Author Topic: *HOW* do you actuallty invest? /compound interest  (Read 3721 times)


  • Bristles
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  • Location: West Coast
*HOW* do you actuallty invest? /compound interest
« on: September 26, 2014, 04:37:12 PM »
I feel very ridiculous asking that question but I have no tinancial knowledge/teachings other than what I've learned from MMM. INVesting is not even on my family's radar so what is a 28 year old to do?
Ive read about it but how do I actually do it? Its not like you go into a store and "buy" stocks, cds, etc. Through the bank? Is this the best place?
Also want to start a college savings plan for my 10 year old... I know, pretty late in the game buy better than nothing!!
Also, how dp you know the compounding interest of hwatever you purchasr?  (Is it stated as compounding ? )
Sorry for the typos, my not-brand-nrw phone refuses to have a functioning backspace key from time to time lol
Thanks so much, I feel like a kid asking for the equivalebt of the "bees and birds" talk :/


  • 5 O'Clock Shadow
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Re: *HOW* do you actuallty invest? /compound interest
« Reply #1 on: September 26, 2014, 05:34:39 PM »
First off, you should go read the wise words of the legendary jlcollinsnh. He's been retired for some 30 years and is - believe it a or not - a better writer than MMM. Start here:

I'm a young adult and this is how I started investing.
1.) I went to and said I want to open an account. The first account I opened was a roth IRA. In a roth IRA, I pay taxes on income I make, put it in, and can withdraw it tax free after 60. There's a $5500 yearly addition limit.
2.) I bought $1000 of shares in a target date 2050 retirement fund (through the online web interface). I picked the date by finding the year I would turn 65 and getting the closest fund. The fund buys 4 funds: US total market index, International total market, US bond market, international bond market. The asset allocations automatically change based on your time horizon until retirement.
3.) Every paycheck, I put at 25% of my money in there (I don't make much yet)
This is my plan for the next job:
4.) Open a 401k through the company that hires me.
5.) Put 25% of every paycheck into a total market index fund
6.) Open a taxable brokerage account at vanguard and put "extra" money in there.

To answer your question about compounding: There isn't really a "compounding rate" because you're actually buying an ownership share of a real company (through a mutual fund). In good years, that company makes more money and in bad years it might lose money. The value of your shares swings as a result. The market isn't like they teach in algebra. It is volatile. The market gyrates up and down. But overall, a total market stock fund grows (compounds) at 10% per year. However, you might see a return of -30%, 2%, 20%, -4%, 12%, etc. In the long run, you can probably expect a 10% return.

At the same time, the value of the dollar is decreasing because of inflation. Inflation eats up about 2-3% per year, so your after-inflation return is about 7%.

To save for your child's college, you should open a 529 plan (it's designed for college savings).


  • 5 O'Clock Shadow
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Re: *HOW* do you actuallty invest? /compound interest
« Reply #2 on: September 26, 2014, 07:50:52 PM »
I would definitely recommend a Roth IRA from to start, as well. That's how I started, and it makes it quite easy.

If your employer offers a 401(k) - especially if they offer to match your contributions - you should definitely set one up by following their instructions, too. As a young adult with low income, I have a portfolio currently consisting of just those two things (plus some savings bonds that were a gift).


  • Magnum Stache
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Re: *HOW* do you actuallty invest? /compound interest
« Reply #3 on: September 26, 2014, 09:22:01 PM »
From wikipedia:
"Compound interest is interest added to the principal of a deposit or loan so that the added interest also earns interest from then on."
Say you have a 100. You put in the bank and they we will give you 1% just for putting your $ with them. Then you have 101. But now you get 1% of the 101. Which will be more money. 100 X 1% is 1.01. And so on.

You invest by calling an investment firm (these days go to a website like and open an account. You can pick companies to buy shares from (bad idea) or buy a group of them which is called an index fund.

devan 11

  • 5 O'Clock Shadow
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Re: *HOW* do you actuallty invest? /compound interest
« Reply #4 on: September 27, 2014, 08:22:05 AM »
When I first started investing, I didn't know jack ships about what I was doing. I saw an ad, found a local broker and gave them the money for my first mutual fund. Mass Financial Trust, with a 7% load at withdrawal that diminished the more years I kept investing with MFT.  The fund was so far below any benchmark, I was greatly ahead to write off the 7% and chalk it up to inexperience. You have asked the right questions and have great advice for an answer. To won't be making the mistakes from inexperience that I made.

Vanguard has low cost mutual funds. They are known for index funds.  With an index fund, you are taking the collective wisdom of the country, and investing in that ratio for that index.  You get a nearly guaranteed average return which will beat 80% of actively managed funds.  As you may guess, I like index funds and own a few kinds to diversify even more broadly.

The steps to actually invest are easy.  Look up the fund family, decide on a fund, call the number to talk to a broker, read the prospectus, fill out the paper work,  and send a check with the filled out paperwork.  Much of this can be done online. You may find it a good time to decide on investing in an IRA or Roth IRA. 


  • Handlebar Stache
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Re: *HOW* do you actuallty invest? /compound interest
« Reply #5 on: September 28, 2014, 02:57:28 PM »
Easiest way:

That's a really old article but still applies. Sets you up with a pretty conservative half bond half stock portfolio in the simplest manner possible. You can browse the site for other information too. I personally use the "ten speed" portfolio he talks about in another post.

The key is not to over think and get started.

Note that I'm in no way affiliated with that site. I don't actually use their management services.


Wow, a phone plan for fifteen bucks!