Ideas for Investment

Overview

Why do we treat large lump sums of money different than small monthly amounts? We tend to treat larger amounts in a more thoughtful way. Perhaps thatu2019s why itu2019s easier for some to save a tax refund even when they struggle to save money month to month.

Challenge

Here are some reasons why we donu2019t take smaller sums of money more seriously:nnItu2019s hard to internalize compoundingu2013we just canu2019t imagine $10 growing in any meaningful way.nSpending small amounts doesnu2019t feel like itu2019s u201cbadu201d like blowing $10,000 would.nDelayed gratification is required when saving small amounts of money.nConsider how you handle small amounts of money and how small daily decisions could improve your famuluss over the long-term. You may be surprised.

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Solution

Betterment is one of several robo-advisors offering an easy and inexpensive way to invest. You can open a taxable account with Betterment. Itu2019s an ideal way to get started because there are no minimum requirements and Betterment walks you through the step-by-step investment process. Once your account is set up, Betterment rebalances it automatically and reinvests your profits.

Invest in LendingClub notes. LendingClub enables you to invest as little as $25 in loans to other people. You can pick the risk and return you want based on the creditworthiness of the borrower. LendingClub also makes it easy to diversify a large investment across dozens or even hundreds of loans. This diversity protects you against any single default on a loan. Iu2019ve invested in LendingClub for years. To date, my return is 8.09%.

Without question, the best investment is an employer match of a 401k, 403b, or other workplace retirement plan. This is the closest thing to a free lunch you can find. If your employer matches a portion of your retirement contribution, make sure you invest enough to get 100% of the match.

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Results

If you prefer a hands-off approach, Betterment does most of the work for you by automatically reinvesting dividends and rebalancing your portfolio. When you use an automated service like this, youu2019re likely not checking it everyday and wonu2019t be tempted to make any major changes that could cost you money. Having a service like Betterment manage your investments could allow your money to grow more quickly over time.

For young adults new to investing, Wealthfront is a robo-advisor worth a look. Wealthfront stands out in being a true robo-advisor with a fee structure suitable for investors with less than $2 million to invest.

Personal Capital provides you with a dedicated investment advisor that you can reach by phone, web conference, online chat or email. While their Wealth Management service is available for a fee, one of the best features of Personal Capital is their free financial dashboard. You can always sign up for Personal Capital for free and then decide to add their Wealth Management service later. In the meantime, you can take advantage of the following features: 401k fund allocation analyzer, retirement planner, investment checkup tool, net worth calculator, and cash flow analyzer.

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