The Prosperity Protocol

Issue #10 – June 10, 2025

Editor’s Note: Welcome to the tenth issue of The Prosperity Protocol!

I can't believe we've reached double digits together! Your engagement with our side hustle issue was fantastic—so many of you are already taking action to increase your income. It's incredible to watch this community grow and take charge of their financial futures.

This week, we're tackling what might be the most important topic for long-term wealth building: First Steps to Investing. If you've been following along with our previous issues on budgeting, banking, and increasing income, you're ready for this next crucial step. Even if you've never invested before, by the end of this issue you'll have a clear roadmap for getting started.

Breaking Through the Investing Barrier: From Intimidating to Inevitable

Have you ever felt like investing is something that "other people" do—people who are smarter, richer, or more financially sophisticated than you?

I used to feel exactly the same way. For the first two years after college, I kept my savings in a regular bank account earning practically nothing, thinking I needed to understand the stock market completely before I could start investing. I was waiting to feel "ready," but that day never seemed to come.

The breakthrough happened during a conversation with my older cousin at a family gathering. She casually mentioned that her "boring" 401(k) had grown to over $50,000 in just five years of automatic contributions. Meanwhile, my $8,000 in savings had earned about $30 in interest over two years.

That's when it clicked: investing isn't about being a financial genius or having perfect market timing. It's about consistently putting money into assets that grow over time, even when—especially when—you don't feel like an expert.

I opened my first investment account the following Monday with just $500. That small, imperfect start led to an investment portfolio that's now worth more than my annual salary. The magic wasn't in perfect strategy; it was in simply beginning and staying consistent.

Your First Investing Blueprint

Let's break down how to start investing, whether you have $50 or $5,000 to begin with:

1. Choose the Right Investment Account for Your Situation

Before you can invest, you need to open the right type of account. Each serves different purposes:

401(k) or 403(b) - Start Here If Available:

• What it is: Employer-sponsored retirement account with pre-tax contributions

• Key benefit: Employer matching (free money!) and immediate tax savings

• Contribution limits: $23,500 in 2025 (plus $7,500 catch-up if over 50)

• Best for: Anyone with employer matching available

• How to start: Contact your HR department or benefits administrator

Roth IRA - The Flexibility Champion:

• What it is: Individual retirement account funded with after-tax dollars

• Key benefit: Tax-free growth and withdrawals in retirement, plus flexibility for early withdrawals of contributions

• Contribution limits: $7,000 in 2025 (plus $1,000 catch-up if over 50)

• Best for: Young investors, those expecting higher future tax rates, anyone wanting flexibility

• How to start: Open directly with brokerages like Fidelity, Vanguard, or Schwab

Traditional IRA - The Tax Saver:

• What it is: Individual retirement account with tax-deductible contributions

• Key benefit: Immediate tax deduction, tax-deferred growth

• Contribution limits: Same as Roth IRA

• Best for: Those who can't contribute to employer plans and want current tax savings

• How to start: Same brokerages as Roth IRA

Taxable Brokerage Account - The No-Rules Option:

• What it is: Regular investment account with no contribution limits or withdrawal restrictions

• Key benefit: Complete flexibility for any financial goal

• Contribution limits: None

• Best for: Goals beyond retirement, those who've maxed other accounts

• How to start: Open with any major brokerage firm

Priority Order for Most People:

1. Contribute enough to 401(k) to get full employer match

2. Max out Roth IRA ($7,000 annually)

3. Return to 401(k) to increase contributions

4. Open taxable brokerage account for additional investing

Sarah, a 26-year-old teacher, started with this exact approach: "I began by contributing just enough to get my full employer match—4% of my salary. Then I opened a Roth IRA and automated $150 monthly contributions. It felt like such a small amount, but after 18 months, seeing that balance grow to over $3,200 (including some growth) made investing feel real and exciting."

For Beginners: Start with employer matching if available, then open a Roth IRA for its flexibility and tax-free growth.

For Intermediates: Optimize your account strategy based on current tax situation and long-term goals, potentially using multiple account types.

2. Master the Investment Basics Without Getting Lost in Complexity

You don't need to understand every investment option to start building wealth:

Index Funds - The Perfect Starting Point:

• What they are: Funds that automatically buy all stocks in a market index (like the S&P 500)

• Why they work: Instant diversification, low fees, professional management

• Risk level: Moderate (follows overall market)

• Expected returns: Historically 7-10% annually over long periods

• Best options: FXAIX (Fidelity), VTSAX (Vanguard), SWTSX (Schwab) for total market exposure

Target-Date Funds - The Autopilot Option:

• What they are: All-in-one funds that automatically adjust from stocks to bonds as you approach retirement

• Why they work: No decisions needed, automatically rebalances, becomes more conservative over time

• Risk level: Starts aggressive, becomes conservative automatically

• Best for: True beginners who want one-fund simplicity

• How to choose: Pick the fund closest to your planned retirement year

Bond Funds - The Steady Income:

• What they are: Funds that invest in government and corporate bonds

• Why include them: Reduce portfolio volatility, provide steady income

• Risk level: Lower than stocks, but not risk-free

• When to consider: As you get older or want to reduce portfolio volatility

• Basic options: Total bond market funds from any major provider

Simple Portfolio Combinations:

• Ultra-simple: 100% target-date fund

• Beginner: 70% total stock market fund, 30% total bond market fund

• Intermediate: 60% US stocks, 30% international stocks, 10% bonds

• Aggressive (young investors): 90% stocks, 10% bonds

Marcus, who was overwhelmed by investment choices, found success with simplicity: "I was researching individual stocks and exotic investments for months without starting. Finally, I just put everything into a target-date fund. Two years later, my account has grown 23% and I haven't had to make a single decision. Now I understand my risk tolerance better and I'm gradually building a more sophisticated portfolio."

For Beginners: Start with either a target-date fund or a simple two-fund portfolio (stock index + bond index) to learn how investing feels.

For Intermediates: Build more sophisticated allocations with international exposure and sector considerations, but maintain the low-cost index fund foundation.

3. Develop Winning Investment Habits and Avoid Common Mistakes

Your investment success depends more on your behavior than your fund selection:

Essential Investment Habits:

• Automate contributions: Set up automatic transfers so investing happens without decisions

• Invest consistently: Continue contributing regardless of market conditions

• Ignore short-term volatility: Don't check account balances daily or make emotional decisions

• Increase contributions over time: Raise your investment rate with salary increases

• Reinvest dividends: Let your returns compound automatically

Critical Mistakes to Avoid:

• Trying to time the market: Don't wait for "perfect" entry points—time in the market beats timing the market

• Picking individual stocks: Until you have significant experience and knowledge, stick with diversified funds

• Panic selling during downturns: Market drops are normal and temporary; selling locks in losses

• Chasing hot investments: Last year's best performer is rarely next year's winner

• Paying high fees: Expense ratios above 0.5% are generally unnecessary for basic investing

Dollar-Cost Averaging in Action: Instead of investing a lump sum, invest the same amount regularly regardless of market conditions. This approach:

• Reduces the impact of market volatility

• Removes the need to time purchases

• Builds discipline and consistency

• Often results in better average purchase prices over time

Jennifer learned this lesson during market volatility: "I started investing right before a market correction in 2022. My first $500 investment immediately dropped to $430, and I was panicked. But I kept making my monthly $200 contributions throughout the downturn. When markets recovered, those 'bad timing' purchases at lower prices became my best performers. The key was continuing to invest when it felt scary."

For Beginners: Focus on building the habit of regular investing rather than optimizing every detail. Consistency trumps perfection.

For Intermediates: Refine your approach based on experience, but maintain the core principles of automation, diversification, and long-term thinking.

Beyond the Basics: Advanced Starting Strategies

The "Roth Conversion Ladder" Strategy For those with traditional 401(k) accounts, consider gradually converting funds to Roth accounts during lower-income years to maximize tax efficiency over your lifetime.

Employer Stock Purchase Plans (ESPP) If your employer offers discounted stock purchases, these can provide immediate returns, but don't let employer stock become more than 5-10% of your total investment portfolio.

Health Savings Account (HSA) Triple Tax Advantage If you have access to an HSA, maximize contributions and invest the funds for retirement. HSAs offer tax deductions, tax-free growth, and tax-free withdrawals for qualified expenses—including medical expenses in retirement.

Rebalancing Strategy As your portfolio grows, periodically rebalance to maintain your target allocation. This forces you to sell high-performing assets and buy underperforming ones—a systematic way to "buy low, sell high."

Money Term Made Simple: Expense Ratio

Expense Ratio is the annual fee charged by mutual funds and ETFs, expressed as a percentage of your investment. For example, a 0.75% expense ratio means you pay $7.50 annually for every $1,000 invested.

Why this matters for beginners:

• Expense ratios compound over time, significantly impacting long-term returns

• A 1% difference in fees can cost tens of thousands over decades

• Index funds typically have expense ratios of 0.03-0.20%

• Actively managed funds often charge 0.50-1.50%

When comparing investment options, lower expense ratios generally mean more money stays invested and working for you. For basic index funds, anything above 0.25% is typically unnecessary.

What's Happening in Markets This Week (June 9-13, 2025)

The markets have been rebounding over the past few weeks and we are likely going to start seeing some consolidation as the S&P is closing in on highs. On a similar note, small-cap stocks have shown solid relative strength with the key Russel 2000 near 3-month highs. Lastly, we are waiting to see how the recent jobs data could impact the potential for the Fed to cut rates.

Key events to monitor this week:

• Wednesday: CPI

• Thursday: Weekly Jobless Claims and PPI

• Friday: Consumer Sentiment

For new investors, remember that market volatility and economic uncertainty are normal parts of investing. These conditions often create better long-term buying opportunities for those who invest consistently regardless of short-term headlines.

Your Questions, Answered

Question from Taylor K.: "I have $2,000 saved and want to start investing, but I'm worried about losing money if the market crashes right after I invest. Should I wait for a better time to start, or is there a way to reduce this risk?"

My take: This is probably the most common question I get from new investors, Taylor, and your concern is completely understandable—nobody wants to see their hard-earned money lose value!

Here's the key insight: while you can't eliminate short-term risk, you can dramatically reduce it through your approach and timeline. Here's how:

Use dollar-cost averaging instead of investing everything at once:

• Invest your $2,000 over 4-6 months ($400-500 monthly) rather than all at once

• This spreads your purchase across different market conditions

• If markets drop after you start, your future purchases benefit from lower prices

Focus on your investment timeline:

• If you won't need this money for 5+ years, short-term market movements matter much less

• Every major market crash in history has been followed by recovery and new highs

• The longer your timeline, the more time you have to recover from temporary setbacks

Start with your safest account types:

• If you have employer matching available, start there (immediate 50-100% return)

• Consider a Roth IRA for flexibility—you can withdraw contributions penalty-free if truly needed

Build gradually:

• Start with a conservative allocation (like 60% stocks, 40% bonds) until you're comfortable

• Increase your risk tolerance as you gain experience and see how you react to volatility

Remember: the biggest risk isn't a market crash after you invest—it's inflation eating away at your purchasing power while your money sits in low-yield savings accounts. Over the past 20 years, even investors who started at market peaks and endured crashes have generally done much better than those who kept everything in savings accounts.

The perfect time to invest is when you have money you won't need for several years and a plan to invest consistently over time.

Tools That Make Investing Easier

Starting your investment journey is easier with the right platforms and tools:

1. Fidelity – For Commission-Free Investing
Fidelity offers commission-free stock and ETF trades, no account minimums, and excellent index funds with ultra-low expense ratios (some as low as 0.015%). Their customer service is top-notch, and they offer both robo-advisor and self-directed options. Perfect for beginners who want flexibility and low costs.

2. Acorns – For Micro-Investing
Acorns automatically invests your spare change from everyday purchases and allows you to set up recurring investments starting at just $5. Their basic plan costs $3/month but includes investment, retirement, and checking accounts. Ideal for beginners who want to start with very small amounts while building the investing habit.

Special deal: Use code INVEST10 for a $10 bonus investment after your first round-up!

3. Empower – For Investment Tracking
Empower (previously Personal Capital) provides free tools to track all your investment accounts in one place, analyze your asset allocation, and monitor fees across your portfolio. Their basic service is completely free and helps you see the big picture as your investments grow across multiple accounts.

All three platforms offer mobile apps and educational resources to support your investing journey.

Three Things to Do This Week

1. Determine your investment account priority based on your situation—employer matching, Roth IRA, or taxable account—and research 2-3 brokerage firms to compare features.

2. Calculate how much you can invest monthly by reviewing your budget and identifying money that can be redirected from savings to long-term investing.

3. Open your first investment account with a small initial deposit, even if it's just $25-100 to get started. Taking action creates momentum and makes the process feel real rather than theoretical.

Let's Keep the Conversation Going

Want more detailed guidance on investment strategies? Check out my Medium publication "Investor's Handbook" where I explore these topics in greater detail.

Visit My Medium Publication → Here

Have you started investing or are you planning to begin? Reply to this email with your experience or questions—I'd love to feature reader journeys in our next issue.

Found this helpful? Share it with a friend who might benefit from starting their investment journey. New to the newsletter? Subscribe below to join our growing community.

Subscribe to The Prosperity Protocol → Here

Remember – the best time to start investing was yesterday. The second-best time is today.

Until next week,
Todd

This newsletter is for educational purposes only and doesn't constitute investment advice. Always do your own research and talk to a qualified professional before making investment decisions.