In this blog, I’m going to tell you my TOP 10 Do’s and Don’ts for the investing app Ellevest. Like most things in life, in order to be successful at investing, you need to start by UNDERSTANDING what the hell you’re doing.
Depending on whether you do it right or not, investing your hard-earned money with Ellevest could be the BEST decision you ever made or the WORST decision you ever made. It’s time to get smart with your money, so if you’re interested in trying out Ellevest, or if you’re already using it, then keep reading!
What I love about Ellevest is that it’s 100% women-run and women-backed. It’s founder & CEO Sallie Krawcheck is female, and the company is also backed by badass female investors like Venus Williams.
All jokes aside, I fully support Ellevest and I invest money with them myself. That being said, these are my TOP 10 do’s and don’ts when using this app. Money is 90% behavioral, and even the best tool or strategy isn’t going to work if you don’t use it properly.
Top 10 DO’S and DONT’S
1 – I’m going to jump in with the first DO:
DO UNDERSTAND WHAT YOU’RE INVESTING IN
When you don’t understand what the hell your money is invested in, you’re never going to feel completely secure. There are people with millions of dollars who still don’t feel financially secure. They have all these advisors and outside people managing their money, and because they don’t understand what’s going on with their money, they never feel totally in control. Financial security is a mindset – a mindset of financial CONFIDENCE. And that confidence only comes from understanding your money, and from knowing that no matter what the economy is doing, you’ll know what to do and how to rise above it.
Because Ellevest is a roboadvisor, you’re basically outsourcing investing services. You don’t HAVE to understand what they’re doing with your money, but it’s not a good feeling to blindly deposit your hard-earned money with some app, and hope that it turns out well.
In this article, I go into depth about how Ellevest invests your money. I don’t want to repeat myself in this blog, but basically, when you invest with Ellevest, their algorithm creates a portfolio for you of stock funds and bond funds. The percentage of stock funds vs bonds funds, as well as which specific funds go into the portfolio, are all statistically proven to help you achieve your financial goals. For example, I have a goal to buy a house for my parents in 6 years. Ellevest crunched a lot of numbers and decided on a portfolio with 36% stock exposure and 64% bond exposure. And these are the specific funds they used.
Based on historical data, this gives me a 70% chance of having $119,783 or MORE to buy the house in 6 years. Those are pretty good odds! Worst case scenario, I have a little bit less than the cash I deposited. Best case scenario, I have way more money than I could have ever saved on my own because stock market gains did most of the heavy lifting for me. So Ellevest invests your money so that the downside of your investment risk is not terrible, but the upside can be very powerful. Again, in this video, I take you on a tour of my account and I explain how all of this works, so make sure to check it out.
2 – Next is one of my DON’Ts:
DON’T INVEST EMOTIONALLY
Let’s be really clear about this one fact: A stock market is a wealth-creating machine. The only reason people get burned is that they invest with their emotions vs with their logic.
Here’s what I mean: when the market is going up like this, the average uninformed person gets excited about the prospect of making money, so they buy here. They think because it’s been going up a lot, it will go up more. The problem is, they’re late to the train, because most things after going up for a while, go back down, even if it’s just temporarily. So when the market drops, they get scared and so they sell at a loss. Buying on greed, selling on fear. This is how MOST people do it.
When you invest with Ellevest, your money immediately gets invested into a portfolio that looks like this. Some of that portfolio is going to be in some pretty volatile markets: emerging markets like Brazil, India, China, and South Africa. These markets are high-growth, high volatility. So there might be a day when you log into your account and see that your portfolio is down 10%, 20% – during the 2008 recession it was even more than that. Naturally, you’ll feel scared. But you have to stay the course. DON’T act on your emotions. Ellevest invests your money in portfolios that are statistically proven to get you results. So stick with the plan and don’t flipflop when the market is going through a rough time. I always like to say, investing is like marriage: you can’t just come and go to avoid the bad times and only be around for the good times. You need to stay in it for the whole ride.
Over the long-term, the stock market goes up, but meanwhile, there’s going to be A LOT of ups and downs. Take a look at this chart: over shorter 5-year periods, it can be a pretty rough ride, but in the long run, the U.S. stock market is a wealth-creating machine. So if you ever feel scared, I suggest you wait at least 24 hours before you sell or withdraw your investments. This forces you to think through your decision before you do it, so you’re less likely to do anything that you’ll regret later.
3 – This is a perfect segway into my next DO:
DO HAVE CASH RESERVES
It’s much easier to stay rational about your investments when you have cash reserves. Cash reserves to pay rent next month, cash reserves to cover emergencies, cash reserves that enable you to be a little more detached from the day-to-day movements of your Ellevest account balance.
Not only that, but if something horrible happens like you get laid off from your job, you get injured, or whatever, you won’t have to sell your investments to cover your living expenses. Because if your timing is unlucky, it could be a really bad time to sell in the market – say right after a big downturn – and if you sell then, you won’t be invested anymore when the market recovers.
A good rule of thumb is to start with a $1000 emergency fund, and then work up to an emergency fund that could cover 3-6 months of living expenses. Depending on your situation, it varies, but just make sure you have enough cash on hand so that you won’t have to dip into your investments when there’s an emergency.
4 – And now, for tip #4:
DON’T SAVE FOR OTHER THINGS UNTIL YOU HAVE SOMETHING FOR RETIREMENT
I know you have all kinds of things you want to save for. You want to get out of debt, you want to buy a house, you want to splurge on a big trip, and you also want to save for retirement. It’s hard to know what to prioritize!
When you open an account at Ellevest, the first thing they ask you is what goals you’re investing for. They have options like Buying a house, saving up for a Big Splurge, Start your own business, Retirement, etc. etc. You can add up to 5 goals, and it’s tempting to just add all the things.
But if you have limited cashflow, keep in mind that you should always prioritize retirement. Why? Because you won’t be working in your old age, so you NEED to have investments to live off of. All the other non-retirement goals like buying a house, or starting your own business – you have your best earning years ahead of you in your 40s and 50s, so you’re gonna find a way to pay for those things eventually.
But retirement isn’t something you can find a way to pay for, because you won’t be bringing in a salary after you retire. Plus, there’s nothing cute about being a bag lady, ok? It just ain’t cute.
5 – Moving right along to my next DO:
DO CHOOSE THE IMPACT PORTFOLIO
As a women-focused company, Ellevest knows that women like you want to invest into things that you believe in. You want to use your money to support meaningful causes in the world. They totally get this, which is why they give you the option to invest in the IMPACT PORTFOLIO.
Now when you start investing at Ellevest, you have a choice between two portfolios, the CORE portfolio and the IMPACT portfolio. One of the funds in the IMPACT portfolio is the Pax Ellevate Global Women’s Leadership Fund (PXWIX). This fund invests in women-led companies, and it’s mission is “to help close the gender gap by investing in companies that value women’s leadership”. You know how I feel about women-run companies. We need more of that in the world, so investing in Ellevest’s IMPACT portfolio is a great way to vote with your dollars to support female empowerment and gender equality.
Another fund in the IMPACT portfolio is ESGD, which contains only companies that meet high environmental and social standards. So the Ellevest IMPACT portfolio helps me build wealth while also making sure that my investment dollars are supporting companies that make the world a better place.
Next time you add a goal to your Ellevest account, you can simply toggle over to the IMPACT portfolio option. So this means you’re invested in the CORE portfolio, and this means you’re invested in the IMPACT portfolio. As you can see, the estimated gains are pretty similar for both options, so socially responsible investing does not mean you have to give up good investment returns.
6 – Now for my next DONT:
DON’T TRY TO INVEST FOR TOO MANY GOALS AT ONCE
Especially if you’re just getting started, you don’t want to dilute your efforts by working towards a million different goals at once. Ellevest lets you add up to 5 goals, but that doesn’t mean you have to have 5 goals! Start with one or two of the MOST important, and put ALL your extra money towards those goals.
For example, if you have $200 extra every month to save & invest, then either put all of that towards your retirement investing goal, or put $100 into retirement, and the other $100 into a different goal. But if you have 5 different goals, and you put $40 towards each, it’s gonna take you AGES to achieve any of those 5 goals.
Wouldn’t you rather reach one goal faster, rather than waiting until you’re 100 years old to reach 5 goals? It’s much more motivating to see that you’re making meaningful progress towards one big thing, rather than really slow progress at multiple things.
So when you use Ellevest to help you reach your financial goals, remember to prioritize with one or two goals. Because if everything is important, nothing is important.
7 – This next one is a DO, and it’s a big one!:
DO GET YOUR FRIENDS INVOLVED
Ellevest offers a super sweet referral bonus when you refer a friend. When they join through your referral link, you get a $20 credit to your investment account, and they get $20 as well!
Everything is more fun when you’re doing it with your friends. It’s also not as scary, because you know you’re not in it alone. This is something I really internalized from running a women-only investing club in my city, which I founded about 2 years ago. We meet once a month to discuss investments, and when someone found a good stock idea, a group of us would buy it together. It gave us so much courage to know that we were in this together, and having a support network of like-minded female investor friends has been HUGE for me. So I really recommend getting your friends in on this.
Our society has such a hush-hush attitude around money talk, so telling your friends about how you’re investing for your future and getting them to join you will help heal the social taboos around money. Not to mention it will help your friends secure a better financial future for themselves too!
8 – Moving right along to the next tip:
DON’T PUT IN ALL YOUR MONEY AT ONCE
You know how when you’re about to go swimming in a really cold pool, it’s easier to dip your toes into the water, and then ease yourself into it as your body gets used to the cold? Well it’s the same thing with investing. Investing all your lifesavings into your Ellevest account at once would be like jumping into an ice cold pool. Some people are into the excitement or whatever, but I prefer to ease into it.
It’s a very different feeling to have money in the stock market vs money in a bank account. Money in the stock market is prone to short-term fluctuations, whereas money in a bank account doesn’t change at all. But money in the stock market grows, whereas money in a bank account only loses value to inflation. So it’s a different feeling, but you get used to it. I used to be scared too, but now I have tens of thousands of dollars in the stock market, and even if it’s going up and down thousands of dollars on any given day, I don’t worry because I know that in the long run, it’s headed in the right direction.
So if you have, let’s say, $5k to invest, start by putting in $100. Get used to the feeling, and then gradually add more every week until the full $5k is invested. Don’t go in with the whole $5k right away. I don’t want you to lie awake at night because you jumped in with too much money too soon.
9 – And now for the next DO:
DO AUTOMATE YOUR CONTRIBUTIONS
Make sure to set up a recurring deposit, so that a portion of your salary goes towards your Ellevest account with every paycheck. Ellevest lets you set up recurring deposits quarterly, monthly, and bi-weekly. So set it up so that a fixed dollar amount comes out of every paycheck, and schedule it for 1-2 business days after your paycheck gets deposited.
With every recurring deposit, Ellevest automatically invests the money into more stocks and bonds, so that there’s no downtime with your cash and your money is always working for you. What’s even cooler is that even if all you can manage is a recurring contribution of $10 a month, Ellevest can buy fractional shares of the ETFs so that you can still maintain a well-balanced investment portfolio with every new deposit.
Personal finance can get so complicated, but it’s actually really simple. If you just spend less than you earn, and you save & invest a portion of every dollar you make, you’ll be financially secure, and you might even become wealthy. The key is to automate it, so that the money leaves your checking account without you even noticing it, and then only spend what’s left. So if you haven’t already, go login to Ellevest now and set up that recurring deposit!
10 – Last but not least, here’s my final tip:
DON’T WAIT TO INVEST!!!
The longer you want, the more investment gains you’re missing out on. Time is money, LITERALLY.
A 30-year old who starts investing today, can be a millionaire at age 70 by investing just $200 a month.
But if the same person waits until they’re 40 to start investing, they’ll have to invest $525 a month in order to be a millionaire at age 70.
The person who waited 10 years has to contribute 2x as much of their own money to achieve the same financial result. Whereas the person who starts investing sooner can contribute less of their own money to achieve the same result, because most of their wealth comes from stock market gains. When it comes to investing, the power of compounding returns over time is truly one of the most amazing things you can give yourself.
MY FINAL THOUGHTS
I get it, investing can be intimidating. But Ellevest is a great app, and if you use it intentionally and you stay mindful of the do’s and dont’s that I covered in this video, you’ll get great results. The key is to set your goals, invest regularly, and keep your eye on the prize. Don’t invest with your emotions, get your friends involved, automate your deposits, and get yo’ money!