What’s the difference between active and passive investing? What is direct indexing? How should I approach my 401(k)? What is a SDIRA? Why municipal bonds? How are things different if I work at a fast-growing company? Use these resources to learn answers to those investing questions and many others.
The idea of passive index investing is that rather than trying to pick a few companies that you think will do particularly well, you try to invest a little bit into every company in the market. How broadly or narrowly you define “every company” will vary, but the idea remains the same: invest a little into every company so you get market exposure and diversification.
Active investing is investing based on an independent assessment of each investment’s worth—essentially, trying to choose the most attractive investments. This commonly means investing in funds whose portfolio managers are selecting investments, but you can also do it yourself, picking stocks you think will do well. Generally, the goal of active managers is to “beat the market,” or outperform certain standard benchmarks. For example, an active investor’s goal may be to achieve better returns than the S&P 500.
Planning for retirement often feels pointless. You’re young and your startup is taking off — why should you worry about retirement now? There are two concepts that make this planning a no-brainer: compounding and tax-advantaged accounts.
Municipal bonds (muni bonds) offer a very reliable and stable income source to investors. Many startup employees consider investing in muni bonds as a source of basic income for themselves that’s diversified from their companies. Further, because income from municipal bonds is generally exempt from federal income tax, startup workers in states with high levels of income tax (like California, New York, and New Jersey) can especially benefit from the tax-free income that municipal bonds provide.
As a startup employee, you likely have extra insights into emerging areas of the economy and even the opportunity to invest in them. Unfortunately, most IRA custodians won’t allow you to invest in these opportunities with your tax-advantaged IRA account. However, by setting up what is known as a “self-directed IRA,” you can use your IRA money to make alternative investments.
Planning for retirement often feels pointless. You’re young and your startup is taking off — why should you worry about retirement now?