- I was recently watching some YouTube videos
when a video popped up by another YouTuber
by the name of Matt D'Avella.
His video caught my eye because A,
I'm a minimalist just like him,
and B, the title had the words personal finance in it.
The video was titled
"A Minimalist Approach to Personal Finance".
In case you couldn't tell by my YouTube channel,
I'm a personal finance and investing junkie
so I instantly got excited.
Go check out his video after you watch this one
because it's really good
and his filmmaking skills are topnotch.
It got me thinking not just about personal finance
but investing specifically.
So in this video,
I'm gonna take a minimalistic approach to investing.
I'll lay out four different strategies if you are interested
in investing like a minimalist
to help grow your money without doing too much.
I'll also let you know
which investing platform I recommend using
to execute each one of these strategies.
Hey, I'm Jarrad with an A,
and on this channel, we like to talk about
all things personal finance and investing.
Don't forget to Hulk smash that thumbs up button.
Investing like a minimalist does not mean investing
a minimal amount of money.
It means making the strategy as simple as possible
so that you can kinda just throw your money
into the investment accounts on a regular basis
and forget about it.
The good thing about taking
a minimalistic approach towards investing
is that that's what the average person like you and I
should be doing anyways because the success rate is higher
than someone who is always trying to fiddle around
with all of their investments.
Keep in mind that as I go through each of these strategies,
they're gonna be more for retirement accounts
like a Roth IRA, traditional IRA,
401k, and things like that.
These strategies can also be used in a taxable account
but in my opinion, you should be focused more
on investing in retirement accounts
before you even think about messing around
with those taxable investment accounts.
Just a disclaimer,
this video is for entertainment purposes only.
I am not a financial advisor
nor am I telling you what to do with your money.
Throughout the video,
I'll tell you what I am doing with my money
but you need to do your own research
before making any decisions.
The first strategy involves robo advisors
to invest your money.
It's an extremely hands-off approach.
A robo advisor handles all of the decisions
when it comes to choosing what to invest in
and at which allocation.
It is a very passive way to invest
and put the whole process on autopilot.
All they need you to do
is answer a few questions about your age,
when you'd like to retire, your risk tolerance,
then they suggest a specific portfolio for you.
After that, you can choose whether or not
you wanna use that portfolio that they've laid out for you
or if you wanna adjust it manually.
And then you just put your money into the account
and then distribute it automatically for you.
The two most well-known in the space
are Wealthfront and Betterment.
They both have their own pros and cons
but overall their business model is exactly the same.
The fees involved with investing
through both of these companies is 0.25%,
so $25 per year per $10,000 invested through them.
On top of those fees, you'll still have to pay fees involved
with the funds that they choose for you.
They both choose very low cost options
but it's still important to note
that these fund fees could range anywhere
between .07 and .16%.
You're gonna be charged these fees aka expense ratios
whether you invest in these funds
through Wealthfront and Betterment or another company.
So if they put you in a fund that has a .07% expense ratio,
then you would pay 0.32% per year
or $32 per $10,000 invested
because the 0.25% expense that they charge you,
plus the .07% from the specific fund
that you invest in equals 0.32%.
Makes sense?
Hashtag math.
You're able to open a lot of different types of accounts
with these robo advisors
like taxable accounts, IRAs, 529 accounts,
and they both now offer high interest savings accounts.
Remember to keep in mind that the way that they determined
what to invest in is based on the questions
that they asked you at the very beginning of the process
but you do not have to go with those suggestions
that they give you.
You can always alter it if you want to.
The good thing about taking
a minimalistic approach to investing
is that you shouldn't be messing around
with your retirement investments on a regular basis anyways.
This is the complete opposite
of what people like day traders or people who think
that they can outperform the stock market are gonna do.
By the way, the odds are against you
when you start picking single stocks
and think that you can outperform the market.
Some may call investing like a minimalist very lazy
but I see it as a more intentional way to invest your money.
The more intentional you are when choosing your strategy,
the less that you'll have to worry about
once you put your money into the account
and the more that you can get back
to living your day-to-day life
knowing that the money is working for you.
Let me know down in the comments below
which one of these investing strategies
sounds most appealing to you.
If you wanna continue to keep it simple and minimalistic
but still spread your risk out a little bit,
then you'd wanna think about using
a three-fund portfolio strategy.
For this strategy, I recommend using
the M1 Finance investing platform.
I'll have a link down in the description
to my review on the M1 Finance platform
and also a link to sign up with them as well.
The three-fund portfolio strategy is extremely simple
since you just need to choose three funds.
They're usually index funds.
My favorite index funds are anything from Vanguard
and I'll give you some examples in just a minute.
The three-fund portfolio focuses on two things:
stocks and bonds.
To give you a little bacon analogy,
we'd say it was two-part stocks, aka index funds,
and one-part bonds.
The stocks are gonna be there
to give your money more exposure to the market
which in turn will give it a better chance to grow
while the bonds will be there
to help you smooth out the ride
when the stock market is going up and down and up and down.
You like how I did that?
It's like a fish.
The two index funds should consist
of one domestic index fund
and one international index fund.
The bond can just be any kind of bond index.
The benefits of a three-fund portfolio
is that it gives you diversification.
Since you're investing in the US and other countries,
you're able to get in on any growth
instead of putting your eggs in one country's basket.
Also, since you'd be investing in Vanguard index funds,
the cost or expense ratio should be pretty darn low.
You should always pay attention
to the cost associated with what you are investing in.
Some examples of the funds that you choose
would be VTI or VOO for your domestic index fund
and the Vanguard Total International Stock ETF
which is VXUS for the international portion
of your portfolio.
For the bond, you could choose something
like the Vanguard Total Bond Market ETF
which is B as in boy, N, D as in dog.
Next, you need to decide on the allocation
for each of the three funds in your portfolio.
It's all going to depend on your age,
when you plan to retire, your risk tolerance,
and whether or not you run track
when it comes to retirement investing.
You'll usually wanna have the largest portion
in a domestic index fund and the rest would be split
between the international index fund and the bond index.
An example would be to have 64%
in a domestic total stock market index fund, 20% in bonds,
and 16% in international.
Like I said though, this allocation is gonna depend on you.
For me, having 20% in bonds is too much
since my investing timeline is a lot longer.
If I was using the three-fund portfolio strategy,
then my percentage would be about 75% in VTI or VOO,
20% in international, and 5% in BND.
Keep in mind that I wouldn't need any of my retirement money
for 30 plus years and my risk tolerance is very low
so I'm okay with being highly exposed in the stock market.
If you're interested,
Vanguard offers a nice little questionnaire
that will help you decide how you'd like
to allocate your money across your investments.
I'll throw a link down in the description for this video.
If you wanna fill out that questionnaire
to get a better idea of what will work for you
based on the questions they ask you.
The next way to invest like a minimalist gets even simpler.
It is the two-fund portfolio strategy.
I'll be straight up with you.
This is the exact method that I use
for all of my retirement investments because it is so simple
and it's really, really difficult to screw it up.
I don't know about you but I'm really good
at doing the wrong thing all the time
when I try to do too much
so that's why this method is perfect for someone like me.
The only real decision you have to make
is the allocation that works best for you.
I made a video on investing in a Roth IRA and in it,
I walk you through how to choose an allocation for yourself.
Link to that video is down in the description.
With this strategy,
you choose a total stock market index fund
that focuses on companies within the United States.
There's two that I personally think are the best.
Number one, the Vanguard Total Stock Market ETF VTI
which is made up of over 3,600 domestic stocks
and it also has an extremely low expense ratio of 0.03,
or number two, the Vanguard S&P 500 ETF VOO
which also has a very low expense ratio of .03%
and it also carries 500 of the largest companies
in the United States.
The second thing that you choose is a bond.
Just like the last example,
I like the Vanguard Total Bond Market ETF,
B as in boy, N, D as in dog.
The expense ratio is very low at .0035%.
Now, you might be a little concerned
because you have all of your eggs in one basket
when you are investing in an index fund
that only holds stocks from companies in the United States.
Jim Collins said it really well in his book
"The Simple Path to Wealth" as to why you'll be fine
by investing in domestic index funds
and completely forgetting about trying
to invest in an international fund.
He argues that the vast majority of US companies
that make a VTI and VOO
also sell products and services overseas as well
so by investing in a domestic index fund,
you're technically investing internationally.
By the way, his book is really good
and I recommend that everyone read it.
I'll throw a link to buy it down in the description.
Think about Apple, Google, Amazon,
Johnson & Johnson, and Visa.
Stocks of these companies are all held within VTI and VOO
and they do business in the US and overseas as well.
Therefore, you're technically investing globally.
My personal allocation is 95% in VTI and 5% in BND
when it comes to my Roth IRA.
I also invest in my retirement accounts outside of my 401K
through M1 Finance.
They are my absolute favorite.
And like I said, links are down in the description
to sign up with them or check out the review video
that I did on M1 Finance.
If you use that link to sign up with M1 Finance,
it helps support myself and this channel
and my dog might get to eat this month.
Another way to invest like a minimalist
is by putting all of your money
into a target-date retirement fund.
For the sake of trying to save me
from fumbling over my words, I'll just call it a TDF.
A TDF takes care of all of the work for you.
They choose what you invest in along with your allocation.
All you choose is the year that you wanna retire,
then they take care of the rest.
It couldn't get any more easier than that.
The good news is that they usually have you invested
in various index funds so you stay diversified.
They also come with very low expense ratios which is good
because we said expense ratios are very important,
and Vanguard's are usually 0.15%.
You kind of just set it and forget it with target-date funds
since they handle all of the allocation
between stocks and bonds as the years go on.
So as the years go on, they will automatically handle
moving some of your money from stocks to bonds.
That way, your money is more safe
and less exposed to the stock market
when it is in those bonds.
The only thing I don't like about TDS
is what they are so good for,
taking care of the allocations for you.
Now, this isn't always a bad thing
if you're someone who doesn't wanna deal
with moving your money from stocks to bonds
as you get closer to the retirement date.
For more passive investing,
I would suggest looking into investing your money this way
or with a robo advisor.
If you wanna invest
in Vanguard's specific target-date funds,
then you will have to do that through their website.
If you are interested in investing with M1 Finance,
they've actually created
their own target-date retirement funds
with very low expense ratios.
Investing for the average person like you and I
should be as simple as possible.
Based on the track record
of people who try to game the stock market
versus people who try to invest consistently
through index funds, the people who kept it simple
and invested the majority of their money
through low-cost index funds came out ahead.
I have links down to the description to different playlists
to help you out with all of your personal finance
and investing needs so check those out.
Please Hulk smash that thumbs up button.
I'll see you in the next one, friends.
Adios.