1.1. Get Your Accounts In Order

Goal of this lesson: Organize your accounts and understand which ones you'll use.

Welcome to Minifi’s Minimal Investor Course! I’m Adam, and in this course, we’re going to be helping you learn the basics you need to be a Minimal Investor. This means you’ll know where to invest, what to invest in and why. This course is laid out starting from the absolute scratch, specifically for someone in the United States.

For lesson 1, we’ll be doing a few things:

  1. Make a list of all accounts you have.
  2. Make sure you can log in to each of them.
  3. Figure out which investment account type to use for this course (401k, Roth IRA, IRA, Brokerage).
  4. Open a company 401k and/or Vanguard Account

If you can do those 4 things this lesson, you’re off to a great start!

1. Make a List of All of Your Accounts

I have a confession to make: I’m kind of addicted to Google Sheets. In this course, we’ll be using them a lot to organize things. Go ahead and check out the Minafi Minimal Investor Lesson 1 Google Sheet. Choose “File > Make a Copy” and copy this sheet into your own account. It’s extremely basic for now, but you’ll be building on it as you learn about each concept

Accounts ledger
Get a handle on every account you own.

I’ve always found that the best way to learn something is to actually do it. That’s why it’s important that you pause right now and go and follow along.

Once you have it copied, go ahead and erase my sample data in there and enter in your own. Try adding every account you have with the institution, and the type of account. Here are some of the possible account types:

  • Checking Account
  • Savings Account
  • 401k Account
  • Roth IRA Account
  • IRA Account
  • Brokerage Account

For this exercise, we’re not necessarily tracking net worth but instead learning how to invest. In order to stay focused on that, I’d leave off Mortgage, Car Loan and other assets for now and concentrate on only accounts that are liquid.

Measure of Succes

Make a copy of the Accounts Google Sheet and add all of your financial accounts to it.

2. Make Sure You Can Log In To Every Account

Now that you have a list of accounts, try logging in to each one and making sure you can access them. For me, when I can’t access an account it causes me a great deal of stress. That lack of control can lead to worry – which is easily avoidable in this case.

If you can’t access an account, now is your chance to go fix that. With accounts that involve money, things aren’t as simple as the classic “email me a link to reset my password”, which means this may involve actually calling and speaking to a person (gasp).

Spend the time and make sure you can log in to each of these. You’ll likely need to make calls during working hours to reset your passwords on accounts that require a reset.

Measure of Success

Be able to log in to every account on your Account Listing Spreadsheet.

3. Figure Out Which Account Types to Use

Ok, now we’re getting somewhere! Steps 1-2 assume you have some accounts already, but that’s not always going to be the case. Understanding which accounts you have and which accounts you should use are solving different things. It’s important to understand why people love 401ks so much. Take a look at the following visualization.

Order of Accounts

This chart highlights what accounts you’ll want to use for this entire course. If you have a 401k from your company, that’ll be the go-to first step. A 401k, especially if your company matches your deposits is FREE money. Your company is PAYING you to invest in the form of a company match. Not taking this is equivalent to not taking free vacation days.

Beyond the 401k match (if your company even offers one) things get a little tricky depending on how much income you make. Here’s a flowchart I put together to guide which account types you should use first. Look at it with a concept of how much money you want to invest.

Which account to use?

As an example, if you make $75,000/yr and want to invest $25,000/yr of it. Your company offers a 401k, the result would be:

  • 401k: Up to company match. We’ll say $7,000 goes into this from your paycheck.
  • Roth IRA: Invest $5500 here.
  • 401k: Invest another $11,000 here to bring the total to $18,000.
  • Brokerage: Invest the remaining $1,500 in a brokerage account.

The end result in all this is that you’re investing your $25,000 in 3 different accounts. The reason for this comes down to taxes. We’ll be talking more about taxes at a later date, but if you’d like to read up on the why behind these, check out my article on Which Investment Accounts Should I Use? and How to Choose Between 401k, Taxable and Roth IRA Accounts to Optimize Taxes. The flow chart above hits on the takeaway from this article but this article digs into the why behind it.

I recommend a 401(k) for getting started if that’s an option for you. Of all of the 401(k) accounts I’ve ever seen, almost every one of them is a good deal.

After that, I favor going with a Roth IRA over a Traditional IRA whenever possible. Running the numbers on a Traditional vs Roth gives you the decision tree in the chart above – which would most likely be the best decision financially. That being said, a Roth IRA is easier and gives you more options later in life. If you’re on the fence on which one you should use, and are under the income limit for a Roth IRA, you can’t go wrong with it.

Make a Plan

The next step is to figure out how much you want to invest. Are you starting with a lump sum that you already have that you want to start investing yourself? Or are you hoping to start from scratch with investments each month? Maybe a combination of both?

Either way, figure out which account types you’ll need for this. If you have a lump sum you want to invest, I’d recommend converting part of it to cash for this course — but no more than about $10k-20k, but at a minimum $3,000 (that’s the Vanguard minimum investment).

You can choose to leave all of your funds at your existing investment firms, or consolidate them. I lean towards consolidation since it means fewer accounts to manage.

Measure of Success

Decide which accouny you’ll use to invest in based on the charts above. (401(k) and Roth IRA are the most common).

4. Open a Company 401k and/or Vanguard Account

Now that you know which account types you’ll need, it’s time to make sure you have a way to invest in them. If your job offers a 401k and you’re not currently enrolled, take this week and enroll in it! Talk to your HR department and figure out what’s required from you to start the account up. This may take multiple weeks so it’s good to get the ball rolling on it now.

Next, you’ll need an account for the IRA, Roth IRA or brokerage contributions. I highly recommend not using the same IRA or Roth IRA from your company (if they offer one). Instead, I strongly recommend Vanguard for all non-company investments. I absolutely love Vanguard and think it’s the only logical place you’d want to put money beyond a 401k location.

Why Vanguard?

So, why Vanguard and not T. Rowe Price, Fidelity, eTrade, ScottTrade or even the brokerage department at your bank? The answer comes down to the types of companies these all are.

Fidelity is a publicly-traded company with an obligation to their shareholders — as are just about every financial services company.

Vanguard is investor-owned. People who have investments in Vanguard fund Vanguard. This allows them to be autonomous and answer to their customers first rather than shareholders first.

Due to this distinction, Vanguard can offer lower prices than their profit-seeking counterparts.

“But T.Rowe Price has a similar fund that’s 0.01% cheaper and has the same funds!”

Ok, there are specific funds that these profit-seeking firms have that are cheaper than specific funds on Vanguard. They offer these in order to be able to say “We’re cheaper than Vanguard!”. If you look into the specifics of enough funds to form a portfolio (which we’ll start doing in week 2), you’ll see that Vanguard is cheaper overall.

I don’t have any kind of affiliate deal going with Vanguard, they’re just the right choice to make. It’s where the bulk of my investments are, and I’ll be using screenshots of Vanguard later on to demonstrate things as well.

Open And Link An Account

If you don’t have a brokerage/IRA account, open up a Vanguard account and connect it to whatever account you want to fund it from. This could mean a few things:

  • Connect it to your checking/savings account.
  • Start transferring funds from your existing brokerage/IRA.

You don’t need to fund it this week, but link it to your funding source. This process takes a few days. Vanguard will make a few small deposits into your bank account (which you’ll be able to access since you did #2) and then you’ll need to head back to Vanguard to verify these deposits. Once that’s confirmed, your Vanguard account will be good to use!

Measure of Success

Open an account where you’ll invest! I recommend Vanguard since it’s free, easy to make small deposits and investor owned. Within that account (Vanguard, Fidelity, etc) open the account you’ll use to invest (Roth IRA, Brokerage, IRA, etc). Link your new investing account (Roth IRA, Brokerage, IRA) to your funding source. If you’re funding it through a transfer get that started, or link it to your bank account.

Next Lesson

Now that we have our accounts set up, the next lesson will be all about what to invest in those accounts when we look into the value of diversification in a portfolio. Diversification is the reason we use phrases like “Don’t put all your eggs in one basket” and why people that worked at Enron who had only company stock had a bad time when the company went under. We’ll see what this means for investing.

The Minimal Investor Course

There are two ways to take this course! You can subscribe to receive an email each week for 10-weeks – or go on to the next lesson and read it right now.

This lesson:

Next up:

Get a handle on diversification - one of the magic ideas of investing.

2.1: All About Diversification