Personal Finance
June 15, 2023

Building a Solid Financial Foundation: A Guide to Basic Investing

Building a Solid Financial Foundation: A Guide to Basic Investing
Personal Finance
June 15, 2023

Building a Solid Financial Foundation: A Guide to Basic Investing

Alex Irigoyen
Co-founder & Chief Executive Officer
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When it comes to investing, the power of compound interest cannot be overstated. It allows your money to grow exponentially over time, turning small investments into significant returns. However, for individuals who are new to investing or lack substantial funds, determining where to invest can be a challenge.

For those seeking a simple and basic approach to investing, it is crucial to consider suitable options that minimize complexity and risk. Instead of delving into the intricacies of individual stocks, it is advisable to focus on broader investment vehicles, such as ETFs (Exchange-Traded Funds) or low-cost index funds.

Acorns, among various other partners, emerges as a recommended choice for individuals who want to start investing with limited funds and prefer to avoid the complexities associated with stock trading. By partnering with Acorns, users gain access to a range of low-cost index funds, allowing them to establish a diversified portfolio. This partnership enables beginners to enter the investment market with confidence, knowing they are backed by reputable and reliable financial products.

Adopting a long-term investment approach is paramount to building a solid financial foundation. By employing a "set it and forget it" strategy, investors can focus their energy and attention on other important aspects of life. This method frees them from constantly monitoring market fluctuations or succumbing to the temptation of chasing hot stocks.

The effectiveness of such an approach is exemplified by the personal investment practices of the author and their co-founder. They primarily invest in low-cost index funds, prioritizing stability and consistent growth. Recently, the author took a significant step toward securing their financial future by rolling over an old 401k into low-cost index funds. This decision showcases the belief in the long-term potential of such investments.

One common mistake novice investors often make is succumbing to peer pressure or the allure of quick gains. Friends may suggest investing in specific stocks, claiming insider knowledge or potential growth. However, such speculative investments can lead to disappointment and financial losses. The author acknowledges the allure of taking risks and enjoying the thrill of individual stock picks but advises that the majority of investments should be guided by a more prudent and safe approach.

While a small portion of one's investment portfolio can be allocated to riskier bets, it is essential to prioritize financial security and stability. By "playing it easy" and adopting a cautious approach, investors can minimize the chances of significant losses. It is crucial to remember that building wealth is a gradual process that requires patience, consistency, and a long-term perspective.

Furthermore, the article recognizes the role of the US economy in influencing investment outcomes. As long as the economy remains robust, investors can expect favorable returns. However, it is essential to keep in mind that economic conditions can fluctuate, and diversifying investments can mitigate risks associated with a potential economic downturn.

In conclusion, for individuals new to investing and seeking a basic approach to building wealth, focusing on compound interest and low-cost index funds is a wise strategy. Partnering with reputable platforms like Acorns can provide access to diversified portfolios and set the stage for long-term financial success. By embracing a set-it-and-forget-it mindset, avoiding impulsive stock purchases, and playing it safe, investors can establish a strong financial foundation while enjoying peace of mind.

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