Let’s go on an investing journey together. I have $500 to invest, but where do I start?

Update on the investing challenge….

March 2016 Investment Robo-Advisor Account Report

April 2016 Investment Robo-Advisor Account Report

May 2016 Investment Robo-Advisor Account Report

With Robo Advisors new to the scene, I want to test out how much my money will grow against the traditional investment vehicles. For a year, I will invest $500 into a Betterment (robo advisor) account, Wealthfront (robo advisor) account, and into an index fund and watch to see which one does better.How To Invest with Next to Nothing


Why did I choose these?

Robo advisors are one of the newest investment vehicle to the game, but also one of the easiest for Millennials to take advantage of because of the low fee structure. Betterment has a $0 initial fee – ideal conditions for a first time investor. I chose Wealthfront next because of its competitive nature to Betterment but it has a $500 start cost. This start cost is how I chose how much to invest in each account. Lastly, if the ease of a robo advisor doesn’t have you hooked, then a low index fund should.

Tell me about about this index fund

I will invest in the Vanguard S&P 500 Index Fund. It is one of the largest index funds and has one of the lowest costs, meaning they get less from their fees than anyone else.

To invest in this account, I will open a Vanguard account and invest directly into their index fund.

I’m confused about the index fund.

My first search was for a brokerage account (schwab, td ameritrade, fidelity, e-trade) to invest for the index fund. However, I don’t need a discount broker to do a trade; I can go directly to the source and skip the middle man (or a $7-10 trading fee).

There are a ton of things to invest in, but the main three are: mutual funds, index funds, or individual stocks. If I wanted to put my $500 in a mutual fund, I would then need to understand are mutual funds and understand how mutual funds are categorized (see Morninginstar – value, blend or growth, small cap/large cap). I can see you tuning out, which is why we are not investing in mutual fund.

If I wanted to invest in individual stocks, I would want to do some research, but essentially, I could only by a few shares (less than 5 most likely) because stock prices might be high (Amazon trades at $575 and Netflixt is at $101 at the time of this post) and I would have to but the trade ($7-10 at general brokerages) in addition to the cost of the stock.

Recap for me again:

If we were playing a video game and had to go through levels of difficulty of investment, here would be the breakdown:

  1. Level One – Invest in a Index Fund
  2. Level Two – Invest in a Mutual Fund
  3. Level Three – Invest in an Individual Stock

Robo advisors about be about a Level 1.5 or 2, as it would give you the diversity of index funds (multiple index funds) versus your just one index fund that you would invest in.

Let’s hear about the strategy

As a Millennial, I have many years ahead of me, so I want long term with high growth. Which means that I will buy and “hold” aka don’t sell for a very long time. Since I am investing at a young age and will keep the money in the stock market for a long time, I have the potential for a large growth.

The Set Up

Over the next week, I will be walking you through the set up of these three account and explaining what I selected and why. From there, I will have consistent updates on how the accounts are doing.

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