Joseph Chen

hi there! :) excited? i love personal finance, but i am by no means an expert. but regardless, i shall do my best with what i know to provide an easy and warm intro to future-proofing your life financially and ensuring you don’t miss TOO much of the opportunities that only time and an early start gives.

risk and return

let’s talk investing! there’s a lot of different ways to save and invest, and they vary in two aspects: risk and return. risk can be simply defined as probability of losing on your investment, and return is typically just how much you gain or earn as a percentage of your investment. if one desires a higher investment return, they must, in 99% of cases, accept more risk. for example, if you keep your money in the bank, it’s typically the most risk-free. you don’t really gain much, especially if the money is not in a high-yield savings account (HYSA). but at the same time, you don’t stand a lose it, unless the bank goes ‘rupt’. even then, FDIC (the us government) typically steps in to protect insured deposits up to $250k, so it’s pretty risk-free. on the other hand, if you had invested it all on a stock, let’s say Enphase Energy (NASDAQ: ENPH), a booming solar energy tech company that looked unstoppable in 2022, you would be looking at almost a 90% loss at the time of writing. or if you invested in NVIDIA (NASDAQ: NVDA), you’d be up 10x on your investments. higher risk = higher reward

investing

but investing isn’t about picking the right stocks. it doesn’t have to be all luck and hope. you don’t HAVE to invest, of course, but something i read 6 years ago still stays top of mind: “investing is no longer a path to wealth, but rather a necessity for the middle class.” money devalues over time, and one of the greatest vehicles of money-making is the stock market. you don’t have to pick the right stocks, just invest in all of them! through total market funds, essentially a basket of the hundreds and thousands of the biggest companies, you’re just betting our general economy will be healthy. for example, looking simply at VT, which is Vanguard Total World Stock ETF, it has returned almost 12% on average in the last decade. $10,000 invested in 2016 would be worth ~$30,000 today. rather than betting your hard-earned dollars on a single or a few companies, which you can totally do at your own risk, you can just bet on the US market or even just the world market at large with VT. this is called index fund investing—it’s very accessible and takes less than 15 minutes to set up. see more here (in-progress).

how/where to start?

do i go on robinhood and just buy something, like VT? well yes, that works. but there’s rungs on this investing ladder, specifically there are different accounts in which you can invest within; some provide very important benefits with taxes and returns that you must take advantage of first. here’s the order i’d suggest (but read this for a more comprehensive guide):

1. 401(k) match
   • if your employer offers you a 401(k) match, it’s free money on the table. a 401(k), in short, is a retirement account provided by most employers. it’s a “retirement” account because it provides large tax advantages if you agree on not withdrawing money until retirement age of around 59.5. there are certain situations in which you can withdraw early, so don’t worry. see here (in-progress).
   • depending on the 401(k) plan, you’d be getting some sort of % match. for example, a 100% match up to 6% of your salary. that’s literally part of your compensation, so not taking advantage of it is letting your employer keep your hard-earned money. to enroll in it, just opt-in to your 401(k) and designate at least the match percentage of each paycheck to it. assuming the match policy above, you’d want to contribute 6% of each paycheck to your 401(k), and your employer will double that contribution each time!
   • what’s so good about a 401(k) besides the match?? read bullet #3!
2. Roth IRA
   • so, this is still a retirement account, but it’s a personal one, rather than tied to employment/employer. anybody can open one! the only constraint is: you need to have earned income w/in IRS’s annual limit of ~$165,000 if filing single or ~$246,000 if filing jointly at the time of writing. so you need to have legal, documented, and taxed income haha.
   • once you meet that requirement, you’re good to go, and boy is this a phenomenal investment account. here’s why (inspired from Fidelity):
     1. money will grow tax-free, withdrawals are also tax-free! you use post-tax money (which is money already on hand/in your bank/etc.) to contribute to Roth IRA; that’s the only tax part of it, rest is tax-free!
     2. there are no required minimum distributions (meaning you’re not forced to withdraw a certain amount after a certain age unlike 401(k)s, etc. which is helpful to more intentionally plan your taxable income amount in later years)
     3. you can ALWAYS withdraw your contributions at any time! other retirement accounts like 401(k) may have penalties for withdrawal early outside a qualified event, like a first home purchase.
   • because it’s so tax-advantaged and flexible, the government sets a limit to how much you can contribute. for 2026, it is $7,500! that’s why you want to maximize your contribution to this every year that you can. the tax benefits are insane.
   • here’s Fidelity’s more comprehensive explanation of a Roth IRA!
3. 401(k)
   • so, there’s two types of 401(k) usually: Roth vs Traditional. a Roth 401(k), like a Roth IRA, takes post-tax money (so money after income tax, etc.) of your paycheck and invests it so that it grows tax-free! a Traditional 401(k) uses pre-tax money (takes it out of paycheck so you don’t pay taxes on that portion of your paycheck) and invests it, but taxes you on the capital gains (not your contribution, but only the gains) when you withdraw.
   • you can decide what’s best for you! i contribute to both types because i want more tax flexibility in the future. traditional allows me to avoid some taxes today, and i plan on converting it to roth ira after leaving my employer and during low-income years (this is a bit more complex, you can read more here later (in-progress), but ignore for now)
   • to make things simple for you, just do a traditional 401(k) first and you can always change your mind later! both options gives you tax breaks, just differently.
4. HSA
   • HSA, or a health savings account, is something i haven’t started yet. it’s another tax-advantaged account that is meant to pay for qualified medical expenses, including co-pays, dental care, contacts, and more! however, you NEED a HSA-eligible plan, aka a high-deductible health plan (HDHP) to have an HSA.
   • it’s super tax-advantages, often referred to as triple tax-advantaged:
     1. firstly, it typically uses pre-tax contributions, which gives you a tax break on that part of your paycheck, similar to a traditional 401(k) contribution. however, it’s actually better in that it not only avoids income tax, but also the FICA tax (which is payroll tax for social security and medicare)!
     2. secondly, growth within the account is tax-free (except for a few states like new jersey and cali)!
     3. lastly, withdrawals for qualified medical expenses (which are pretty flexible and includes things like massage guns, wearable health devices, skincare, and much more) are tax-free! sephora even has a whole section for HSA-eligible products (over 170 products at time of writing)
5. taxable brokerage
   • then, the last place to park your investing money (of these options of course and to the best of my knowledge) would be a taxable brokerage. that just means no particular special investment account like a 401(k) or IRA, but rather your good old-fashioned brokerage account like on Robinhood, Charles Schwab, and also Fidelity/Vanguard, which typically houses a lot of retirement accounts too!
   • the cons of a regular, taxable brokerage is just that there’s no tax advantages. no pre-tax contributions. no tax-free growth. no tax-free withdrawals. but hey! you’re only getting taxed on money earned anyways, not on contributions and not on losses (T.T), so tax isn’t necessarily a bad thing; it means you’re at least making some money haha.

okay, all that being said, one important note: just putting money into these accounts doesn’t mean you’re necessarily investing! you have to actually choose funds or stocks to invest in, and that goes back to the idea of index fund investing. a very common and easy index fund investing setup would be the Bogleheads' Three-Fund Portfolio, which uses three funds (hence the name): 1) a domestic total market fund, 2) an international total market fund, and 3) a bond total market fund. assuming you’re under 40, i’d skip the bond fund and just do a two-fund portfolio. as for the two funds, i would suggest 70% VTI (Vanguard Total Stock Market ETF) and 30% VXUS (Vanguard Total International Stock ETF). the former is a fund comprises of ~3,500+ U.S. companies with a low expense ratio of 0.03% and the latter comprises of over 8000+ companies with an expense ratio of 0.05%. of course, there are many other portfolios you can go with, but this is just a typical one with a balanced risk-return profile. you can definitely go safer by adding a bond fund or cash position, and you can go riskier by buying more concentrated funds like QQQ (tracks the NASDAQ 100, aka the 100 largest companies on the NASDAQ exchange) or even individual stocks!

that’s all for today! more to be written