Book Four: The End

Napoleon and the Grand Army surge across Russia, take Moscow, and then recede like a devastating tsunami.  Pierre, a prisoner of war, is forced to march with them.  Along the way he discovers the meaning of life, loses a close friend and witnesses the decomposition of the French army.  Eventually freed by a Russian raiding party, Pierre escapes, and returns to Natasha and the war in Russia comes to a close.  Russia is devastated, but Pierre survives, finds himself, and returns to the girl of his dreams.

In many ways, Book Four of War and Peace reads like a summary of the French invasion of Russia.  So here is my summary of  my basics of investing.  Let me walk you through my thought process.

The first thing I need to decide when investing is what type of account I want to keep my money in.  A tax sheltered account–likely retirement account–or a taxable account, which is exposed to taxes on any gains, but allows me access to the money when I want and need it.

The next step is to decide what I want my asset allocation to be.  Asset allocation means, simply, how I am going to diversify.  How much money I want to put into stocks, bonds, REITs, precious metals, and keep in cash.

Then, I need to decide within these asset classes, how I am going to divide up my investments.  Say I want to put $1,000 into stock. Do I want to buy one mutual fund, which is a total market index fund, and diversifies me across the entire market? Or buy into multiple, more specific, funds?

The last part is to revisit the first part.  Does my asset allocation match the type of investment account I have it in.  Bonds create lots of interest which is paid to me often, and so creates lots of taxable events.  It might not make sense for me to have a lot of bonds in a taxable account.   I might find I need to play with different types of accounts for my different investments.

Before you get overwhelmed reading all this, remember it’s OK to start small.  Let’s say I have $3,000.  I can decide what you want to do with that money now and go from there.  Maybe I want to invest that money in stocks now and have it around and available ten years from now, so I open up a taxable account and invest in a stock index fund.  I can always save up for a few months and put another few hundred into a bond fund.  Maybe I decide at that point to put it into a tax-sheltered retirement account (because bonds earn interest!).  I can always build my portfolio piecemeal, and put money into different types of accounts to make it more useful to me.

Alternatively, I can invest in robo-advisers like Wealthfront and Betterment, which take my money and diversifies it for me.

Either way, I hope this series helped you get an idea of what is out there and can provide a spring-board for you to get started making your money work for you! And just like War and Peace, this series doesn’t actually end at the end! Check back next week for my epilogue which will discuss a few basic strategies to help you with your investing!

 

 

 

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