Jan 31, 2024

Financial planning

Investing 101: A beginner's guide to building wealth

Emily Luk

CPA, CFA - CEO and Cofounder of Plenty

The idea of investing conjures a lot of scenes, doesn’t it? People shouting on a trading floor, exciting minute-level price updates in Robinhood, people in suits talking about investing for the future. The ability to invest easily has grown over the last decade…. and now you can invest in anything from a single stock, to art, wine, sneakers, to startups.

In this world of endless choice, how do you decide?

We’re not here to tell you exactly what kind of investor to be —  but we are here to tell you that you are ready to be one, whether you know it or not.

Investing comes in many forms (including very simple ones), and the path to putting your money to work  can be much more accessible than you might imagine. We’ll show you why and help get you started. We'll walk through: 

  • Why investing is for everyone

  • When does investing not make sense? 

  • Debunking common myths about investing

  • Understanding all the investing options available to you

  • How Plenty can help

Yes, investing is for everyone

In the most common terms, investing is giving your money to a company so they can grow that company. When you give money, you now own a small percentage of the company (counted in shares). Over time, the company aims to be worth more with the help of that investment. So they’ll use your investment to do things like:

  • Hire more people to build a new product

  • Build new factories to manufacture and sell more products

  • Buy tools and systems that help them operate more efficiently 

  • Develop marketing strategies to reach new audiences

However they use the money, the goal is to grow their business, which in turn grows the value of your investment. This is the basic premise of investing – and the foundation of how the stock market works.

It’s easy to lose sight of that sometimes, because all the stock symbols, numbers, and acronyms do seem to make things a lot more complicated from there. Let’s try a practical example to get a sense of how it works in practice.

Say you get a raise at work, and you've got an extra $100 each month to put aside. In 10 years:

  • Invested: You’d have $20k, using the average S&P 500 market return of 10.7% a year (Source: Business Insider, 2023).  

  • Saved: You’d have about $12k in a regular savings account (Source: FDIC, 12/18/23 national savings rate 0.46%).

That’s right, you just made $8k gross (net of fees) simply by investing your money.

You can play around with what this might look like for you by using a compound interest calculator. 

When you start makes a difference, and the earlier, the better. When you invest and your investment grows, you unlock the magic of compounding.

For the following year, you now have even more money invested. So your investment has the potential to grow at a faster rate. And while in the short-term the market can go up or down, the stock market has gone up by over 10% gross (net of fees) on average. (Source: CNBC, 2023).

When does investing not make sense? 

Wait a minute — didn't we just tell you investing is for everyone and you should start today? It is, and you should, but we also recommend striking a balance between saving and investing. Because while you want to meet your financial goals, investing isn’t always the right answer.

  • Investing in stocks and bonds are great for long-term goals, like a down payment for a home, education, or retirement.

  • Saving is great for short-term goals where you’ll need quick access to your money.

One smart form of saving is a money market fund, great for things like your emergency or vacation fund. It won’t grow quite as quickly and will take a few days to withdraw, but still earns compound interest and is subject to less volatility over time. Kind of a sweet spot. 

For longer-term financial goals, though, the longer you stay in, the better your chances are at seeing bigger gains. So starting small is better than not starting at all.

What are some common myths about investing? 

Let's debunk a few myths we've heard from people hesitant to start investing. 

"Investing takes a lot of time and effort."

  • Nope. You might be picturing a bunch of guys in suits running around Wall Street yelling "buy!" and “sell!" We hope those guys are having fun, but data has proven that investing in the market outperforms individual stock picking. In other words, you don't need much of an investment strategy to build long-term wealth. 

  • Warren Buffet famously proved that a simple, automated index fund outperformed major hedge funds when he put $1 million in an index fund that tracked the S&P 500, and over the course of a decade saw it more than double to $2.25 million with an average annual gain of 8.5%. Meanwhile, the best performing hedge fund averaged 6.5% while the worst returned only 0.3%. 

  • What’s all this mean? You can earn more by doing less. Beautiful, right? 

"I need to know more about the market before I decide to invest."

  • This one's easy: don't stock pick. While playing the stock market may be a fun hobby for some, there are easier, more reliable ways to see significant returns. 

  • With Plenty’s machine learning-powered robo-advisory, we can ask you a few questions about your priorities and automatically recommend an investment portfolio tailored to your goals and values. You confirm it, we manage everything. You’re buying into the market without the work of picking individual stocks. 

"I need a lot of money to start."

  • Again, no. While every fund will have different minimum requirements, many are accessible at lower investment levels. For instance, at Plenty, you can start investing with just $100.

"It’s too risky."

  • It's true that investing can expose you to market volatility. That's why we recommend only investing money you won't need in the next 12 months or so. A big part of investing is patience; sometimes you need to wait it out. 

"Maybe I should pay 1% for an advisor to do it for me."

  • 1% can add up to a lot, and most advisors will put your money into generic portfolios with higher fees.

  • Let’s say you start investing $1k every month from the age of 25. Using an average annual return of 9.7%, 40 years later when you’re 65, you’d have about $5.8 million.

  • If you paid an advisor 1% every year, that total amount would be only $4.3 million. That advisor just cost you $1.5 million for something you could have 

  • done automatically. 

With Plenty's direct indexing portfolios, cut out the fees to the middle managers and map portfolios to your values. Our goal is for you to have more for your future.

Financial advisors can be great if you're managing a complex portfolio. But they're not necessary for most investors, and shouldn’t be a barrier to entry if you want to start investing on your own. If you still think you would benefit from an advisor, your best bet is to negotiate a flat rate for any amount over $750,000. 

What are your options for investing? 

Now for the fun part. There are so many ways to invest, from straightforward financial vehicles like stocks and bonds, to treasuries, real estate, and more.

Investing is starting to become a reflection of your values. There might be a slight decrease in returns if you decide not to invest in industries you don't believe in, but for many it's well worth the satisfaction of voting with your wallet. Later we’ll share how Plenty makes it easy to invest according to your values. 

But before we get into the investment vehicles themselves, let’s look at some of the tracks you can choose to drive them on:

  • Individual brokerages (your standard investment account)

  • Retirement accounts like 401ks and Roth IRAs

  • Health Savings Accounts (HSAs)

  • 529cs (tax-advantaged college savings accounts)

Once you start contributing to these accounts, you’ll usually have some choice over what you want that money to be invested in. Here are your options: 

Low risk options are good for short time frames. High risk, long time frames.

Stocks and bonds are the starting place for most investors. They're the classic investment vehicle your parents and grandparents probably used. Stocks are ownership stakes in companies, and bonds are a way for you to loan money to a government or bank, who will then pay you back with interest. Meat and potatoes.

  • Note: For the past 20 years, when stocks go up, bonds tend to go down, so you’ll generally want to have a mix of both to reduce your risk.

Treasuries are lower risk, government backed investments that are considered to be very safe. They're used to pay for government operations and pay off national debt. Vegetables. 

Index funds, aka ETFs or exchange traded funds, are like a one-stop shop of stocks, bonds, and investments designed to match the returns of a popular index — like the S&P 500. If we’re sticking with the food metaphor… this is your bread.

  • An index fund is a basket that holds a whole index worth of investments. You can buy shares of that whole basket, so it’s not such a huge deal if one or two items (companies) fall out along the way. 

  • There are many types of ETFs: domestic US company ETFs, tech-focused ETFs, international company ETFs, bond ETFs, and more. 

Real Estate. You can invest in real estate directly, like owning a rental property – but that’s not the only way. Companies like Yieldstreet allow you to invest fractionally in private real estate, without the upfront investment and headache of managing a property. You can also invest in a real estate investment trust (REIT). And many people like the physical tangible component of this asset. You can even live in it!

Alternative Investments allow you to invest in things you care about. Wine lover? Vinovest lets you invest in fine wine. Only farmers? AcreTrader lets you invest in farmland. 

Venture Capital and Private Equity. If you’ve always dreamed of investing in startups, it’s now more accessible to regular people than ever. AngelList lets you invest directly in startups that catch your eye or in venture capital funds that invest in several early-stage companies.You can also invest in an ETF (exchange-traded fund) that tracks an index of companies invested in private equity. Higher risk, higher upside.

Direct indexing has historically been a way for wealthy people to invest in individual stocks while also benefiting from tax loss harvesting. Plenty now makes it possible for regular people to use this strategy, helping you increase your earnings when possible and decrease your taxes when it's not. Learn more about our approach to direct indexing here.

How can Plenty help? 

We are an investment platform designed specifically for couples to build wealth, together. We go beyond budgeting, making it simple to invest, save and grow towards your future goals by unlocking access to the financial strategies of the wealthy. Ready to get started? Sign up for your free trial today.


Emily Luk

CPA, CFA - CEO and Cofounder of Plenty

Emily is the ceo and cofounder of Plenty. Started by a husband and wife team, Plenty is a wealth platform built for modern couples to invest and plan towards their future, together. Previously, she was VP of Strategy and Operations at Even (acquired by Walmart/One) and a founding team member of Stripe's Growth and Finance & Strategy teams. She began her career as a VC, and was one of the youngest nationally to complete her CPA, CA and CFA designations.


Financial planning

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