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 learn the basics you need to invest on your own. You’ll know where to invest, what to invest in, and why. This course is organized from scratch and specifically for someone in the United States.

For lesson 1, we’ll do a few things:

  1. Make a list of all the 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 – or a Vanguard Account if you don’t have one

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 use them a lot to better understand how we’re investing. Go ahead and open up the Minafi Minimal Investor Lesson 1 Google Sheet. Choose “File > Make a Copy” and copy this sheet into your account. It’s mostly empty now, but you’ll be able to build on it as you learn about each concept.

Accounts
Get a handle on every account you own.

I’ve always found that the best way to learn something is actually to do it. That’s why you must pause right now, open up the Google Sheet, 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 bank as well as 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 won’t focus on net worth. Instead, the emphasis is on learning how to invest. To stay focused on that, you can leave off your mortgage, car loan, and other assets. Only add liquid accounts – checking, savings, and market investments.

Measure of Success

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 have the right credentials. For me, when I can’t access an account, it causes a great deal of hidden stress. That lack of control can lead to worry – which is avoidable.

If you can’t access an account, now is your chance to fix it! With logins that involve money, you won’t be able to “email me a link to reset my password.” You may need to call and speak to a person (gasp).

Spend the time to make sure you can log in to each of these. If you need to make calls, do them during working hours and 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 essential to understand why people love 401(k)s so much. Take a look at the following visualization.

Order of Accounts
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This chart highlights which accounts you’ll want to use for this entire course. If you have a 401(k) from your company, that’s a significant first step. A 401(k) is a fantastic investment – especially if your company matches your deposits. 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 401(k) match (if your company even offers one), things get more complicated depending on your income. 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?
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Let’s look at an example. Assume you make $75,000/yr and want to invest $25,000/yr of it. If your company offers a 401(k), then this is what your investment might look like:

  • 401(k): Up to company match. We’ll say $7,000 goes into this from your paycheck.
  • Roth IRA: Invest $5,500 here.
  • 401(k): Invest another $11,000 here to bring the total to $18,000.
  • Brokerage: Invest the remaining $1,500 in a brokerage account.

In the end, you’re investing $25,000 in 3 different accounts – your 401(k), Roth IRA, and a brokerage account. The reason for this comes down to taxes. We’ll dig into taxes more in later lessons.

If you’d like to read up why this is the recommended order of accounts, 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.

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.

A Roth IRA is more straightforward and gives you additional options later in life. You can withdraw your contributions from a Roth IRA if you retire early or use it for several other expenses – making it more versatile. If you’re on the fence on which one you should use, and are under the income limit for a Roth IRA, use a Roth.

Make a Plan

The next step is to figure out how much you want to invest. Are you starting with a lump sum? Do you want to invest money you save 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). If you’re unsure of how to do that, wait until later in the course when we go over tax-implications.

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

4. Open a Company 401(k) or a Vanguard Account

Now that you know which account types you’ll need, it’s time to set them up. If your job offers a 401(k) and you’re not currently using it, take this week and enroll! Talk to your HR department and figure out how to set up the account up. Getting started may take weeks, so 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 LOVE Vanguard. It’s without a doubt the best option for low-cost investing.

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 type of company.

Fidelity is a publicly-traded company. Publicly traded companies have an obligation to their shareholders first – before their commitment to you.

Vanguard is investor-owned. People who have investments in Vanguard fund the entire Vanguard company. In other words, your investments with Vanguard pay for your service – how straightforward! You aren’t left wondering who’s paying them or who they’re working for – it’s all you.

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! Fidelity offers a 0% fee fund! Why pay a fee when I could get it for free?”

This is true! A few profit-seeking firms have funds that are even cheaper than Vanguards. Fidelity, for example, offers four zero-fee funds. They offer these so they can 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 lesson 2), you’ll see that Vanguard is cheaper overall.

I don’t have any kind of affiliate deal with Vanguard. They’re just the cheapest place to invest. It’s where the bulk of my investments are. All screenshots in this course will be from Vanguard as well.

Open And Link An Account

If you don’t have a brokerage or IRA account, open up a Vanguard account for it. Next, connect it to your bank account or wherever funding source you want:

  • Connect it to your checking or savings account.
  • Start transferring funds from your existing brokerage or 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!). After you receive those, you can head back to Vanguard to verify these deposits. Once they’re confirmed, your Vanguard account will be ready 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 within those accounts. We’ll look into the value of diversification in a portfolio and how it helps returns over time. Diversification is the reason we use phrases like “Don’t put all your eggs in one basket.” It’s why people that worked at Enron and invested entirely in company stock had a rough time when the company went under. They lacked diversification – but we won’t!

This lesson:

Next up:

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

2.1: All About Diversification