Investing Basics Made Simple

You’ve probably heard, “Start saving for college as soon as possible.” 

Easier said than done, right? Life is full of things you should do. It’s understandably intimidating to start saving for something when you don’t have a clue how you should go about doing it. However, remember when you first learned how to do something new (cook, waterski, SCUBA dive) — you weren’t perfect at it at first, but you got the hang of it over time?

The hardest part is getting started. Keep these tips in mind:

  • It doesn’t have to be complicated. (It really doesn’t!)
  • You can choose the right portfolio based on your time horizon — in other words, you can choose the right investments based on your age or amount of time before you need the money.
  • You’re exposed to more risk when you invest — but you’re more likely to benefit because there’s potential for more reward.
  • It’s easy to get started investing for college with UNest.

So, if you’re just learning to get the hang of waterskiing, what do you learn first? You learn the basics: Put your skis on in the water, tuck your knees up, grab the ski ropes… Go! 

Let’s take the same approach to learning how to invest!

What is Investing?

First, let’s go over the difference between investing and saving.

  • Saving: Saving (stuffing your money into a savings account or under your mattress) doesn’t involve risk and you encounter a lower potential for growth. Saving is excellent for short-term goals and your money is accessible.
  • Investing: Investing involves purchasing assets you expect to earn a profit from in the future. That could refer to putting your money in stocks and bonds that you believe will rise in value.

Let’s throw one more term in there: 

  • Trading: Trading means you buy with short-term profits in mind. You buy shares quickly and sell them quickly as well — sometimes within an hour. (You may have heard of the word “day trading” — that’s what this means.) 

Types of Investments 

It’s likely that you’ve heard about specific investment types — stocks, bonds, mutual funds — but what does each type of investment really mean? Let’s dive in.

Stocks

A stock is an investment in a specific company. You buy one share of a company’s earnings and assets when you buy a stock. Companies sell shares of stock in their businesses to raise cash. Stocks, while riskier than some investments, can also result in high returns. 

Quick facts:

  • You can sell stocks for profit once the value of the stock goes up. 
  • Some stocks pay dividends, which means you, the investor, get a portion of the company’s earnings.

Bonds

When you buy a bond, you lend money to a company or government. Purchasing a bond allows the bond issuer to borrow your money and pay you back with interest.

Bonds offer lower returns but do come with the risk that the bond issuer could default on its payments. (However, bonds are typically very safe investments.)

Quick facts:

  • Issuers pay investors in regular installments and the total principal is paid off at the bond’s maturity date.
  • U.S. government bonds are backed by the “full faith and credit” of the United States, so they’re the least risky bond type. 
  • State and city government bonds are the next-safest, followed by corporate bonds. 

Mutual Funds

Mutual funds work as a pool of investments — you can purchase a large number of investments in one transaction. You pay a professional manager to invest your money in stocks, bonds or other assets.

Quick facts: 

  • Mutual fund risk depends on the types of assets in the mutual fund. If your mutual fund contains more bonds than stocks, for example, it’ll be more risk averse.  
  • Mutual funds earn stock dividends or bond interest and distribute a proportion of that to you, the investor. 
  • Like individual stocks, once the value of the fund increases, you could sell it for a profit. 
  • You’ll pay an expense ratio to invest in a mutual fund.

Index Funds

An index fund is a type of mutual fund. However, the difference is that an index fund tracks an index. This means you don’t pay a money manager to pick and choose investments for you. All S&P 500 index funds follow the performance of the S&P 500 by holding stock of companies within that index.

Quick facts: 

  • Index funds are usually always less expensive because you’re not paying the middleman (your money manager) to manage the funds.
  • Risk depends on the investments within that fund.
  • Index funds may earn dividends or interest, just like stocks and mutual funds, which you receive as an investor. 
  • Also like stocks and mutual funds, once the value of the index increases, you can sell your index fund shares for a profit. 

Exchange-Traded Funds

Exchange-traded funds (ETFs) are a type of index fund because they track an index. Like index funds, they are not actively managed. That means they’re cheaper.

The difference between index funds and ETFs is that ETFs trade on an exchange like a stock — you can buy it throughout the trading day as its price fluctuates. Mutual funds and index funds, on the other hand, are priced once at the end of each trading day.

Quick facts: 

  • ETFs may also pay out dividends and interest to you, the investor. 
  • Just like mutual funds and index funds (and stocks as well), once the value of the ETF goes up, you’ll be able to sell it for a profit. 

Certificates of Deposit (CDs)

A certificate of deposit (CD) means you give your bank money that’s “locked up” for a specific amount of time. When that time period is over, you get the amount you originally invested back, in addition to a prespecified amount of interest. The longer the loan period, the higher your interest rate.

Quick facts:

  • CDs are safe — they’re FDIC-insured up to $250,000, which means that you’d get your money even if your bank closed.
  • You must make sure you won’t need the money during the CD’s term because you’ll pay penalties for early withdrawal.

How to Start Investing

We’ve outlined six simple steps you can take to get started investing.

1. Determine Your Goal. 

It’s true that it may be a challenge to determine your goal if you’re not sure which direction you’re supposed to take. However, it’s a great idea to think about what you want for your life. 

  • What are your values? 
  • Your hopes and ambitions? 
  • Do you want to own a vacation home on a lake? 
  • Save for retirement? 
  • Put your money toward your child’s college education? 

Determine those goals and write them down! Writing down your goals — and even taking one small action toward them within 48 hours makes it more likely that you’ll make them happen. For example, if one of your goals is to save for your child’s college education, one small action you can take is to download the UNest app

2. Figure Out Your Timeline.

How much time do you have to achieve those goals? Take a look at the goals you wrote down, then put a timeframe right next to each goal. It can look something like this: 

  • Vacation home on Lake Santeetlah:  Achieve within the next 15 years
  • Save for college: Save as much as possible over 10 years
  • Retirement: Plan to retire in 20 years with at least $1 million

Writing out your timeline for each goal you have will help you understand which types of investments to go for. 

3. Understand Your Risk Tolerance. 

You may have no idea what your risk tolerance is. However, it can kind of be summed up like this. How do you feel when someone suggests you could risk a large portion of your money? Do you get squishy, icky feelings? Or do you think about losing money with a more optimistic mindset — or approach it as a learning experience? 

How well you embrace risk will determine your investing method. For example, let’s say you’re extremely risk tolerant and prefer to tackle high-risk investments. You might want to consider stock trading, options trading or forex trading. (Not for the faint of heart.) 

Maybe you want more risk but not that much risk. You might opt to invest in stocks — not day trading or scalping. On the other hand, if you’re interested in more conservative investing, you may want to put your money in bonds. If you have zero risk tolerance, you’d put your money in a savings account, CD or money market account. 

However, remember that more risk usually equals more reward. You won’t earn much interest on your money and keep up with inflation if you keep it in a savings account or money market fund. 

4. Find a Financial Advisor (or Do It Yourself)

It’s possible to get help from a financial advisor, but you can also go the DIY route and open investment accounts with a broker or robo-advisor.

How to Find a Financial Advisor

More comfortable with a financial advisor? Get the best financial advisor for you. Ask around! Check with your family and friends to find the best financial advisor in your area. Make sure your financial advisor will help you achieve your goals. Ask these questions: 

  • Are you a fiduciary? (Are you obligated to work in my best interest?)
  • How do you get paid?
  • What are my costs, including taxes?
  • What certifications or qualifications do you hold?
  • How do you take my risk tolerance, time horizon and other needs into consideration?
  • Will we meet often to discuss my portfolio?
  • How do you measure success in your clients’ portfolios?
  • What brokerage do you use?

You could also find an online broker like Vanguard or Fidelity and hire an advisor through those larger companies.

DIY Options

You may prefer hands-off, automated investing, and if you’re interested in doing your own research or flying solo, certain brokerage accounts gear toward beginning investors, including Robinhood. 

5. Choose Diverse Investments. 

You always want to have a balance in your portfolio. Just like it isn’t a good idea to eat only ice cream for every meal, you don’t want to invest in just one thing. For example, if you put all your money into one stock, that may not be a good idea. What if the company you buy into gets hit by a pandemic (imagine that!) and folds? You’d lose all your money. That’s why it’s important to diversify your investments — invest in a combination of securities, including bonds, stocks and more. That’s why mutual funds or index funds are so popular. Choose one of those and you’re instantly diversified!

Your brokerage should be able to help you find the right types of investments. Robo-advisors give excellent advice on diversification and risk tolerance because most of them ask you to sign up and describe your risk tolerance. Robo-advisors automatically plug you into diverse investments. 

For example, you might opt for a mutual fund that contains a mix of stocks and bonds. That’s perfect diversification. 

6. Make it Automatic.

Perhaps one of the most important steps in the investing process is to make everything automatic. That means that you whisk money out of your account so you get used to it — and with any luck, you may not even realize it’s gone. A few automatic investments:

  • Retirement accounts (401(k)s, Roth IRAs, SEP IRAs, 403(b)s, etc.)
  • Emergency fund accounts — do you have at least six months’ worth of money stashed in a low-risk emergency fund?
  • Short-term savings 
  • College savings through UNest

How Much Money Do You Need to Start Investing?

Many people believe they need money to start investing — but using UNest’s simple college savings calculator,  you can start with as little as $25/month.

A broker may have a specific amount you need to contribute to a stock, mutual fund or ETF — take a look at the minimum investment and also take a look at the fees involved.

It’s hard to pin down a specific amount — every broker is different.

Investing for College 

Can you invest in stocks for college? Sure! Just like you can invest in regular mutual funds, bonds and more investing options we’ve listed.

However, the advantage of investing with UNest is that you get tax benefits. This means your earnings are tax-deferred and withdrawals are tax-free as long as the money is spent on qualified higher education expenses.

Establish a monthly contribution plan using UNest’s simple college savings calculator, plug in your future goal and choose a monthly amount that’s right for you. 

You can easily view the account balance, change contribution plans and manage transactions, all from your mobile phone. It’s a quick win for college savings

Invest for Your Future — and Your Child’s 

“Start saving for college as soon as possible” is great advice — and you can tackle your goals in so many different ways. Determine which path is best for you and your family (don’t forget to consider the tax advantages of investing with UNest!) and get started on your investment journey.

Looking for other convenient ways to invest and save?

I get it, it’s 2020 and we are all looking for ways to make things more convenient.  We’re at the height of a digital age and what could be better than having your investments at your fingertips? While UNest is the only app on the market dedicated to helping parents save for their kids futures, there are other apps out there that you may have heard of.

  • Robinhood – A website and mobile app allowing people to invest in stocks, exchange-traded funds (ETFs), and cryptocurrency.
  • Acorns – A mobile app specializing in micro and robo-investing, offering an automated savings too and financial literacy.
  • Stash – A moblie app with a more hands on approach to helping guide your investment decisions.  Stash allows access to a banking services as well.
  • Public – A mobile app offering a wide array of accessibility to fractional investments.

While each offers their own array of services, none of them offers standalone products for parents, built by parents, with the goal of helping parents quite like UNest.

 

You’ll be amazed by what you can accomplish.

 

Ksenia Yudina, CFA, MBA

Founder and CEO

Ksenia is the Founder and CEO of U-Nest, the first mobile app that makes it easy for families to save for college. As an entrepreneur and finance professional, Ksenia has focused on alleviating the impact of student debt on families across the economic spectrum. Previously, Ksenia was a Vice President atCapital Group/American Funds, the largest 529 provider in the U.S. In this role, she played a leadership role in helping parents plan and manage their finances, with a focus on the future well-being of their children. Prior to Capital Group/American Funds, she was founder of a residential real estate company. Ksenia earned her bachelor’s degree in finance from CaliforniaState University Northridge, and an MBA from UCLA’s Anderson School of Management.

Mike Van Kempen

Chief Operating Officer

Mike joined U-Nest in September 2019 as COO. He was previously at Acorns, a financial wellness platform, where he spearheaded the analytics and growth initiatives. Mike successfully expandedAcorns’ paid acquisition strategy, adding over 4.5 million investment accounts. Mike began his career in strategy & analytics at Belly, a Chicago-based loyalty startup in 2012. At Belly, Mike led projects that fueled growth across all aspects of the business, growing the customer base from1,000 to over 11,000 merchants, and accumulating a membership of over 2 million customers.Mike holds a B.B.A. in Finance from Loyola University of Chicago.

Steve Buchanan

Chief Technology Officer

Steve has over 20 years of experience in delivering digital innovations in the financial sector. Steve previously orchestrated product architecture and innovation as a Solutions Architect/ Fintech consultant at Union Bank. Prior to Union Bank, he was Chief Architect and Director of Engineering at Calypso, a Silicon Valley startup, where he architected and built multiple financial solutions. He was also Head of Global Integrations at Globe One in Vietnam where he integrated its Peer-to-Peer lending products into core banking solutions. Steve also built the first ever electronic Equities &Equity Options trading systems for Scottish stock brokers Wood Mackenzie (acquired by CountyNatWest). He is a graduate of Edinburgh University.

Peter Mansfield

Chief Marketing Officer

Peter has built an impressive track record in multiple financial industry segments including payments, credit/prepaid cards and lending. He has played an instrumental role at a succession of financial industry leaders, co-founding companies such as Brand3 (acquired by American Express) and PropertyBridge (acquired by Moneygram), and, as the early stage marketing lead at Marqeta (where he was team member number two), BillFloat and WallabyFinancial (acquired by Bankrate).He has helped fast-growth companies reach an aggregate market value of close to $8 billion. Peter holds a bachelor’s degree in economics from the University of Angila, UK.

Sonya Kidman

Client Relationship Manager

Sonya Kidman is a Customer Success professional with a decade of experience in advocating for consumer through user research and genuine empathy. Sonya specializes in user behavior and regularly attends national and global training sessions in wellness and people analytics tools. Sonya is a true global citizen was born in Russia, grew up in Israel, lived and worked in Canada and NewZealand. That global expertise along with an undergraduate degree in Sociology from Tel AvivUniversity have helped to shape a bullet-prof Sonya's framework to develop a winning customer strategy.

Frank Mastrangelo

Board Member

One part banker and one part technologist, Frank spent his early days with the Annenberg Foundation and PNC Bank. His career path led him to Jefferson Bank, where he led the build-out of its electronic banking platforms, and where he would forge a powerful alliance with The Bancorp co-founder Betsy Z. Cohen. As President and COO of The Bancorp from its inception in 1999 Frank played a critical role in helping the organization become an industry bellwether for branchless financial services and a global leader in payments. For this, he has become a widely respected fintech expert, and thought-leader. Frank was recognized in 2013 by Banking Innovation, a leading industry journal, as an “Innovator to Watch.” and as one of the innovators shaping the future of banking. Frank is a graduate of West Chester University of Pennsylvania.

Disclosure

College Savings Calculator is a hypothetical tool that demonstrates how monthly contributions, age-based asset rebalancing, and tax savings may impact the long-term value of your account, and do not take into account a portfolio’s underlying investment management fees. Calculations assume the private institution cost inflation is 2.8%, public out of state cost inflation is 3.9%, public in state cost inflation is 2.7%. Portfolio is assumed to have only stocks and bonds. Monthly equity returns are based on the historical data from the 10-year track record of the stock market (SPY). Monthly fixed income returns are based on the historical data from the 10-year track record of the bond market index (AGG). The current college expenses are provided by the collegeboard.org. Actual account performance may differ due to market fluctuations, changes in recurring investments, and asset allocation. The information provided here is for illustrative purposes only and does not represent actual or future performance of any investment option and is not intended to predict or project the investment performance of any security or index.