What should I do if I am just starting to invest?

Tonight is the first presidential debate between Former President Trump and President Biden. Unlike four years ago, their microphones will be muted when it is not their turn to talk. If you choose to watch, please do so responsibly. No throwing things at your TV and only post hilarious memes on social media.

I am going to start this letter with an update that may make you question everything else I say. In our welcome letter, I talk about the first investment I ever made. In 2005, I bought twelve shares of Barnes and Noble for $249.12. My reinvested dividends eventually brought me up to 17 shares total. Well, this month, my position closed. I received $1.23. I lost $286.18. 

Barnes and Noble shareholders voted on a deal that essentially infused cash back into the business. They offered existing shareholders the right to purchase shares at the subscription price of $.05. This is a discounted price and allows institutional investors to pick up large positions in the company. I did not exercise my rights. My unexercised shares were then purchased by other investors, and I received a little more than $.07 per share.

The loss of money doesn’t make me sad. I am mostly going to miss seeing BNED in my portfolio. It was a constant reminder that I am terrible at picking individual stocks. The reminder didn’t always work… but it did motivate me to limit my individual stock purchases so if it goes to $0, I won’t be too sad.

Thanks to my dad, who supported my Barnes and Noble purchase and taught me nearly everything I know, my investing journey started when I was 11. If I was just starting out now, my approach wouldn’t be much different: aggressive and no second guessing.

Before I start though, I’d be doing a disservice if I didn’t highlight some previous newsletters: How Do I Work Out of Debt?, How Do I Make a Budget?, and Do I Need An Emergency Fund? These are building blocks before investing: no bad debt, a budget (knowing where your money is going), and an emergency fund. If you have all those, let’s get into it. 

1. I’d contribute to a 401(k) or TSP up to (and beyond) the employer matching, if applicable. 

   1. If you skip this step and go straight to investing into your brokerage account, you’re missing out on free money from your boss!

   2. Right now, I contribute 10% to the Thrift Savings Plan, which is the military’s equivalent of a 401(k). Uncle Sam matches 5%. I add an additional 5% because I love the tax free growth of a Roth TSP account. 

   3. My contributions are split between the S&P 500 and Total Stock Market Fund. A 100% stock allocation is classically “risky,” but I am invested in literally thousands of companies. It is not that risky.

   4. Now, if your employer’s 401(k) has high management fees and/or a poor fund selection, invest up to your employer’s match only and then move onto the next step. Claim your free money from your company and then move on to something with lower fees and a better fund selection.

2. I’d contribute to a Roth IRA. 

   1. For me, I like the tax free growth of a Roth IRA. This aligns with my expected retirement income and tax bracket. 

   2. Don’t forget to invest your IRA contributions! 

   3. Since my TSP contributions are going to large funds with the S&P 500 and total market, I am more aggressive with my IRA. I am heavily invested in:

      1. 30% in SCHG - Large Cap growth fund that picks ~250 companies from the S&P 500

      2. 10% in VBK - Small Cap growth fund that picks ~600 companies from the thousands of smaller companies outside the top 500

      3. 10% in SCHF - International Fund with 1500 companies for my first exposure outside the US stock market

      4. The rest of the 50% is in Large cap, Mid cap, and Small cap ETFs.

      5. No cash or bonds.

   4. Use this letter as a guide to determine whether a Roth or Traditional IRA is best for you.

3. If I max out my Roth IRA, I’d open a Schwab Intelligent Portfolio and contribute whatever is left over every month. 

   1. In my Schwab Intelligent Portfolio, I put no restrictions on the robots and told them to be as aggressive as their hearts (chips) desire. This gives me a blend of US and International stocks, REITs, precious metals, bonds, and cash. Since it is an aggressive portfolio, it is primarily stocks and REITs. 

With such a small cash/bond allocation, this is a classically risky portfolio. I am young and can wait out a recession or two before I plan to retire.

Sometimes it can be scary to get started. I am very thankful that my parents not only helped me invest but encouraged it from a young age. Mike and I hope we are having the same impact for you. From talking with many people about investing, I have found that analysis paralysis and taking the first step is usually the hardest part.

Take the first step. You will make mistakes. We are here to try and convince you to stick to ETFs and Index Funds as much as possible. If you get wild and buy some random stock that you heard about on a podcast that morning, you’ll be in good company. Just keep your position small and enjoy the ride.

Call to Action

If you haven’t started investing, let us know why! Maybe there is a question or decision we can help with.

What We’re Reading:

The Morning Brew. This is the first newsletter I ever subscribed to. It is a fantastic daily newsletter that covers world, US, and business news in a light, fun way. This is the vibe I try to channel when writing the Dollar Debrief. 10/10 highly recommend.

Debrief on Deck

Next week, Mike will review June! We have already passed half-Christmas, and I didn’t receive any presents. Sad.

As always, please reach out to us with any questions or comments you have. You can reply directly to this email or find us on social media (X (formerly Twitter) and Instagram).

Until then, stay the course.

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