By Charlotte Cowles, the Cut’s financial-advice columnist. In addition to “My Two Cents,” she writes about work and parenting for the site. Previously, she was the senior features editor at Harper's Bazaar and a senior editor at the Cut. She was also the editorial director for MM.LaFleur. Her work has also been published in Glamour, Art in America, Politico, and other places. 
Photo: H. Armstrong Roberts/Retrofile/Getty Images
Sarah works in publishing, lives in New York, and just turned 31. She makes enough money to cover her living expenses as well as monthly payments for student loans and some outstanding credit-card debt, but she’s hardly rolling in dough. Still, now that she’s officially in her 30s, she’s getting serious about her financial future, and wants to start investing her money. She contributes to her 401(k) but beyond that, nothing. She has a modest amount of savings and wants to know what her options are. As someone who doesn’t “speak finance,” how can she protect her money and make it grow?
A few years ago, my friend Mia had the same question. So she went down to her local Bank of America branch with her savings, asked for an investment advisor, and was ushered into an office by a man named Steve. (Lesson #1: A high percentage of investment advisors appear to be named Steve, including my own.) Mia told Steve her basic financial goals — she hopes to buy a house someday, wants to grow her business, and doesn’t plan to have kids — and he set up her investment account. “Then,” she recalls, “it sat there, and I watched the numbers go up.”
The point of this story, Sarah, is not that you need to find a Steve for yourself. It’s that you want to start this process knowing what you want your money to do for you. Do you want to buy an apartment? Are you thinking of starting your own business? Do you harbor a secret desire to own, say, a horse? Or perhaps you just want to make sure you can retire comfortably at some point.
Whatever your priorities are, they will mold the shape of your investment portfolio and determine whether it includes a Roth IRA, a 529 college savings plan for your future, or an account that you plan to blow on that horse when you’re 50. Once you know your specific aims, the process isn’t that complicated, and “speaking finance” isn’t a make-or-break requirement. Here’s how to get started.
Get your pre-investment house in order.
“Before you think about investing, you want to establish a foundation with three key components,” says Alexa von Tobel, the founder of LearnVest and author of Financially Fearless.
One: Eliminate “bad debt” with high interest rates — like the credit-card balance you mentioned. Interest rates on consumer debt are usually higher than even the most spectacular investment returns, so before you start thinking about stocks, put your money toward paying off what you owe. According to Tobel, the exception to the debt rule is student loans, which have lower interest rates..
Two: Sock away some cash. “Your emergency fund should be up to snuff, which means you’ve saved six to nine months of take-home pay,” says von Tobel. (Others say it should consists of three to six months’ worth of living expenses — figure out what makes sense for you.) I’m well aware that, particularly in New York City, this sounds like a Herculean feat; try automating the process to speed it up and make it less painful.
Three: Take full advantage of your employer’s 401(k) program —contribute at least the full amount that your company will match. (This may already be the case, but double-check.) You can read more about retirement plans here, and you’ve been wise to prioritize them.
A note on saving in general: Don’t just try to spend less and blindly hope that you reach the end of the month with money left over. Instead, Sallie Krawcheck — a former big-bank CEO, and the current co-founder of Ellevest, a new online investment platform for women — advises a 50/30/20 approach: “Divide up your salary or so that 50 percent goes to ‘needs’ — rent, food, utilities, etc. Then, 30 percent goes to ‘wants,’ because you’ve got to have fun. And then 20 percent goes go to savings and investing.” How you allocate that 20 percent will change over time. For now, it’ll go to your credit-card bills, emergency fund, and 401(k); once your “bad” debt is gone and your savings padded, you’ll shift it more toward your 401(k) and other investments.
Next, do some research and pick an advisor.
Before Mia went down to the bank, she poked around on stock-market-simulator games and boned up on Warren Buffett’s advice on index funds (worth a read, by the way). From an accessibility standpoint, there has never been a better time start investing. A number of new online tools are disrupting the traditional, models that would only take on investors with substantial means. Today, the process is getting cheaper, faster, and simpler than ever, and you don’t need much money to get started.
If you want a human investment advisor to help you at first, make sure you comprehend how much they’re being compensated, and by whom. “Asking, ‘Are you a fiduciary?’ is a great place to begin,” says Arielle O’Shea, an investing and retirement specialist at NerdWallet. “An investment advisor should have a clear answer: yes or no.” Put simply, a fiduciary is a classification for advisors who follow a series of regulations to ensure that they’re acting in your best interest, not their own or any other company’s. (For a more thorough and funny explanation, watch this John Oliver segment.)
You should also ask if commissions are involved in your advisor’s payment. “Ideally, you’ll want to work with an advisor who doesn’t earn commissions, and is paid a percentage of assets managed or a flat fee per plan or per hour,” says O’Shea. (The industry standard for fees is 1% of assets under management, or ideally even less.) She recommends searching for fee-only advisors who operate as fiduciaries through the Garrett Planning Network. Be aware that most will require an account minimum, usually at least $1,000 — you can’t just show up with a few bucks and ask them to invest it.
Finally, pay attention to the questions an advisor asks of you. “A good financial planner will dig deep into your situation before offering recommendations,” says O’Shea. “They need to understand your goals, risk tolerance, expenses, income, future plans, etc.”
Consider your online investment options.
If you’re not hung up on face-to-face contact, consider Ellevest. As I mentioned above, “former First Lady of Wall Street” Sallie Krawcheck recently launched a female-focused investment platform that provides jargon-free services tailored specifically to women’s financial patterns (for instance, our salaries tend to peak earlier, we live longer, and we’re more likely to take career breaks). “About 85 percent of investment advisors are male, and most of them are white and over 50,” says Krawcheck. “Because the entire industry was, without recognizing it, speaking to men, we decided to be the one to speak with women. And not in the remedial-education way, but in the way that fits her needs.”
Rather than shower you with questions about risk tolerance, Ellevest has you fill out a thorough online survey, and then tailors your investment strategy accordingly. “We ask, ‘Do you want to start your business in seven years, or four? Do you want to retire at 65, or 68?’ And then we tell her what she needs to do to get there,” says Krawcheck. “But nowhere do we ask her, ‘Do you want ETFs versus mutual funds?’”
From there, Ellevest simply keeps you posted on whether you’re hitting the right benchmarks for the goals you’ve outlined. “If you fall off-track to buy your house in five years because the market cracked more than we thought it would, or because you didn’t make your thousand-dollar deposit this month, then we’ll just reach out and say, ‘Here’s how to get back to where you want to be,’” says Krawcheck. Maybe you’ll add more money next month, or maybe you’ll adjust the timeline — it’s up to you. Also worth noting: Ellevest has no minimum investment requirements (meaning you can try it with any amount of money), and the fee is under 1 percent.
Alternatively, if you’re willing to DIY, try robo-investing — which is pretty much what it sounds like, and can be done for fees as low as .25 percent (as usual, machines are cheaper than people). “Many robo-advisors are inexpensive and have low or no minimums,” says O’Shea. “They’ll build a portfolio for you and manage it, so you know someone has your back.” Some robo-investment services offer access to an advisor who will help you get set up for a small fee; O’Shea recommends taking a look at these three options.
Stick to it.
“The most common investing mistake is to not do it at all,” says O’Shea. “Many millennials saw their parents get hit by the recession, and they’d rather have a dollar in-hand than invest it. But inflation is going to erode that dollar over time, and you don’t want that.” The good news, Sarah, is that you have many years ahead of you for those dollars to grow.
