money until you retire and are in a lower tax bracket. Conversely, if you believe you will be in a higher tax bracket in retirement, you may want to fund an account with “post-tax” dollars, thus paying taxes on that money now and withdrawing it tax free in retirement when you are in a higher tax bracket. (And if you can’t predict the future, keep reading!)
• Contribution Amount – How much do you want to contribute each year?
  
  Because retirement accounts come with certain tax advantages, the government restricts how much you can contribute to different accounts. Generally speaking, accounts funded with “pre-tax” dollars allow for more annual contributions but this is changing with the advent of things like “Roth 401ks” and other comparable options.

• Account Limitations – Are there account limitations on opening the account like income limitations, stipulations for withdrawing the money etc?
  
  There are generally three possible account limitations to be aware of.
  • Income limitations stipulate how much you can contribute (if anything) if your income rises above a certain threshold in a given year.
  • Withdrawal limitations affect whether you pay a penalty for withdrawing either your contributions and/or your earnings prior to a certain age.
  • Withdrawal requirements (also known as Required Minimum Distributions or “RMDs”) stipulate how much you must remove each year starting at a certain age in retirement.

• Personal Considerations – If you have (or plan to have) multiple retirement accounts, do you want to create some differentiation between accounts – like the type of funding dollars you use – or keep it the same?
  
  The future is hard to predict. So if you aren’t sure if you will be in a higher or lower tax bracket in retirement (either because your income is fluctuating, you have no idea what the government tax brackets will be in 40 years, how much you’ll have saved and therefore how much you’ll be able to withdraw, or something else) and you’re not sure which account type you should open, consider having an account funded from “pre-tax money” and another funded from “after-tax” money. This is going to give you the most flexibility.

Common Retirement Account Types

The table below provides the highlights for the most common types of accounts. There are additional specific rules not detailed here but this provides the most important information. Find one or two that seem like good contenders and then do a little more research on your own if you want to know all the ins and outs.

Account Type	2025 Income Limits	2025 Annual Contribution Limits	Funding Dollars	Primary Account Limitations
401(k) or 403(b) for public sector and non-profit employees	None	$23,500* (+$7,500 for those aged 50+)	Pre-tax	There is a penalty for withdrawing either your contributions or earnings prior to age 59 ½ and taxes will also be owed. Starting at age 72 (typically) you must make annual withdrawals and pay taxes.
Traditional IRA	None	$7,000** (+$1,000 for 50+)	Pre-tax	There are no income limits but tax benefits for this and other “pre-tax” accounts may be reduced if you earn too much.
Roth IRA	$150,000 (individual tax filer) or $236,000 (joint tax filer)	$7,000** (+$1,000 for 50+)	After-tax	You can withdraw the contributions at any age for any reason and pay no penalty.You can withdraw earnings starting at 59 ½ but there are no RMD rules.
Roth 401(k)	None	$23,500* (+$7,500 for those aged 50+)	After-tax	You can withdraw the contributions at any age for any reason and pay no penalty.You can withdraw earnings starting at 59 ½. RMDs must begin no later than age 72 (typically)
Solo 401(k) (officially “One-Participant 401(k)”)	None	$70,000	Pre-tax or After-tax (via “Roth Solo 401(k)”)	You must be at least part-time self employed to open and maintain this account. The contribution limit is a true maximum based on $23,500 as the “employee” and up to an additional $46,500 or 25% of the total income – whichever is less – as the “employer.” RMDs are required.
SEP IRA	None	$70,000	Pre-tax	The contribution limit is the lesser of $70,000 or 25% of the total employee income. RMDs are required.

* You may have a 401(k) that allows for both traditional pre-tax contributions and after-tax contributions via a Roth 401(k). But the combined total contributions cannot exceed these amounts.

** If you have both a Traditional IRA and a Roth IRA, your combined total contributions cannot exceed $6,000 annually (or $7,000 annually for those over 50). Additionally, since there are income limits for a Roth IRA, the amount you can contribute will be less the closer you are to the income limits. Search for “Roth IRA phase-out limits” to get the most up-to-date information for this year.

<< Retirement Account Setup Checklist

Companies from an Employer-sponsored Plan

If you have an employer-sponsored plan, the brokerage firm is determined by your employer. If your employer matches any portion of your contributions, you should enroll in this plan and contribute at least up to the company match. The “match” is free money that will often equate to a 100% or a 50% return on your investment. (Note that in order to keep the full match you may need to stay at the company for a vesting period, often 4 years where you get 25% each year. But even if you leave the company early this “match” is still a great return and worth taking advantage of.)

Employer Match Examples:

• • Example #1: Your plan says “Employer matches 100% of your contributions up to 3% of your salary.” This means, if you make $100,000 your employer will contribute 3% of that – i.e. $3,000 – as long as you also contribute $3,000. If you only contribute $2,000, your employer will do the same. If you contribute $4,000, your employer will only contribute $3,000 because that’s their max.

• • Example #2: Your plan says “Employer matches 50% up to 6%.” This means your employer will contribute half of what you contribute up to the limit of 50% of 6% of your salary. So if you make $100,000, and you contribute $6,000, your employer will contribute half of that, $3,000. If you only contribute $3,000, your employer will only contribute $1,500. If you contribute more than $6,000 your employer will still only contribute their max of $3,000.
    
    Did you notice how in both examples above, the company match is equally generous at $3k? But the second one requires you to save more in order to get the full match. (In the long run, this extra saving will do you good!)

If you don’t have a company sponsored plan, you’ll need to choose your own brokerage firm. These include companies like Vanguard, Fidelity, Charles Schwab and many others. We mention these three specifically because they are known for providing great options low expense ratio funds that retirement account holders can invest in. But there are many good choices. Below is a list of the things you should be looking for in an online brokerage company. Use the notes section above to jot down points of comparison.

• • Wide Range of Funds: For retirement investing you’re likely going to be investing in index funds, exchange-traded funds (ETFs), and mutual funds. While many of these funds will be available at multiple brokerage companies, not all of them will and if they are, they may have slightly different fee structures and minimums depending on where you buy them.
    
    We recommend considering the funds you’re interested in, and doing a comparison of fund fees and minimums between brokerage companies. Or for the simpler approach, if you know you are going to invest primarily with funds from a particular company (e.g. Vanguard), open an account with that company since they will have the lowest fees and requirements for their own funds (other companies may offer the same options for those funds but they certainly won’t be any better).

• • Low or no Account Fees: Some brokerage firms charge “maintenance fees” for retirement accounts. These could be as low as $10 or $50 annually and there may be an ability to have the fee waived if you meet certain requirements. That said, there are so many brokerage firms that won’t charge these fees so we recommend finding one that doesn’t have a fee or has such easy fee-waive requirements that it will never be an issue.

• • Low or No Transaction Fees: Transaction fees are what you will be charged every time you make a purchase of a fund. In recent years brokerages have eliminated many of these trading fees. But for much longer than that, many brokerage firms have offered their own funds and many others as “no load” funds, meaning there is no transaction fee. This is always great but particularly important when you’re making regular, automatic purchases weekly or monthly. Make sure you choose a broker that offers the funds you’re interested in without charging transaction fees.

• • Good Website: Spend some time on the company’s site and make sure it feels fairly intuitive and user friendly. The major brokerage companies all put a lot of effort into their websites and should have a website experience and resources that work for you.

• • Good Customer Service: At some point you will need to work with the customer service department. Check out online reviews or call the customer service line to get a sense of the helpfulness of the representatives, call wait times, etc.

A Note on “Robo-Advisors”

Since the late 2000’s (2008 to be specific), a new variety of brokerage firm called a “robo-advisor” has emerged. They are an alternative to a professional financial advisor and online brokerage firms. If you’re interested in one of these feel free to do some additional research online (and note that there are “robo-advisor-like” features offered at online brokerages as well). While they can be a viable investment option for investors who want to be completely hands off (and some have great tools for managing your day to day finances), at MoneySwell we’ve decided not to recommend them for investing purposes for the following reasons:

• Fees: Their fees will be lower than a “real person” financial advisor but still be more than going with an online brokerage firm. These fees will eat into your portfolio returns.
• “Rebalancing”: Rebalancing your portfolio is one of the commonly cited benefits of robo-advisors but even for those who want to be totally “hands off”, you can easily achieve this by purchasing a target date fund which will automatically rebalance as you get closer to the set target date.
• No Choice: With a robo-advisor, you don’t get to choose your investments, they do it for you. This may work out fine but you’re putting all your trust in a single company and the algorithms they have created to align with your personal finance profile.
• Empowerment: To be empowered you have to be informed and be involved. But a robo-advisor’s “do it all for me” approach may discourage that. With MoneySwell and dozens of other fantastic online and offline resources, you have all the tools you need to be empowered – and there you can still take a mostly hands-off approach. In the long run, being at least a little bit involved is likely to serve you best.

3 Steps to Setting Up Your Retirement Accounts

Below is an overview of your retirement account setup checklist. But to make an informed decision, read additional detail in each sub-task.

Subtasks

1. Choose a Company: If you have an employer-sponsored retirement plan and you get an employer match for your contributions, enroll in that plan. Note that once you sign up for an employer-sponsored plan, funding your account will automatically take place through deductions from your paycheck. If you don’t have an employer-sponsored plan (or you want one that is separate from your employer) you can sign up for your own account from brokerage companies like Vanguard, Fidelity, Charles Schwab (all highly regarded institutions for retirement accounts) or many others.
2. Choose an Account Type: Decide between accounts you fund with “pre tax” dollars and “post tax” dollars. The choice will depend on your personal strategy but the rule of thumb is that if you are in a high tax bracket now, you may benefit from a “pre tax dollars” account (e.g. traditional IRA, 401k etc.) whereas if you’re in a lower tax bracket now you may benefit most from a “post tax dollars” account (e.g. Roth IRA, Roth 401k etc.). If you’re unsure, a good tax diversification strategy is to have accounts that are funded with both pre-tax and post-tax dollars.
3. Set Up & Fund the Account: The precise process differs between brokerage companies but you’ll generally need to provide your name, address, social security number, date of birth, and employment information. You’ll also need to fund the account, typically with a transfer from either an internal or external checking or savings account.

<< Retirement Account Setup Checklist

A Small Step Can Go a Long Way

At the Growth stage, automatically funding your long-term savings may feel like a step too far.

Your limited dollars may be competing with priorities like paying off medium-interest debt (student loans anyone?), increasing the balance in your emergency fund, saving for a down payment on a home and more. It may be tempting to think, “I’ll fund my long-term savings and retirement but I don’t want to be locked into an automatic payment.” We understand this thinking. But we recommend you set up automatic funding anyway, even if for only a small dollar amount.

By taking the time to set up even a very small dollar amount of automatic funding, you will overcome two significant impediments to long-term saving and investing:

1. Not knowing what to invest in 
2. Not knowing how to set it all up

By completing this task now, you’ll ensure that you don’t delay for months or even years before making progress. And once your automatic investing is set up, when you’re ready to increase the contribution amount, it will be as simple as updating a single number.

How To Do It

Depending on your situation, you can set up automatic funding directly from your paycheck (for example through a paycheck withdrawal to your employer-sponsored 401k) and/or self-funding from a liquid cash account to a long-term investment account. We cover both options below.

Funding & Purchasing Directly from a Paycheck

1. 1. Find Your Account: If your employer offers a retirement plan (e.g. a 401k, 403b or similar), you’ve likely already set up your account when you were hired. If you’re not sure, reach out to your HR department and they can tell you where your account is. You may need to register your account if you haven’t already.
   2. Find Contributions: There will be a place on the brokerage account’s website for contributions. Find it.
      

      If you’re able, we recommend contributing 10 – 15% of your pretax income.

   3. Make or Adjust Contribution Percentages: Your contribution from a paycheck is almost always set up as a percentage, not a dollar amount. Additionally, even if you never set this up, it’s possible you already have a small regular contribution being made from each paycheck since many employers do this automatically on behalf of their employees – often 3%. If you can, increase this contribution percentage by at least a percent or two. A percentage to shoot for is 15% but do whatever you can.
   4. Other Steps: Depending on your account type or the institution it’s with, you may have to make specific investment choices. If you don’t see options for investment choices here, they are probably managed on the “Investments” or similarly named section on the site. It’s worth confirming what the investments are but in all likelihood some investment choice and regular purchases with your contributions is already set up – you shouldn’t need to do that on your own for most employer-sponsored plans. But of course, you can make adjustments to those investments as your plan allows.

Self-funding & Purchasing

Use this option if you either don’t have an employer-sponsored plan, or, for any other reason you want to set up your own account (e.g. funding your own Roth IRA is a common example).

1. 1. Determine Funding Account: This is the account you’ll use to fund your long-term savings. This is typically a savings or checking account, likely the same one you deposit your regular income to.
   2. Set a Transfer Between Accounts: From either your funding account’s website or your investing account’s website, find the section of the site for “Transfers.” If both your funding account and your long-term savings/retirement account are at the same institution, you can directly set up the transfer. If the accounts are at different institutions, you’ll need to set up an “external account” first. (Note: Sometimes the validation process of setting up an external account can take a day or two. If that’s the case, make a note here about where you’ve left off, and complete the next steps in this task below once that’s done.)
   3. Set Amount: Determine the amount you’ll want to transfer. If possible, try to save 10-15% of your pre-tax income. If that’s not possible, contribute whatever amount you can. Note that for those who are self-employed, lump sum contributions are more common, often on a quarterly basis. (This has to do with taxes paid quarterly and other factors that may affect how much can be contributed.) In this case, one strategy might be to set aside 10-15% in your business account (before transferring to a personal account) for a future lump-sum transfer to your retirement account.
   4. Set Frequency: This can usually be set for as frequently as once a week with varying options up to once a year. We recommend at least one payment a month. If you’re paid more frequently than that, set up a transfer for as often as you get paid.
   5. Set Start Date: You can set this for today or whatever day you want. Just remember that depending on your frequency setting, the day of the week you set your first transfer will determine the day of the week for future transfers. So choose a day of the week that works for you (e.g. perhaps a Friday if that’s the day you’re typically paid).

Make Investment Purchase

Now that you’ve set up your funding, you need to set up your investment purchase.

1. Set Automatic Investing: Somewhere on your investment account’s website there should be an option for “automatic investing” or something similar. Find this section.
2. Choose Your Investment Fund: This is where you actually choose your investment. To find more detail on how to choose an investment go here. But in all likelihood you’ll be selecting from a “no-load” and “no transaction fee” mutual fund or exchange traded fund (ETF). This is important because it will ensure that when you make your regular purchases, you’re not getting charged for each trade you make – something that would be particularly silly if you’re only investing a small amount to begin with. (Although in recent years many investment banks have eliminated many trading-related fees altogether.)
3. Choose Your Investment Amount: This should be the same amount as your regular funding transfers.(Note that some funds require an initial investment amount. For example you may need to contribute $1,000 for your first investment but regular additions can be whatever amount you choose. If you don’t have enough money to cover the initial investment, we recommend finding a fund that doesn’t require an initial investment or that has one that is low enough for you to quickly meet the threshold. Don’t let this initial investment derail your plans for automatically funding your long-term savings!)
   
4. Set Your Investment Purchase Frequency: Once you set your start date and frequency, you’re now set to automatically make your investment purchase!
5. Make Note for Future Changes: In the notes section (logged in users only), make a note indicating what you’ve set up, and where on your brokerage account’s website you did this. This will make it easier in the future to come back and adjust the contribution amount when you’re ready to make an increase.

Saving and Investing for Retirement in One Sentence

It’s easy to be confused about how saving and investing for retirement works. In one sentence, here’s how it works: You find a brokerage company, open an account, put money in that account, and use that money to purchase shares of an investment product. That wasn’t so bad, right? Now let’s break it down a little further.

Brokerage Company

This is simply an institution that is authorized to offer different types of accounts that have money invested in different investment products. So, just like a bank is authorized to offer checking and savings accounts, a brokerage company is authorized to offer retirement accounts, company stock plan accounts, and more. (Many banks also offer brokerage services.)

Common examples include Vanguard, Fidelity, Schwab, E*TRADE etc.

Retirement Accounts

You can invest for your retirement using any type of brokerage account. But an account designed specifically for “retirement” offers tax advantages. Because of these advantages, there may also be limitations (like how much you can invest each year, a maximum amount of annual income you can have and still be allowed to invest in it, a time when you must make withdrawals from the account etc.).

The tax advantages generally fall into one of two buckets (and a few account types, like HSAs, fall into both buckets!):

1. Pre-Tax Accounts: You contribute to this type of retirement account before income tax is taken out. This reduces the tax you pay now because your income is reduced by the amount you contribute to your retirement account. However when you withdraw the contributions and investment earnings in retirement, you’ll pay taxes then.
   
   Common examples of pre-tax accounts include a 401(k), 403(b) (offered at tax exempt organizations like non-profits, public sector jobs etc.), Solo 401k etc.
   
   Note that many pre-tax plans are “sponsored” by employers. This means a few things but the most significant is that when you’re enrolled, your pre-tax contributions come directly out of your paycheck. This is nice because once you’re signed up, you don’t have to do anything extra to make regular contributions.
2. Post Tax Accounts: You pay income taxes as you normally would, but with whatever is left over (i.e. the “net” amount on a paycheck) you can use to contribute money to the retirement account. While this doesn’t reduce your taxes now, when you withdraw the contributions and investment earnings in retirement, you don’t have to pay any additional taxes.
   
   Common examples include a Roth IRA, Roth 401(k), Roth 403(b) etc.

Investment Products

When you invest in “the market” you purchase shares. Each share represents a percentage of ownership. Common examples of investment products include:

• Company Stocks: Publicly traded companies like Apple, Target, Netflix allow you to purchase a (very small) percentage of ownership every time you purchase a share of their stock.
• Index, Mutual, Exchange-traded, Target-date Funds etc.: “Funds” are simply a grouping of different assets (e.g. company stocks, bonds etc.). Purchasing a single share of an S&P 500 Index Fund for example, gives you a tiny percentage ownership of all the stocks in the S&P 500. All “funds” will be more diversified than individual stocks because a share of a fund is a grouping of many stocks.
• Bonds: Bonds are a way of loaning money (it could be to a company, municipality or other government entity). Essentially, you are the lender and the borrower is the issuer of the bond. In this case the borrower agrees to pay you back at a set time and a set rate for the money you have lent them, i.e. “the bond.” Bonds are often sold as part of some kind of fund (i.e. a grouping of bonds) since that reduces risk that any one individual borrower won’t be able to pay you back. However, through a broker or government entity it is possible to buy individual bonds and gain the predictability of return for the specified time frame that that bond offers.
  
  Important: Simply putting money into a retirement account is not the same as investing that money. For the money to have the opportunity to grow, you must make the final step of purchasing a specific investment product.

Balancing Your Priorities

In the Growth stage, we understand you may be working to increase the size of your emergency fund and to pay off medium-interest debt. But as we’ve previously discussed, the best thing you can do to ensure positive and high growth of your investments is to start as early as you can.

If you’re contributing something to your emergency fund each month, and you are paying off your medium-interest debt at the required pace, and you also have a few hundred extra dollars (or any amount), it’s the perfect time to use that money for long-term investments for your retirement.

The extra medium-level interest you’ll be paying on loans, or an emergency fund that doesn’t grow quite as fast as you’d like it to, are worthwhile short-term sacrifices to ensure you’re setting yourself up for success with your long-term savings.

In the next steps, we’ll dive into helping you determine how to choose a brokerage company, retirement account type, and investments. And we’ll give you several specific suggestions to make the whole process as simple as possible.