We’re having a moment in America. Women are speaking out about the tribulations wrought upon them by powerful men, and for the first time people are actually listening. A few days ago, facing a detailed Minnesota Public Radio report about his alleged sexual misconduct with his daughter, my own State Representative Jim Knoblach dropped out of his race for the Minnesota legislature. I’ve eaten dinner with this man at multiple charity events and had no idea that his daughter had apparently been futilely seeking help from almost anyone who would listen for the last decade. All of us should stop, listen to what these women are saying, and reflect upon how we got to this moment and where it should go from here. If you’re attuned to what Dr. Christine Blasey Ford and the other Brett Kavanaugh accusers have to say this week, it’s rightly so.
Yet, there are still bills to be paid. To be able to focus on important social movements, it helps to have a little financial padding at your back. You can do better than Brett Kavanaugh at both investing and, you know, being a person.
So, if you need a small break from the unfolding national drama, now is a good time to learn a little about investing. Most of us, even lawyers, just don’t know how to invest on our own. You’re not alone if you’re starting from scratch. This should be taught in high school, or college, or law school, but it’s not.
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It’s easy enough to throw your savings at a money manager (money managers are constantly marketing to attorneys; I’m sure you have a pile of their cards somewhere in your desk drawer). But having someone else manage your wealth will lead to that person skimming off your savings every year for their fees, which, when compounding returns are factored in, will cost you hundreds of thousands of dollars (really, it’s that much) over your lifetime. And most financial advisers are not peddling some deep insider knowledge that any literate layperson can’t get on his or her own. The real job of financial advisers is to sell themselves.
At the very least, even if you do choose to outsource some of the investment legwork, you should not outsource your cognitive ability to tell whether or not you’re being screwed. So, the basics: a mutual fund is a bundle of stocks (or bonds or other securities, but stick to stocks for now) that is designed to track some certain segment of the market. These bundles remove risk, because you don’t lose all your money (or even a noticeable amount) if one of the many companies in the bundle fails. Likewise, if one of the stocks soars, it will help you, but not enough to notice based on only the one stock. Yes, there are downs, but if you don’t panic in a “down,” the trend will be up, barring the entire American experiment collapsing. Over the last 90 years, stocks, as measured by the S&P 500 Index, which tracks America’s 500 largest publicly traded companies and was conceived of in 1928, have gone up an average of about 10 percent annually. You’ll lose two or three percent of the purchasing power of your returns per year to inflation, of course. But over time, even with inflation factored in, the trend in stocks is decidedly “up.” Even if you had terrible timing and invested in the S&P 500 right at the market peak in 2007, as long as you stuck out the Great Recession without panicking, not only would you have recouped your investment, you would have doubled it by 2017.
A passively managed mutual fund will charge you next to nothing in fees. Passively managed funds have a preset bundle of stocks. Conversely, an actively managed fund has actual people picking the stocks going into the fund, trying to beat the market (which they charge you a bunch of fees for and can’t actually do). When looking at funds, look at the expense ratio. The expense ratio is what the fund charges you annually to cover administrative costs. If the expense ratio is between 0.04 percent and 0.09 percent, you’re good. If it’s above 0.20 percent, you’re probably throwing your money away. You don’t need to pay some person to pick the stocks in your fund based on voodoo or whatever.
If you want a non-retirement investment account, you’re generally going to need to start with at least $10,000. A super easy way to do this is to go to Vanguard’s site for individual investors. I don’t get anything from Vanguard to tell you this, and there are others in the space doing the same thing competently, so while Vanguard is a good option, don’t think it’s the only one. After creating an account, you need your routing number and account number from your checking account where you have socked away your $10,000. Start with the $10,000, and then set up an automatic investment to periodically withdraw and invest funds directly from your checking account so you don’t even have the money to spend before it’s invested. You can choose any automatic investment amount you want, but $200 a week is a doable start for almost anyone in the professions. If you can’t swing that much, you might want to consider whether you have too much house or car or could cut back on the boozing a little. There are all kinds of perfectly good funds, but Vanguard’s Total Stock Market Index Fund Admiral Shares, ticker symbol VTSAX, is kind of a can’t miss passively managed fund for new investors.
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Whatever you do, do not touch your principal or change your automatic investments based on a bad market day. Do. Not. Touch. It. People who look at stocks professionally all day, despite what they might say, cannot predict specifically when the market is going to go up or down. They can’t, and you certainly can’t. Don’t try to time the market. You will make money if you put your savings in a simple fund and leave it alone.
So, go get started. Make some money. You’ll be buying yourself the freedom to focus on the more important things next time the national dialogue is ready to lurch forward once again.
Jonathan Wolf is a litigation associate at a midsize, full-service Minnesota firm. He also teaches as an adjunct writing professor at Mitchell Hamline School of Law, has written for a wide variety of publications, and makes it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at [email protected].