How to be smart about investing


Click here to learn more about Matthew Quinlan.

Financial Advisors

Financial advisors are taught by their employers that they are looking out for your financial interests and they believe it to be true.  But they are educated by a company whose primary interest is looking out for their own profits.  Therefore, much of the advice you receive is filtered by the advisor’s employer and tends to provide the maximum commissions and profits to the advisor and their employer.  Much better (independent) advice can be had for much less (the hidden cost of biased advice is incalculable).  Find a financial advisor who does not profit from your investment choices and does not hold your accounts that you pay an hourly rate for advice (I pay $210/hr for 60-90 minutes twice per year).  The best source I have found for finding a financial advisor who works on this system is The Garret Planning Network.

Read more: How to be smart about banking

Tax Advantaged and/or Tax Free Investing

  • Employer Matches for 401(k)/Roth 401(k) (FREE MONEY!)
  • Traditional & Roth retirement accounts (401(k)/IRA/etc.)
  • 529 College Savings Plans
  • If the primary provider works full time and the household can operate on that single income.  The spouse can work part time and make just enough to cover maxing out a 401(k). It makes a HUGE impact on retirement savings. My wife worked part time for 10 years and has allocated 100% of her income to her 401(k). 

Read more: Clark’s investment guide

Index Funds 

Index funds were the genius idea from the founder of Vanguard, John Bogle.  He realized that the sophisticated mutual fund managers who bought/sold stocks within a mutual fund on behalf of the fund’s investors weren’t very successful at it.  And worse, they charged the investors a heavy management and commission fee to invest in the fund.  Index funds eliminate the human element and they just mimick the performance of an index like the S&P 500.  This means that they tend to have MUCH lower management fees and much less turnover (amount of stock/bonds that are bought/sold inside a fund) than traditional mutual funds — which benefits investors over time. 

Targeted Retirement Funds 

For the average investor, trying to determine the appropriate investments in their 401(k) or IRA is incredibly difficult.  Each account may have limitations on what investments they have to choose from.  However, a new type of mutual fund has been created that is based purely on the year that the person wishes to retire.  The fund slowly migrates the investments from more aggressive to more conservative as that year approaches — which eliminates the need for constant rebalancing.  Look for targeted retirement fund options in your 401(k) and IRA, especially ones with very low fees (e.g. Vanguard 2040 fees = 0.18%).


AVOID Precious Metals 

Buying precious metals as a ‘hedge’ is a joke.  The only people who think it’s a good idea are the people who are selling them to you or have a vested interest in you buying them.  There is a reason that this is sold on late-night TV alongside the ShamWow!

AVOID Beating the Market 

Trying to beat the market is a fool’s game (the pros can’t do it either).  If the ‘financial advisor’ in the strip mall on the corner could actually consistently beat the market (for his clients or himself) he wouldn’t be in a strip mall on the corner.  He would be on his own private island.  It’s just like Vegas.  At any given time a certain number of the investors/advisors are ahead of the casino and they look like they are geniuses, especially those who are up over a 3 day stretch.  But in the long term, nobody beats the house unless they are cheating, and that will get you locked up.  Highlighting this fund or that stock (like Jim Cramer) is simply calling out the names of those who are currently ahead of the house.  It’s not genius, it’s entertainment.  Don’t fall for it.  Read John Bogle’s (Vanguard founder) books on the subject and save yourself (e.g. Don’t Count on It!).  You can make lots of money over time just matching the market with index funds; you don’t have to beat it!

AVOID Complex Financial Instruments 

If you cannot fully explain the investment in five minutes to an 18 year old and have them repeat it back to you accurately, then it has been engineered specifically to screw you in ways that the regulators have not yet been able to stop.  Your goal is to make money, not to make your investment strategy as complex as possible. Think Credit Default Swaps in 2008 😉

More advice from Matt Quinlan:

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