The New Investor’s Toolkit

One of my goals at the Dough Roller is to inform and encourage those who have never invested, are new to investing or have invested without giving it much thought. Recently I wrote about helping a close relative to start investing in her company’s 401(k). In discussing the situation with her, I realized that one thing holding her back was a lack of basic information about investing. And from this was born the New Investor’s Toolkit. The idea is to bring together in one place a number of free and low cost resources that new (and even not so new) investors can turn to to gain a better understanding of mutual fund investing. The Toolkit is broken into 4 sections: Articles, books, websites, and blogs. I hope these materials prove helpful to you.

Articles

There are a number of great articles on a variety of investing topics. Here are a few that I think are particularly useful for a new investor:

• The Three Principles of Investing: This very short article is a basic introduction into the rationale behind asset allocation. In addition, I’ve written a more comprehensive series of articles on asset allocation.
• Vanguard has a free series of articles that provide a great framework for investing:
• Get a Financial Start: Provides a good foundation on savings, budgeting, debt and investing.
• Investment Basics: Describes the basics of investing, including stocks, bonds, mutual funds and diversification.
• Create Your Investment Plan: This article will help you put it all together in a single plan.
• Personal Financial Ratios: An Elegant Road Map to Financial Health and Retirement: This article provides some rules of thumb in terms of how much you need to save for retirement and what your debt level should be at various stages of your life.

Books

As a starting point, these three books will give you a great introduction into mutual fund investing:

I know what you’re thinking–what kind of name is Boglehead? Here’s the story. Several years ago a group of investors who favor Vanguard’s index funds began a discussion forum on Morningstar. They named their group the Bogleheads after Vanguard founder Jack Bogle. Today, the group has a very active forum on Morningstar as well as on their own site called Diehards. The groups founders, Taylor Larimore, Mel Lindauer and Michael LeBoeuf, came together to write the book. By the way, John Bogle knows of the group and has even attended some of their annual meetings. The book is an excellent place to begin learning about investing and mutual funds. It covers the benefits of long-term investing, stocks, bonds, asset allocation, taxes and a lot more. And the book’s style is easy to understand. It’s the kind of book that makes you feel smart when you’re done reading it.

Speaking of John Bogle, his book on common sense investing is an excellent introduction to a number of investing concepts. Perhaps the most important aspect of this book is its discussion of mutual fund fees. As I’ve written before, the expense ratio of a mutual fund is not a complete picture of the cost of a mutual fund. Bogle discusses the cost issue, as well as taxes and the benefits of index funds. One aspect of the book I particularly enjoyed was his balanced approach to index funds. While he certainly believes they should form the core of a portfolio (and I agree), he recognizes that there may be a place for actively managed funds in a diversified investment portfolio. This is a must read.

This book is a more advanced discussion of asset allocation. It is well written and very easy to follow, and its detailed discussion of asset allocation and building a portfolio are important for DIY investors. One aspect of the book I particularly find useful is its sample portfolios. It includes both “simple” and “advanced” portfolios for each stage of life (20-39, 40-59, early retirement and so on). The simple portfolio has about four asset classes and mutual funds, while the more advanced portfolios have several more. In addition, he lists specific mutual funds for each asset class. This is an excellent primer on asset allocation.

Websites

• Investopedia: This is a great general resource on investing. It also has a series of Tutorials on investing basics.
• MoneyChimp: This site provides good articles on index funds, reading financial reports, asset allocation, and so on.
• Morningstar: This is the mothership of all things mutual funds. Anything you want to know about a mutual fund can be found here, as well as articles on investing and a number of good discussion forums. I regularly write about how to use Morningstar in a series I cleverly call, Making the Most of Morningstar.
• ETFConnect: If you’re interested in ETFs, in addition to Moringstar, you should check out this site. It includes an Education Center (home page, top right tab) that provides some useful articles on ETFs.

Blogs

There are a number of good investing blogs available (other than The Dough Roller, of course). Here are a few (in no particular order) that I read regularly:

• The Digerati Life: “I have christened this place The Digerati Life, given that I intend to write about money, technology, my entrepreneurial endeavors and what the culture is like where I work and live. Here you’ll find a mish-mash of these subjects that interest me and what I have something to say about. This site will hopefully be enlightening and educational in the topics of personal finance (heavier weighting on this), self development, and business and entrepreneurship, while perhaps being entertaining as well. I’ll be adding commentary on how engineers work and play in the Valley. And of course, it will cover whatever strikes me about the Internet. Admittedly, I also have a little bit of a taste for macabre news stories so if it fits the theme here, I’ll be talking about it.”
• All Financial Matters: “A personal finance blog dedicated to discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance.”
• Blueprint for Financial Prosperity: “Blueprint for Financial Prosperity is a personal finance blog where I plan to discuss matters of shopping, insurance, investing, retirement, loans, credit cards, mortgages, bargain hunting and other issues related to personal finance. What you will find at Blueprint is a personal finance novice struggling to understand some pretty complex and confusing topics. I’m by no means an expert on anything and I don’t claim to be - you will learn as I learn, struggle as I struggle, and hopefully, together, we can avoid some of the common mistakes we would otherwise fall prey to.”
• Consumerism Commentary: “I created Consumerism Commentary in 2003 in order to hold myself accountable for my finances. Although I had a rocky experience with my money following my undergraduate studies, by the time I started this blog I was on the path to being in “decent financial shape.” In order to take the next step, I believed starting a blog would help. My plan was to regularly publish my account balances and spending information so I could publicly track them over time and perhaps gain support from readers.”
• Free Money Finance: “This site is about one simple thing: growing your net worth.”

One final note. Investing is a life-long adventure and the learning never stops. At first it may seem overwhelming, but if you keep working at it, reading and learning, your future self will thank you. And the resources list above are a great place to start.