JL Collins writes about personal finance, index fund investing, and financial independence, including his Stock Series and book.
Commenters recommend it as unbiased, simple long-term investing advice, and credit it with originating the term "F-you money".
Quick answer:
You could do a lot worse than parking it in an index fund, so yeah, that's a good approach :) If you have a 401(k) or other retirement account, it is quite common for those to offer an S&P 500 index fund where you could invest your money. If you want to do it in a taxable brokerage account, you should open an account with Vanguard and buy their Total Stock Market index fund (VTSMX, or VTSAX if you have more than $10,000 to invest).
Then stay the course - if the market tanks 50% the day after you put your money in, don't panic. Wait it out. Your investment horizon here is at the very least 10 years.
But that's the quick, the-best-time-to-invest-is-tomorrow-so-just-do-it answer.
There are a number of things you should do if you want to learn more about how to invest your money in stocks (and maybe bonds):
0) A good resource to get started quickly is If You Can, by William Bernstein:
https://smile.amazon.com/If-You-Can-Millennials-Slowly-ebook/dp/B00JCC5JKI/ref=tmm_kin_swatch_0?_encoding=UTF8&qid=1472318151&sr=8-3
But you can skip it if you want to dive deeper with the stuff that follows.
1) Learn about what investing in the stock market means, what's the nature of it and what to expect from it. I have two recommendations here:
1.1) jlcollinsnh's Stock Series: http://jlcollinsnh.com/stock-series/ He recently released a book (The Simple Path to Wealth) which is supposedly a better-edited version of the Stock Series. He's a rather optimistic guy, but what…
> a gobsmackingly terrible investment decision
Speaking only about the "investment" part of home ownership, I found this blog post insightful, and maybe interesting enough to share here: http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/
Here is a somewhat paraphrased version of the author's main points:
* Not just an initial, but a relentlessly ongoing drain on the cash reserves of the owner requiring an endless parade of repairs and maintenance without which it will crumble
* Illiquid. It takes months of time and effort to buy or sell
* Expensive to buy and sell with very high transaction costs: 5%+ commissions, buying and selling
* Undiversified. Represents a disproportionate percentage of a person’s net worth
* Complex to buy or sell
* Lots of extra fees and reports and documents you must pay for
* Generates low returns. At or below the inflation rate
* Leveraged. If the price goes up a little bit, leverage will magnify this and people will convince themselves it’s actually a good investment! Most will never consider that leverage is also very high risk and could just as easily wipe them out
* Mortgaged. You pay interest on the loans. Many people borrow money against it more than once
* Unproductive. Never pays interest, never pays dividends
* Immobile. Fixed to one geographical spot so at any given time only a tiny group (if any) of potential buyers for it will exist
* Subject to the fortunes of a single neighborhood
* Fragile.…
Reminds me of https://jlcollinsnh.com/2023/03/02/why-your-house-is-a-terrible-investment/
“Hey I’ve got an idea. We’re always talking about good investments. What if we came up with the worst possible investment we can construct? What might that look like?”
Well, let’s see now (pulling out our lined yellow pad), let’s make a list. To be really terrible:
- It should be not just an initial, but if we do it right, a relentlessly ongoing drain on the cash reserves of the owner.
- It should be illiquid. We’ll make it something that takes weeks, no – wait – even better, months of time and effort to buy or sell.
- It should be expensive to buy and sell. We’ll add very high transaction costs. Let’s say 5% commissions on the deal, coming and going.
- It should be complex to buy or sell. That way we can ladle on lots of extra fees and reports and documents we can charge for.
- It should generate low returns. Certainly no more than the inflation rate. Maybe a bit less.
- It should be leveraged! Oh, oh this one is great! This is how we’ll get people to swallow those low returns! If the price goes up a little bit, leverage will magnify this and people will convince themselves it’s actually a good investment! Nah, don’t worry about it. Most will never even consider that leverage is also very high risk and could just as easily wipe them out."
If you have money to invest, invest in low-cost, broad-based index funds. I personally bias slightly towards small cap (said more precisely: I avoid biasing toward large-cap, but to many people, that looks like biasing towards small caps). One specific choice is VTSAX from Vanguard, but there are many others.
Keep an emergency fund of 2-4 months in cash or equivalents, and invest everything else that you can when young. Don’t buy the flashy new car, the rounds of $15 drinks, don’t carry a credit card balance, etc. When the inevitable market gyrations come, do not take the money out. Don’t try to time the market.
If you don’t have much money to get started, consider real estate as a second job. The leveraged nature of that bet is one of the few ways to start from relatively little money and build a nest egg. It’s a second job, though. If you pay a PM to manage it, the PM makes more current income than you do in most cases.
In addition to jacquesm’s advice to read MMM, I also recommend the jlcollins stock series: http://jlcollinsnh.com/stock-series/
> strongest correlating factor with financial independence and overall net worth
If the only way people save is "force saving" by diving headfirst into something that sucks all of their other assets in, sure.
How could we make housing a terrible investment?
* It should be illiquid. We’ll make it something that takes weeks, no – wait – even better, months of time and effort to buy or sell.
* It should be something that locks its owner in one geographical area. That’ll limit their options and keep ’em docile for their employers!
* It should be leveraged! Oh, oh this one is great! This is how we’ll get people to swallow those low returns!
(copied from amusing thought experiment for another perspective: https://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/)
That said, I bought a place to live anyways.
Famous article by JL Collins: https://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/
Another thing to keep in mind is the lumpy nature of costs, meaning you need to have access to cash to pay for multiple major maintenance projects in one year. My largest single-year expenditure for maintenance was 25k in a LCOL area pre-pandemic. That would probably translate to 50k today. If you have to dump that on a credit card, good luck digging yourself out of that hole.
It's common to hear that renting means you might need to move at the end of any 12-month period. Well, that cuts both ways. You have the option to move away at the end of any 12-month period too. Lots of folks had to turn down job offers in the aftermath of the housing crisis because of their homes.