How to Invest your Money (How ANYONE can be RICH)

It’s come to my attention that many people don't know how to invest to get wealthy enough to buy things like Lambos, and that's just not okay. 

What’s worse is that schools aren’t teaching these valuable skills—they focus more on subjects that you might not use every day like… Algebra 2. 

Even parents often prioritize homework over teaching financial literacy. 

But that’s another topic for another day. 

Now before we start, this is Ivan here from the Vanilla Investor, a former investment analyst and with over $100k invested in the markets. 

My goal is to bring you simple finance at your fingertips. 

So, I’m going to break down the basics of investing right here.

At the end of this, you should be able to begin investing your money, achieve an 8% return, and still afford things like your daily coffee without stressing about your budget.

To keep things clear, I’ll walk you through specific steps, from low-risk, low-return options to higher-risk, higher-return investments, with the first one being a high interest savings account.

Followed by:

2) Roth IRA
3) Index Funds
4) Traditional 401k
5) Individual Stocks
6) Real Estate

And finally the last being starting your own business. 

So without further ado, let’s get into it.

#1: High-interest Savings Accounts

If you’re looking for a straightforward way to grow your money with minimal risk, start with a high-interest online savings account. 

My top pick is Ally Bank, which offers a 4.2% interest rate on your savings. 

It's incredibly easy to set up—just go to Ally Bank’s website, open a savings account, deposit your money, and you're set. 

Why Ally? 

They offer free checking and savings accounts, free debit cards, free checks, and no monthly fees. 

Everything is free, which is why I love them. 

You can also check out other banks like Barclays, Synchrony Bank, or American Express, which offer similar interest rates. 

This approach is perfect for money you’ll need in the near future. 

I don’t recommend investing funds you’ll need within the next five years, like savings for a house down payment or a new business. 

The stock market can be unpredictable in the short term, and there’s no guarantee of profit—you could even lose money. 

So, don’t do that. 

Don’t lose money. 

Instead, for any short-term savings (1-5 years), stick with high-interest savings accounts. 

This way, you can earn a steady 4.2% return with no risk or extra effort. 

You’ll know your money is safe and growing modestly while you sit back and relax.

#2: Roth IRA

The next important thing to mention, and possibly the most crucial part of this entire discussion on investing, is to set up a Roth IRA. 

Seriously, this is as vital as getting a credit card to start building your credit. 

If you haven't done it yet, make it your priority. 

Do it tomorrow, or even better, if you’re watching this tomorrow, do it right now. 

Just trust me on this. 

A Roth IRA is a type of retirement account where you can invest your money, and by the time you reach 59 and a half, you can withdraw all your earnings completely tax-free, without paying any capital gains tax. 

Before you hit that age, you can take out the money you initially contributed, but any profit you’ve made on that investment has to stay in the account. 

If you withdraw the profit early, you’ll face taxes and a 10% penalty. 

For example, if you invest $5,000 in a Roth IRA and it grows to $7,000, you can take out your original $5,000 anytime, but the extra $2,000 must stay in the account until you’re 59 and a half to avoid taxes and penalties. 

That’s just not worth it for you, so please don’t do that.

Roth IRA is not an investment by itself

Now this might be a bit confusing but a Roth IRA isn’t the investment itself; it's more like a container for your investments. 

Think of it as a special account, similar to a brokerage account, where you can hold investments like: 

• stocks, 
• index funds, 
• bonds, 
• or even real estate. 

For young people who aren't making a lot of money yet, opening a Roth IRA is one of the smartest moves you can make. 

Here’s why:

1. Low Tax Bracket: If you're just starting out, you're probably in a lower tax bracket, meaning your contributions are taxed very little.

2. Compound Interest: You have many years ahead for compound interest to grow your money significantly.

For example, if you invest $1 at age 20, it could be worth about $21.72 by age 60, assuming an 8% return. 

Normally, this means you would be paying taxes on the $20.72 in profit. 

But with a Roth IRA, you won’t pay any taxes on that profit. 

There's really no downside. 

I opened a Roth IRA when I was 20, and it’s one of the best decisions I've ever made.

#3: Index Funds

Number 3, when it comes to investing, one of the best and simplest options is to put your money into index funds, especially those with low costs. 

This approach works well for most people, and here’s why. 

Many professional investors and hedge funds struggle to consistently beat the overall market. 

So, instead of trying to pick individual winners, it's often smarter to invest in the market as a whole. 

And then I get people asking me, "How do I get this 8% return?"

Historically, the stock market has provided an average return of around 8.4% per year, after adjusting for inflation and including reinvested dividends. 

This makes it a solid choice for long-term growth. 

Basically, when you invest in index funds, you’re buying into a fund that includes a wide range of stocks, often representing hundreds or even thousands of companies. 

This gives you broad exposure to the market and helps spread your risk. 

If one company in the fund doesn't perform well, it won't hurt you as much because you own a little bit of many companies. 

However, all index funds have some fees. 

It’s crucial to choose funds with the lowest fees possible because lower fees mean you get to keep more of your returns. 

And when I think of low fees, I think of Vanguard. 

Vanguard is one of the lowest out there at around 0.04% per year. 

They offer affordable and efficient options for most investors. 

Now here’s what I would do myself if I’m just getting started, I would go to Vanguard.com and open a Roth IRA. 

This is the tax-advantaged retirement account we talked about earlier, where your money grows tax-free, and you can withdraw your contributions anytime without penalty. 

Once your account is set up, consider putting your money into VTSAX, Vanguard’s Total Stock Market Index Fund. 

This fund gives you a piece of the entire US stock market for a reasonable price. 

Each share costs around $128, with a minimum initial investment of $3,000. 

Over the last 24 years, VTSAX has returned about 8% annually, and about 12% over the past decade. 

Another excellent choice is VFIAX (Vanguard 500 Index Fund), which tracks the top 500 companies in the US. 

Since it started, this fund has returned an average of 7.9% annually and about 12.6% over the last ten years. 

If you want an even simpler approach and don’t want to decide on specific investments, consider a Target Date Retirement Fund. 

You choose the year you plan to retire, and the fund adjusts its mix of investments to become more conservative as you get closer to that date. 

This takes the guesswork out of investing and makes it easy for you to stay on track. 

So for most people out there who don’t really want to think about what they’re doing and figure out I’m just going to retire in 40 years or 30 years or 25 years or whatever, it might be the easiest thing for you to invest in.

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#4: Traditional 401k

Okay, getting back on track, we have number 4. 

If you're already setting up a Roth IRA, you should also consider opening a traditional 401k. 

This type of retirement account offers great tax benefits that can help your money grow more effectively. 

A traditional 401k lets you contribute part of your income before taxes, which lowers your taxable income for the year. 

This means you pay less in taxes now and can invest more. 

For example, if you earn $50,000 annually and put $10,000 into a 401k, you’ll only be taxed on $40,000 instead of $50,000. 

This tax break can make a significant difference. 

The money you contribute to a 401k grows tax-free until you withdraw it after you turn 59 and a half. 

But, but when you start taking money out, you'll pay taxes based on your tax rate at that time. 

This setup is beneficial because many people are in a lower tax bracket when they retire compared to when they were working. 

And also, you can’t take money out of your 401k before age 59 and a half without facing penalties. 

If you withdraw funds early, you'll have to pay the taxes you deferred, plus an extra 10% penalty. 

So, it’s essential to go in with the expectation of leaving this money alone until you're 60. 

In short, if you’re okay with this, then go ahead and absolutely do it.

Always meet the match (Employer Match)

Before I forget to say this, one of the best features of a 401k is the employer match. 

Many employers will match your contributions to your 401k up to a certain limit. 

This is like getting free money added to your savings. 

If your employer offers a match, always take advantage of it—no exceptions. 

It's basically free cash, and who doesn't love that? 

Nobody! 

Everybody likes free money. 

To get this free money, ask your employer if they offer a match and how much it is. 

For example, if they match up to $1,000, make sure to contribute at least $1,000 to your 401k so you get the full match. 

If they match up to $2,000, then put in $2,000. 

Always contribute enough to get the full match from your employer. 

It's an easy way to boost your retirement savings without any extra effort.

#5: Individual Stocks

Number five is for those who are keen on putting in a bit more effort and are interested in picking their own investments: individual stocks. 

If you're up for it, investing in individual stocks can be rewarding, especially if you do it within a Roth IRA or 401k to avoid taxes on your profits. 

However, it's not a must—you can also open an account with platforms like Interactive Brokers which is what I would recommend. 

For example, this year alone, Nvidia’s stock is up 159%, Amazon has soared by 24%, and Microsoft is up 18%. 

On the flip side, Tesla has dropped 28%. 

These examples show that if you choose the right stocks, you can outperform broad index funds. 

But remember, picking individual stocks is riskier because you don’t have the broad diversification an index fund offers. 

If a stock plummets, you could lose more money than if you had spread your investments across many companies. 

Individual stock investing can be exciting if you enjoy following market news and have a talent for selecting stocks that perform well. 

However, it's worth noting that even the average investor, including myself, often struggles to consistently outperform the market by picking individual stocks. 

That's why many people would be better off investing in a broad index fund, which spreads risk and tends to grow steadily over time. 

So, if you prefer a simpler, less risky approach or don't want to spend time managing stocks, go with an index fund. 

But if you’re up for the challenge and enjoy the stock market, investing in individual stocks might be right for you.

#6: Real Estate

Number six is real estate. 

However, if you're just starting out and don’t have a lot of money, this might be something you need to gradually work towards. 

Typically, you'll need a down payment of 15-20% to start investing in real estate. 

In expensive areas, this can mean you'll need a substantial amount of money upfront. 

Real estate stands out to me for several reasons. 

• First, it provides immediate cash flow; when tenants pay rent, you get money in your pocket every month. 
• Second, real estate offers excellent tax deductions, meaning the income you make is often largely tax-free. 
• Third, you can finance most of your investment with borrowed money and pay it off over a long period. 
• Fourth, as you pay down the loan, you're building equity in the property, and after 15 to 30 years, you'll own it outright. 
• Lastly, property values tend to increase over time, so your investment is likely to appreciate. 

It's no wonder that 90% of millionaires are made through real estate.

#7: Starting Your Business

And finally number seven, drum roll please, is investing in a business. 

This could potentially yield the highest return compared to any other investment I've mentioned. 

If investing in your own business promises substantial returns, I highly recommend doing so in conjunction with other strategies mentioned earlier. 

Investing in a business could involve starting one from scratch: 

• purchasing products, 
• testing ads, 
• exploring Shopify, 
• social media marketing, 
• or upgrading equipment. 

Investing in yourself or a business can be incredibly rewarding, but as I've stressed, higher returns often come with higher risks that you must be comfortable with. 

So if you have no idea where to even start and need some ideas, then read this next article here where I go over 12 different side hustles based on different age groups.

Thank you for reading, cheers!

- Ivan