Investing 101: Getting Started, Timing the Market & Avoiding Large Obstacles

This may be the shortest article I’ve ever written because investing your money intelligently is remarkably easy.

If you find yourself in thriving circumstances — having handled your debt and with expendable income each month — then you’re probably wondering, “Where should I invest my money and How?”

If you’re only now starting to entertain the idea of letting your money work for you, first and foremost, consider whether you’re comfortable with your savings taking a loss. Will you need that excess cash in the foreseeable future of at least 2-3 years? A down payment or graduate school? If your answer is, “No.”, then I will give you the same advice the famous investor Warren Buffett shared* with his wife —

That’s it. That’s all there is to it.

If you’re thinking, “The stock market is too high right now.”, or waiting for the market to correct itself so you can buy low, then I want you to consider another great line from Buffett, “It’s not about timing the market, but time in the market”.

By depositing our excess cash every single month, we are doing what investors call “dollar cost averaging”. With this approach, we are investing during high periods in the market AND during low periods. This approach also helps to mitigate the risk of us staying on the sidelines too long.

We could get into a discussion about proper asset allocation and optimizing our portfolio, but if we are still sitting on cash and haven’t invested then we might be partaking in an activity called productive procrastination or analysis paralysis.

Two Largest Obstacles when First Investing: Productive Procrastination & Analysis Paralysis

Acknowledging and addressing the psychological and emotional aspects of investing is equally as important as the technical aspects (such as asset allocation, IRA vs Roth, 401k vs IRA, HSAs, 529’s, tax loss harvesting, etc.).

The problem I’ve seen with millennials and other first time investors is that they get stuck in what software developers describe as analysis paralysis.

In other words, people become so focused on obtaining the “perfect solution”– the “most optimum form of investing” — that they forgo taking any action at all.

This paralysis leads people into another large obstacle called productive procrastination. Instead of taking action, we opt to knock off some of the lower priority items on our task list while avoiding the important ones.

I experienced all sorts of productive, yet meaningless behavior when I had to study for my CPA exams. I would clean my entire apartment before I would sit down to study. If I received a text message, I would jump on the opportunity to respond right away. If an idea popped up, I would find myself researching something completely off topic. I would do anything other than what I had set out to do.

There is one simple truth to maximizing the value in our portfolio at the end of each year: Spend less than we earn and invest the rest.

In the end, productive procrastination and analysis paralysis are large obstacles, but that biggest item holding us back will undoubtedly be our savings rate. The rate at which we control our expenses (including your taxes through tax-efficient investments) will have the largest impact on when we will reach financial independence.

The most important takeaway we remind ourselves is, if we haven’t invested our excess cash by now, then we need to take action and start benefiting from the power of compounding interest by placing our money into the market now.

– Matt
Master Distiller

*(Page 19 of 23 from Warren Buffett’s 2013 Berkshire Hathaway Annual Letter)

13 comments… add one
  • Martin - Get FIRE'd asap Apr 28, 2016, 3:19 pm

    It really is that simple isn’t it Matt. I’m still amazed by people who would rather leave their money sitting in a regular savings account earning 2% rather than ‘risk’ it by investing. I have my portfolio spread a little wider than you suggest but then I’m more experienced at it than many. But for someone starting out, absolutely, start simple and build from there. I’m a loyal customer of Vanguard too and recommend them to anyone who’s thinking about an easy investment option. Spend less, invest more. Says it all doesn’t it.

    • Distilled Dollar Apr 28, 2016, 9:52 pm

      Yep! I was inspired to write this post because I see so many people get stuck between the ‘do nothing,’ and the, ‘investing’ phase. I feel this is a great first step, from there we can talk about different types of asset allocation.

      I agree with you as well, the return on your asset in year 1 is not going to be as critical as developing an early habit to invest a small portion of each paycheck. Build from there as you put it.

  • RR May 25, 2016, 12:59 pm

    Glad I read this! I am at the stuck stage! Thank you. RR

    • Distilled Dollar May 29, 2016, 9:36 am

      I hope the article gave you the nudge to move out of the stuck stage!

      That stage from not investing to investing in something was definitely the longest stage I ever had. I only had a few hundred dollars but I sat on it for at least a year, maybe even two, before letting it work for me.

  • Frugal Familia Jul 28, 2016, 6:00 pm

    I think most people fear what they don’t understand. I’ve got a background in finance and even I don’t understand how the markets behave most of the time. You’re absolutely right though, you’ve got to just take that plunge and hope for the best!

    • Distilled Dollar Jul 29, 2016, 3:41 pm

      Exactly. Even if you know a lot, you still don’t know everything. To use a baseball analogy, you don’t need to hit every time you’re up to bat to make it to the hall of fame. You don’t even need to hit it half the time.

  • Ty Sep 12, 2016, 12:26 pm

    I love short & sweet articles! I try to keep mine short, but they tend to get away from me sometimes.

    regarding being at the top of the market….because the market is in the middle of an ongoing march upwards, we’ll almost always be “at the top”. Which brings to to this: ask yourself: do you think the market will be higher in 5 years than it is today? If so, invest!

  • OT Feb 9, 2017, 1:34 pm

    OMG! And here I am wondering for the last year or so what is wrong with me just to find out that there is a term for it – analysis paralysis! Thank you for your writings and the motivation!

  • Right Hand Money Man Apr 18, 2017, 4:30 pm

    Love this approach, and I love simplicity! Just found you in the last couple of days, excited to dig in and catch up on your posts!

  • Kevin Mathew Apr 26, 2017, 1:59 pm

    This method of introductory investing reminds me of informercial for the “Showtime Rotisserie & BBQ” where the tagline is “Set it and Forget it!.” From a 101 perspective, that’s definitely a perfect approach.

  • Lisa V Feb 13, 2018, 1:58 pm

    Hi, yes, analysis paralysis, but really I’m from the generation that kept money in the cookie jar for safe keeping and giving it to someone else to safeguard is anxiety inducing. So…. Why Vanguard? If there’s another article about your faith in them/work them, awesome. Just wondering though! Thank you for your time!

    • Distilled Dollar Feb 23, 2018, 10:40 am

      Hey Lisa,

      I’m a large fan of Vanguard because of their low cost index funds. They were the pioneers of offering this type of investment vehicle but many of their peers are now offering the same low cost index funds (such as Fidelity, T.Rowe, etc.). If investing in the market is your strategy and approach, then I highly recommend Vanguard based on personal experience and knowing their offer great customer service and of course, low costs.

      Thank you for the questions and for your comment!

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