Investing for the Non-Investor: Where to Start

Investing feels complicated because the financial industry benefits from the perception that it requires expertise to navigate. In reality, the strategy that produces the best outcomes for most people is also the simplest: invest consistently in low-cost, diversified index funds and let time do the work.

An index fund is a collection of stocks or bonds that mirrors a market index like the S&P 500. Rather than trying to pick winning individual stocks — which even professional fund managers fail to do consistently over time — an index fund simply owns a tiny piece of every company in the index. When the market goes up overall, you go up. Over any long period of history, the market has gone up.

The three numbers that matter most in investing are cost (the expense ratio of the fund — aim for 0.1% or lower), time horizon (the longer you're invested, the more compounding works in your favor), and consistency (investing the same amount every month, regardless of market conditions, is called dollar cost averaging and it removes the impossible challenge of market timing).

Vanguard, Fidelity, and Schwab all offer excellent, low-cost index fund options with no minimum balance requirements. Opening an account takes about fifteen minutes. A simple three-fund portfolio — a US total market fund, an international fund, and a bond fund, in proportions appropriate for your age and risk tolerance — is a complete, professionally endorsed investment strategy that requires almost no ongoing management.