10 Things Every Investing Newbie Should Know


Is there any better way to get pumped up on a Monday morning than reading about investing principles? Joanna just told me that “every imaginable way” is better. She also just told me that it’s sentences like the one I just wrote that keep me from having any friends. My 650 Facebook friends say otherwise, so I’ll proceed with my post.

There was a fun (sorry, Joanna) interesting article I read on The Motley Fool titled 122 Things Everyone Should Know About Investing. It’s a good list of quotes, tips, and insights on things every finance newbie (us) and oldie should know about investing. I’ve narrowed the list down to my 10 favorites with my two cents added.

  1. #10 – Only 7% of Americans know stocks rose 32% last year, according to Gallup. One-third believe the market either fell or stayed the same. Everyone is aware when markets fall; bull markets can go unnoticed.
    The markets are kind of like football kickers — you never really know their name unless they mess up. Despite the doom and gloom you’ll hear on the radio, TV, and your drunk uncle at family reunions, most don’t know what’s going on.
  2. #13 – Investor Ralph Wagoner once explained how markets work, recalled by Bill Bernstein: “He likens the market to an excitable dog on a very long leash in New York City, darting randomly in every direction. The dog’s owner is walking from Columbus Circle, through Central Park, to the Metropolitan Museum. At any one moment, there is no predicting which way the pooch will lurch. But in the long run, you know he’s heading northeast at an average speed of three miles per hour. What is astonishing is that almost all of the market players, big and small, seem to have their eye on the dog, and not the owner.”
    I like to replace “excitable dog” with “Sally” and then this quote makes perfect sense. It’s hard for anyone within a 200-ft. radius to do anything BUT pay attention to Sally because of her superhuman vocal cords and speed when fleeing our grasp, but somehow we always make it to our destination. Don’t doubt mom and dad (or the long-term markets) — and a lollipop reward.
  3. #28 – According to Vanguard, 72% of mutual funds benchmarked to the S&P 500 underperformed the index over a 20-year period ending in 2010. The phrase “professional investor” is a loose one.
    Index funds, index funds, index funds! We’ve got a post coming up in a few weeks that will better explain this, but just know that index funds not only beat the majority of mutual funds — they also have wayyy lower fees. And that means more money in your pocket.
  4. #32 – “The big money is not in the buying or the selling, but in the sitting,” said Jesse Livermore.
    Patience, grasshopper. This ain’t no sprint. Timing of when you buy or sell is less important than the amount of time you keep that money marinating in the markets.
  5. #40 – Since 1871, the market has spent 40% of all years either rising or falling more than 20%. Roaring booms and crushing busts are perfectly normal.
    If you’ve got your money locked up in the market for retirement for the next 30 years, buckle up for a roller coaster. Keep calm and invest on.
  6. #46 – The most boring companies — toothpaste, food, bolts — can make some of the best long-term investments. The most innovative, some of the worst.
    “There’s this killer new website called ‘MySpace.’ And I’m going to invest our nest-egg on them.” Shoulda gone with Colgate.
  7. #47 – In a 2011 Gallup poll, 34% of Americans said gold was the best long-term investment, while 17% said stocks. Since then, stocks are up 87%, gold is down 35%.
    You know that Facebook friend that listens to talk radio all day and thinks they’re smarter because of it? Yeah, never listen to his advice. The point of this isn’t that gold is a bad investment — it’s that the general public (and especially talk radio ads) offers terrible investment advice.
  8. #95 – However much money you think you’ll need for retirement, double it. Now you’re closer to reality.
    Gulp. When we calculate how much we’ll need in retirement, a lot of us don’t factor in inflation and other unexpected expenses in 30 years. Doubling your retirement number isn’t necessarily the takeaway here. But whatever you do, be realistic, overestimate your future needs, and start saving for retirement NOW.
  9. #105 – The Congressional Budget Office’s 2003 prediction of federal debt in the year 2013 was off by $10 trillion. Forecasting is hard. But we still line up for it.
    And you thought your budget projections were bad?
  10. #110 – The single most important investment question you need to ask yourself is, “How long am I investing for?” How you answer it can change your perspective on everything.
    Your 10-year investment portfolio should probably look a lot different than your 30-year retirement portfolio. The biggest factor is your exposure to risk. The shorter the amount of time you’re investing, the less risk you should expose your money to, and vice versa (more time, more risk).

Now take a deep breath… ahhhhh. See, that wasn’t so bad, was it? Investing doesn’t have to be complicated. And in most cases, it really shouldn’t be. For the non-newbies, any other things you’d add to list? For the newbies, anything above still sound like goobledygook?

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  • Reply Taylor Lee January 19, 2015 at 7:51 am

    These are great tips! I especially like #5. Newbies should expect that their stocks, at some point, WILL crash. It’s only a matter of time. The key is to not panic when they do.

    • Reply Johnny January 22, 2015 at 11:11 pm

      I check the stock market every day — I need to stop. 🙂 I like to stay informed, but then I worry when the market tanks. The 60-year-old me will (hopefully) laugh at this.

  • Reply Amanda January 19, 2015 at 8:32 am

    I’m brand new to the investing word. so new i haven’t even dipped my toes in yet. 🙂 is there a good place to look for a class to get me started on the basics?

    • Reply TT January 19, 2015 at 10:58 am

      I would suggest starting with the book “A Random Walk Down Wall Street.” A great way to build some foundational knowledge on personal imvesting–an it is a relatively short one too!

      • Reply Amanda January 20, 2015 at 12:00 pm

        Thank you! Our library has it. Score!

        • Reply Johnny January 22, 2015 at 11:12 pm

          Hopefully you’re not a patron at our library, cause we’ll probably pick this up, too.

    • Reply Mark AW January 20, 2015 at 10:36 am

      The Four Pillars of Investing by William Bernstein is a great, lesser-technical jargon book. If you want something similar but with more technical details, A Random Walk Down Wall Street by Burton Malkiel (as quoted in OFB’s #2) goes into greater technical detail but covers pretty much the same 4 pillars.

      I would say those are the 2 best books for someone with no to little previous investing knowledge.


      • Reply Amanda January 20, 2015 at 12:01 pm

        Thank you! Our library has both of these so I’ll have my nose in them soon!

      • Reply Joanna January 22, 2015 at 11:49 pm

        Awesome, thanks for sharing these. I’ve picked up investing tidbits here and there, but I’d love a book dedicated to the topic. I’ll be looking into these pronto!

  • Reply Rob January 19, 2015 at 9:55 am

    Hey dude! All good tips there. I’ve been investing for over 45 years and fortunately only made one bad investment in all that time (didn’t lose original invested capital but didn’t earn anything either). And that move was with a financial institution’s recommendation (who often only wants to push their products rather than look after your interests).

    So rule #1 – find a good investment adviser, whom you trust, and who get’s paid for advice and experience, not for pushing financial product just to get a commission.
    And rule # 2 – dollar cost averaging investing (check it out on Google if you don’t know what it means). Regularly invest over the long haul and don’t try to time the markets cuz it’s a fool’s game if you try.

    • Reply Joanna January 22, 2015 at 11:48 pm

      That’s a pretty darn good track record. We don’t currently have an investment adviser, but someday in the far future if we have enough money that it’d save us time and energy, it’s something we would look into. I’d never heard of dollar cost averaging, so thanks to you, I’m now reading all about it on Wikipedia :).

  • Reply Michele January 19, 2015 at 10:35 am

    Although I usually side with Joanna on this blog, the money nerd in me is with Johnny on this. I began investing with the guidance of my financial adviser in 2008 when the recession began. I was two years into a teaching job and making more money than I ever had. We even purchased our house in 2008. I let my adviser handle/deal with the goobly-gook but I think a list of basic terms and difference between mutual funds, stocks, etc would still be helpful.

    • Reply Joanna January 22, 2015 at 11:43 pm

      I agree that it’s very helpful! Johnny will be doing an in-depth post on all this stuff soon!

  • Reply TT January 19, 2015 at 10:53 am

    +1 for index funds/ETFs. I think that is the most important of the items listed above. Keeping costs down is paramount; to me that also includes avoiding investment advisors. There are enough DIY options and info out there you can do just fine.

    • Reply Joanna January 22, 2015 at 11:42 pm

      Agreed. We live in a day and age where unless you’re dealing with a boatload of money and can afford to pay someone to save you time, you really don’t need an investment advisor.

  • Reply Michael January 19, 2015 at 1:41 pm

    Nice list. I would add investing does not have to be as scary as it may seem. I would also mention staying away from individual stocks (and penny stocks). Some of the terminoligy can be scary and it’s a lot easier to grasp the concept of buying (and selling) stock in indvidual companies whose names they are familiar with, it’s also much easier to look at the stock price and tell if it’s gone up or down vs. what they paid for it. As with most things in life, easy is not always better.

    • Reply Joanna January 22, 2015 at 11:39 pm

      Very good points, Michael. Thanks for sharing!

  • Reply Courtney January 19, 2015 at 5:05 pm

    Really great tips…Love the dog analogy!!

    • Reply Joanna January 22, 2015 at 11:38 pm

      Me, too. Add dogs or cats, and I can understand anything!

  • Reply Tabitha Nelson January 19, 2015 at 5:39 pm

    Great post! Looking forward to future posts on this topic – I want to invest/start a retirement fund growing but not sure how to start exactly. Maybe this is a dumb question (I’m gonna hope the, ”there are no dumb questions” holds for this one…) but how, exactly, does one invest or start a retirement account? I mean I have x amount of dollars ready to go, but how do you start a Roth IRA, I mean do ya just put it in a savings account, label it a Roth, and hope Uncle Sam will trust you when you say you’ve paid taxes on it already? What makes it a Roth, how do you get your money into an investment?
    Okay more than one question, and my naivety is showing I’m sure, but hopefully the questions came out right (i.e. they have an answer) 🙂 TIA!

    • Reply Melanie January 20, 2015 at 11:08 am

      Hi Tabitha–Id imagine everyone agrees that there are no dumb questions! 🙂
      You have to open a Roth IRA account–not just set aside money in a savings account. For one example, I went to Fidelity’s website, and easily opened my Roth IRA account that way. Or other brokerages, like Vanguard, you do it the same way-online.
      For me, my paycheck from work gets deposited into my checking account. Then I set up an “automatic withdrawal” from my checking account into my Roth IRA every 30th of the month. So every 30th, they take out $458 from my checking and it gets deposited into my Roth IRA. You have different options what you invest in in your Roth. I have some mutual funds. Some people like Index Funds. There’s many different options. Most brokerages have a “target date fund” like Fidelity has the Freedom Fund 2050, for people planning to retire around 2050…. hope this basic info was helpful. Here are two other “professional” links which may explain better:


      • Reply Joanna January 22, 2015 at 11:37 pm

        Very helpful! Thanks for sharing, Melanie!

    • Reply Mark AW January 20, 2015 at 11:39 am

      The best place to open a Roth IRA is Vanguard. You can read more about how to set up the account here:


    • Reply Joanna January 22, 2015 at 11:36 pm

      Great questions! It’s kind of crazy how we’re all supposed to just figure this stuff out with pretty much no guidance from anyone. We did a post all about starting a Roth IRA here: http://www.ourfreakingbudget.com/how-to-start-a-roth-ira/. Hopefully that will answer most of your questions. And we went with Vanguard, which Mark helpfully linked to below. Hope that helps!

  • Reply John January 19, 2015 at 9:50 pm

    Johnny picked some good points. I am not a sophisticated investor. I like big boring mutual funds that are made up of hundreds of stocks like what you would find in a S&P 500 index fund. If you go that route, there is not much point to paying an adviser or paying any loads (a fancy term for commission). It’s not glamorous, but for most people who are invested for the long haul (20, 30, or 40 years) matching the performance of the broad market is a decent outcome. As stated in the article, picking a mutual fund that outperforms the S&P 500 is not that easy. Yes, there are some mutual funds that have a good track record of beating the S&P 500, but it takes a little digging to find them, and there is no guarantee that team of fund managers can pull it off in the future. Also, the funds that have a good track record have a tendency to close to new investors. Picking individual stocks is risky – just ask someone who had stock in General Motors. My advice is start out with something like the S&P 500 index fund and invest that inside of a Roth IRA. Put a set amount in it every month, no matter if the market is soaring or tanking. Then hang on tight! It’s going to be a bumpy ride!

    • Reply Joanna January 22, 2015 at 11:32 pm

      Really good advice. Big and boring is the way to go when it comes to investing! All of our investments are currently for the long haul… we’ve already seen some bumps along the way, but we’ll be holding on for a long, long time.

  • Reply Michael January 20, 2015 at 9:18 am

    One more thing I would add… If you’re in something that’s fairly predictable (and you should be), don’t forget to look at the big picture. My wife and I have been contributing regularly to our 401k, what I consider to be a fairly significant amount (though not quite maxed out). We’re paying off our house late this summer and the next step is maxing out our 401k. When I ran a projection with what we currently have plus $18k each per year over the next 21 years (until I’m 62, at a reasonable 8% growth) I was SHOCKED at the amount of money we’ll have, especially the amount of it that’s growth vs. what we actually put in.

    • Reply Melanie January 20, 2015 at 11:11 am

      Michael–quick question–how do you run a projection like this? I’ve done some online and Ive been super excited too, but Id love to know a simple equation if you know how. Thanks!

      • Reply Mark AW January 20, 2015 at 11:49 am

        Hope this is understandable. It is fairly easy to do in excel.

        $Year 1 End Balance = [$Start Amount x (1 + rate)] + $Year 1 Contribution
        $Year 2 End Balance = [$Year 1 End Balance x (1 + rate)] + $Year 2 Contribution
        $Year 3 End Balance = [$Year 2 End Balance x (1 + rate)] + $Year 3 Contribution
        And so forth for however many years as you like.

        You can adjust the rate (8% or 0.08 as stated by Michael) as well as your yearly contributions.


        • Reply Joanna January 22, 2015 at 11:28 pm

          Thanks for this, Mark! Very, very helpful.

    • Reply Joanna January 22, 2015 at 11:28 pm

      Awesome. Compound interest is pretty freaking amazing. And way to go on having your house paid off this year! What a great achievement.

  • Reply Little House January 20, 2015 at 9:22 am

    I’m a money nerd and love these tips, especially the dog on a long leash analogy. I started investing in mutual funds (though I see in #3/28 that these aren’t so hot) a few years back, and then diversified into the stock market. Needless to say, our stocks way out perform our mutual fund, but I like the safety net of the mutual fund. And I did do my homework before choosing one.

    • Reply Joanna January 22, 2015 at 11:26 pm

      I loved that analogy, too. I don’t think the point of #3 was to say that mutual funds are bad at all. They are great, but they have to be managed by someone else, which can sometimes raise the fees. We’ve got some of our retirement in mutual funds and plan to keep it there!

  • Reply Melanie January 20, 2015 at 11:12 am

    Great post! Im interested in learning more about Index Funds. Dave Ramsey doesnt ever suggest them, and Im unsure why….and I must say I keep reading more and more and hearing more about them the past 3-6 months!

    • Reply Joanna January 22, 2015 at 11:23 pm

      Same here! I’m still a newbie with them, too, but Johnny is crazy about ’em. We’ll do an in-depth post on them soon!

  • Reply Sue January 20, 2015 at 4:25 pm

    We are 5 years away from taking an early retirement but if we had to do it over again we would go with index funds. We have started investing in Vanguard because they are now available in Canada. Millionaire Teacher is a good book that talks about index funds. The fees are low and over time you would save a lot of money. Canadian couch potato is another online resource that talks about index funds.

    • Reply Joanna January 22, 2015 at 11:21 pm

      We’ve still got a lot to learn about investing, so we’ll have to look into Millionaire Teacher! And way to go on the early retirement. Five years will be here so soon!

  • Reply Tiare January 27, 2015 at 10:50 am

    Ha, #7/47 cracks me up because we know a ton of people who believe whatever FB ad pops up in their sidebar. When you click on the link and review the info, it’s so obvious to us that this is some sort of quick money scam. But some people can’t see the forest for the trees!

    As for #6/#46, the key is to diversify!

    • Reply Joanna January 27, 2015 at 10:22 pm

      Too true — on both points!

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