The 10 Most Common Investing Questions—Answered

It's complicated, foreign, and daunting, and yet (again, if you're anything like us), you're secretly fascinated by it. Stocks. Bonds. Don't they sound so intriguing?

Well, we figured we'd help a friend out, so we hit up some of our favorite financial sources and money experts to answer 10 common questions on personal investments. And, dare we say it? Learning all of this was kind of...fun.

What We Cover

1. I’m spending more than 30% of my income on rent right now. Should I wait until I’m more established to invest?

Financial expert Amanda Holden says nope. "Spending 30% of income on rent isn’t itself worrisome—unfortunately, I know lots of young people who spend much more. And really, if you don’t have a house to maintain or a family to raise, use this time to stash away as much money as you can! Having no major financial commitments is the perfect reason to invest, not an excuse to avoid it!" But just to be clear, says Holden, that's after you pay down any high-interest debt.

"Generally speaking, your order of operations should look like this: 1. Pay off all high-interest debt like credit cards while you 2. Build up an emergency stash of cash. Once you finish those two steps, you should 3. Begin saving and investing for retirement. It is recommended you put at least 10% of your salary per year towards retirement, every year you work. That said—don’t be turned off if you can’t make 10% happen! Start with anything."

2. When should I start looking to invest? How much money should I put down up front? 

Per Amanda Holden's advice, it's never too early to start—after you've paid down that debt and built up an emergency savings account. A recent CNN Money article goes further: "'We really encourage people to have six months of savings first,' says Yvette Butler, president of Capital One Investing. Once you have a few thousand in savings, then you can start investing."

But what about how much? The same article says the short answer is $5. The better answer is $500. The $5 answer stems from new investing apps, like Acorns. We've rounded up our favorites right here. Other, more hands-on services, tend to require that you start with a higher amount. Options include Betterment, Wealthfront, and Ellevest.

3. I’m still paying off my student loans. What’s the bigger priority: paying off my loans in full or starting early on investing?

Arielle O'Shea, an investing writer for NerdWallet says investing—definitely. Or more specifically, she says that your student loans are at the bottom of the list of priorities. Says O'Shea:

"There is no doubt that the level of commitment in these tales is admirable. Student loans are draining, both financially and psychologically. Paying them off early feels very, very good. Not that I’d know: I’m making the minimum payments on mine.

That’s a calculated decision because I prioritize the three things you asked about—saving, investing and paying off student loans—in exactly the order you listed them, and I’d argue that you and most other people should do the same." 

She goes on to explain exactly why, which you can read all about here. 

4. I’m really interested in socially-responsible investing. Where can I find more information on socially-responsible funds?

So let's start with explaining what we're talking about here. According to Forbes: "Socially Responsible Investing (SRI) is sometimes referred to as 'sustainable,' 'socially conscious,' 'mission,' 'green,' or 'ethical' investing. In general, socially responsible investors are looking to promote concepts and ideals that they feel strongly about." In other words, you invest in the companies you admire in the hopes that you can effect change long-term. But does it really work? 

While this article in The Atlantic is a bit dated (published in 2007), it covers all the basics of socially responsible investing nicely. Basically, the jury's still out on whether it's as good of an idea as it sounds and results have been mixed. From there, this article on the Motley Fool can get you started on funds in the category, as will this round-up from US News. 

5. Should I pick my own stocks? If so, how should I decide? If not, how should I vet the person who will be handling my investment?

Says Holden: "The short answer? No. Buy an index fund, which is a fund that invests you in the whole (or a large representative sample of the) stock market, and you earn exactly the stock market average. With one click of a button, you can have exposure to 500 of the leading companies in the United States, every company in the U.S., or even thousands of companies across the globe! The best part? This access to stock market returns through index funds (both mutual funds and ETFs) is very cheap. Truly, the index fund is a bonanza for young investors who for many years had no affordable investing options."  

6. I know that it’s important to have a “diversified” portfolio. What percentages of my investments should I put in toward stocks versus bonds?

Holden again: "You’re exactly right that you’ll want to invest in both stocks and bonds (using stock and bonds funds—see answer to Question 5). ‘Don’t put all your eggs in one basket’ or, as I prefer, 'Don’t set a date at the altar after one Bumble date.' Date all sorts of different folks because it’s really impossible to know which one will work out best.

To decide the mix of stocks versus bonds in your portfolio, it’s a matter of goals and time frame. If you are young and investing with the goal of long-term growth, you want to own more stocks than bonds. Stocks have much higher potential for growth, but they’re only appropriate for investors that have time to wait through the stock market’s inevitable rough patches. Most Career Contessa readers have the time!   

If you are in your twenties or thirties, it is generally accepted that between 10% and 30% in bonds is appropriate. As you move closer to retirement, you’ll gradually shift into more bonds. The exact ratio depends on your comfort with a big ol’ stock market downturn—and your emotional ability to wait it out. The worst thing you can do during a market downturn is freak out and sell your stocks." 

Psst! Want to know even more about building a diversified portfolio? Listen to this episode of The Femails, where Clever Girl Finance CEO Bola Sokunbi tells us how to build a 7-figure portfolio. 

7. How much of my income should I be investing?

According to Sallie Krawcheck, founder of Ellevest, it's a fairly simple matter of percentages. "You should target saving 20% of your salary from your very first paycheck. This may sound like a lot—particularly because so many people save nothing. But years of research shows that people who save at this level are much better equipped to ride the ups and downs of the economy—and life—than others. Take your annual 20% savings and invest it in a diversified investment portfolio instead of leaving it in the bank (except for your emergency fund, of course)." 

Not sure whether you can swing that 20%? Sallie says that's OK. Do whatever you can and gradually increase it. "It doesn’t have to be all-or-nothing to have an impact."

8. How do I know when to sell?

We're getting into the weeds a bit with this, but we promised to answer the big 10 questions and this is definitely one of them. The adage goes, "buy low, sell high." But what does that mean?

Wealth management expert, Alice Finn, the CEO of PowerHouse Assets LLC and the author of Smart Women Love Money explains:

"There are usually two main reasons you should sell. Reason 1: you will need the money within the next three years. If you need the money in the near term, you should not risk the volatility of the stock market because there is too high of a chance the market will be down when you need the money, forcing you to 'sell low.' Reason 2: you need to rebalance your portfolio because one asset class (i.e. a category of investments) has gone up more than others. Sell some of that asset class, and use the proceeds to buy some of a different asset class that has not done as well. This is the best way to 'sell high' and 'buy low.'"

Finn is also quick to explain: "You should never sell because you think the markets are too high. That is called 'market timing,' and it doesn’t work." In other words: avoid buying stocks if you feel like you'll need to sell them soon without a chance to plan for timing, and skip the hacks and fancy footwork when selling. Just focus on what you want to get out of your stocks, be patient, and think strategically. 

9. Where should I go to learn more about investing if I'm totally new to this?

Start by reading up. Ellevest is a great platform to consider using (we love their tagline: "Invest like a woman. Because money is power"), but they also provide a free great resource center. And here's a list from Investopedia on the best books on investing (of course, Warren Buffet made the list). 

10. What are some major investing red flags?

The simplest one is: if it seems to be too good to be true, it probably is. But we've actually covered all the red flags in detail here. Read and learn from our advice—so you don't have to learn from your mistakes. Plus, we have some helpful free webinar replays from experts like Amanda Holden here, here, and here.