The WES Investing Cheat Sheet

May 27th, 2019

Quick Note: This is meant to serve as a condensed overview to help you get started investing. But if you want to take a deeper dive, check out our core content sections on Investing Basics, Investing Returns, Investing Risk, and Investing Portfolios.

Investing is a cornerstone of smart money management. Yes you need to be saving. Yes you need to be careful with your debts. But it’s investing that will take your finances to the next level. And while it may feel a little daunting to get started, it doesn’t need to be. We’ve broken it down to the basics so you can get on your way and start investing like a pro!

Here’s what we cover

• Why invest
• Are you ready to invest
• How to get started
• Understanding risk and return
• Choosing your investments
• Sticking with it

So, why invest in the first place?

Long story short, to build wealth. Investing is all about passively growing your wealth over time by putting your own money to work. And this happens through the power of compounding – your initial investment earns you money, and that money earns you even more money, and THAT money earns you even MORE money, until, well, you get the idea. Give it enough time and eventually your gains will overshadow your initial investment. The sky really is the limit!
And the sooner you start, the more potential upside.
For Example: Let’s say you start investing when you’re 25, and you contribute $5,000 each year to your investment account. And let’s say it earns an annual return of 7% (a reasonable long-term assumption). By the time you’re 65, your balance will have grown to over $1 million! (And it would be even larger if you increased your annual contributions over the years)
Instead, lets say you wait until you’re 40 years old to start, but you contribute $10,000 each year instead of the $5,000. By the time you turn 65, you’ll only have about $650,000, despite the fact you’ll be contributing twice as much every year.
Here’s what the two scenarios would look like side by side.


Key Takeaway: Time is a huge factor with investing. So take advantage and start investing when you’re young and have many years of compounding ahead. Waiting on the sidelines can cost you a lot down the road (and lead to serious FOMO).

But are you ready to invest?

Generally speaking, the sooner you start investing the better. But there are a few things to consider before you start…

Do you have any high interest debts outstanding, like credit card debt?

Credit card debt and other personal loans typically charge high interest rates, like really high. These rates are almost guaranteed to be higher than what you can expect to earn on your investments. So you’ll almost always want to pay these down as quickly as possible before you make investing a priority.

Do you have some money in your emergency fund?

You always want to have some money put away for emergencies. While the general rule of thumb is to eventually have at least 3 to 6 months’ worth of bare bones living expenses on hand, you don’t necessarily need the full amount before you start investing. But you should at least get your emergency fund started with a smaller amount.

Do you have other near-term financial obligations?

Investing is for the medium to long term. And the value of your investments will fluctuate over time. So if you’ll be needing the money in the near term (next few years), you’re probably better off keeping it in a more stable cash account, like a savings account.

How to get started

Feeling good so far? Then it’s time to open an investment account. This is where you hold your investments like stocks, bonds, and funds.
There are two basic categories of investment accounts to choose from;
1) Tax-advantaged retirement accounts (401(k)s, 403(b)s, and IRAs): As the name suggests, these accounts offer a tax advantage, which will help your money grow faster than it would otherwise. But there is a downside. For the most part, you can’t take your money out until you reach retirement age. Good for: Retirement savings
2) Taxable investment accounts (brokerages and robo-advisors): These accounts are a bit more basic in that they don’t offer any tax advantage. But they offer more flexibility – you can take your money out at anytime. Good for: General investing
If your employer offers a 401(k), it can be a great way to start investing, particularly if they also offer a match (meaning they’ll contribute money in addition to what you contribute). We can even help you set one up. But again, your money will be tied up until retirement. If you think you may need the money sooner, you’re better off with a brokerage account or robo-advisor.
We should also mention this doesn’t need to be all or nothing. You could contribute a portion of your paycheck to your 401(k) for retirement and a portion to a taxable account for more general needs.

Understanding Risk and Return

“But isn’t investing risky?” you ask. Yes and no. When you invest, you are taking on some financial risk, i.e. you can lose money on your investments.
The good news: You can reduce this risk by diversifying, or spreading your bets across a number of investments. Any single bad investment will only represent a small portion of your wealth.
The bad news: Diversifying won’t eliminate your risk entirely. The market as a whole will still fluctuate somewhat (this is called market risk). And the investments that tend to earn the most, like stocks, also tend to fluctuate the most.
However, avoiding investments entirely isn’t a good idea either. Not only are you missing out on the potential upside we discussed, you’re also taking on inflation risk. Money sitting in a bank account may be safe from the ups and downs of the market, but it probably won’t keep up with inflation. This means it will lose real value over time.

So the key is to strike the right balance. You’ll want to grow and protect your wealth by investing, without taking on more market risk than you can handle.

Typically, your age will be an important determining factor.
When you’re young and have your prime investing years ahead of you, you can generally accept more market risk. If the market goes down, you’ll have more time to recover. And you should be more worried about the long-term effects of inflation. So generally, you’ll want to hold more stocks than bonds and take advantage of their higher returns.
As you get older and you have fewer investing years ahead of you, your focus will likely shift toward nearer-term financial stability. So you’ll want to hold more bonds and cash.

Choosing your investments

Once you’ve set up your account, it’s time to actually select your investments. This can seem a little tricky, but it doesn’t need to be.
Getting Some Help: If you’re looking for an easy way to start investing and don’t want to worry about choosing investments or managing your portfolio, then a robo-advisor could be a great choice. They use computer algorithms to automatically select and manage a portfolio of diversified investments for you. And they typically charge a relatively small fee. You can also consider working with a financial professional, but that will usually cost more. So you’ll want to make sure you aren’t over-paying.
On Your Own: On the other hand, if you’re more of a do-it-yourself investor, then you could probably save a little money by opening a brokerage account and managing your own investments. This takes a little more work, but for some people it’s worth it.

As you think about what to invest in, there are a few general guidelines;

1) Stick to funds: For most people, it’s a better idea to invest in funds – mutual funds and exchanged traded funds (ETFs) – rather than try to pick individual stocks and bonds. Funds are typically invested in dozens or even hundreds of investments, so they’re already diversified, which means you don’t have to deal with the hassle of buying and selling individual stocks or bonds.
2) Watch the fees: Funds vary in terms of what they charge in annual management fees, ranging from around 0.1% – 0.5% for index funds to about 1% or more for actively managed funds. Even small differences in fees can add up to serious money over time.
3) Allocate appropriately: This is mostly about choosing how much you want to invest in stocks vs bonds/cash. Again, your age will probably be a big factor (younger = more stocks, older = more bonds), but you’ll also want to consider other factors, like whether you have any near-term financial needs on the horizon – for example, buying a home.
4) Review and rebalance as needed: While it’s probably not a good idea to check your investment portfolio every day, you’ll want to periodically monitor your investments to make sure they’re still in line with your objectives. This may require rebalancing if your mix of investments has gotten out of whack because certain investments have done better than others.

Sticking with it

Investing works best if you keep at it. So you’ll want to make regular contributions to your investment account(s) and give your money time to grow. Don’t be tempted to spend your gains – remember this money is for longer-term financial goals, it’s not for day-to-day spending.
And be prepared for some ups and downs. As we mentioned, your investments will fluctuate – some years will be better than average, some worse, but it’s important to stay the course and not let your emotions get the better of you. Have a plan and stick with it.


Whatever your financial goals, investing is a great way to grow your money and protect it from inflation. The important thing is to get started sooner rather than later so time can work in your favor. If you want to dig deeper, we have you covered, starting with the basics.

Anything else we can help you with?

► Start Investing with a Brokerage Account or Robo-Advisor

► Open an IRA account

► Refinance My Student Loans


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