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TFD'S resident investing expert Amanda Holden, aka Dumpster Doggy, answers some of our biggest investing questions, such as: Should I invest for short-term goals, like a down payment for a house? What's the difference between an index fund and an ETF? And how should I get started investing as a college student?

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Hi, TFD. Amanda Holden here. Some of you know me as the Dumpster Doggy.

And I help out around TFD when it comes to all matters related to investing. In fact, I used to work in investment management. But I quit.

Turns out, helping rich men get richer made me want to die inside. And so I'm taking over Chelsea's show to answer your questions about investing that you submitted over Instagram. But before I dive in, please do know that none of this constitutes personalized investing advice.

I don't know you. All right. Well, let's jump in.

So first question is, as a college student preparing to enter real life, what would be a good investment considering a college student budget? Well, first of all, a single proud tier rolls down my cheek. No matter what you decide, your bad-ass granny future self who's going to be eating baguettes and drinking wine with your significantly lover younger in Paris, retired, thanks you.

Thank you for getting started so young. This is not something that you'll regret, I promise you that. If I had to pick just one thing for you to invest in, it would not be Tesla stock.

It wouldn't be any investment in the stock market, even though I love, it would be an investment in you. Invest in your ability to earn more. Build the skills that can take you to the next level of income.

Yes, investing in the stock market is great and necessary, but it's hard to invest when you don't have the money to invest. For most young people, in my opinion, your most important investment is your salary and your career. If you're like, OK, well, that's not really what I was asking for.

Then, yes, you can consider investing in the stock market as well. The stock market is a really popular investment for young people because it offers a higher chance at those investment returns over time. But that higher chance at reward does come with a parallel risk.

And that risk is volatility. Volatility is nothing more than stock prices experiencing these really high highs and then these really low lows. Think of it as like a super brutal hangover, which you're 18.

Maybe you don't know about those yet. Lucky. To invest in the stock market, you can either buy shares of a company that you think will continue to be essential and profitable or you can buy a stock index fund, which essentially just invests you in the entire stock market.

Now, if you do decide to go this route, I've got a couple rules for you. Number one, be prepared for volatility. It is just a part of the game.

Number two, only invest money that you are OK to lose. And number three, think long term. Think of a stock as a long-term investment in a business because that's what it is.

All right. Next question two and three and four. I got this question in multiple ways.

Where do you put money that you're saving for a down payment within a three-year timeline? I also got, I'm buying a home in the fall. Where should the money go?

This one was my favorite. Our short-term one to three-year investment plan's useless. All of these questions get at the same idea, which is I've got money that I want to use in the next couple of years.

Should I be saving that money in cash or should I invest it? And usually people are talking about investing in the stock market. And ultimately, this is going to be up to you, how much risk you are willing to take and how flexible you are willing to be with the timing.

And what I mean by that is if the stock market crashes, are you willing to wait it out? We know that the stock market is up the majority of the time. So about 70% of the time, but it can turn angry fast.

Between 2008 and 2009, the US stock market specifically lost more than 50% of its value. And so that's what you have to reconcile. Is the potential upside of what you could earn in the next couple of years worth it to know that your down payment could be cut in half by over 50% over the next six months?

To invest your money short term is to be beholden to the timing of the market, not your own personal timing. Most people probably wouldn't want to deal with that or to take that risk. I know that I wouldn't.

I would just keep that money in a high-yield savings account or some other cash option and call it a day. So next question. I contribute 8% to my 401k.

I got a big raise. Should I keep contributing 8%? Well, first of all, congratulations.

I am virtually spraying you with champagne right now. Ssshh. Next, do you have a fully stocked emergency fund?

Are all of your credit cards paid off in full? If yes, then I would say up that percentage contribution to your 401k or consider doing additional investing outside of it. It is pretty standard personal finance advice to aim to save about 20% of your total income.

Save and invest. And I know, 20% sounds like so much. But you've already got a great start with 8%.

And now, with this big raise, hopefully you've got a little bit of additional bandwidth that you can keep pumping up that amount. I think that it's helpful whenever you're doing retirement planning or just thinking about financial independence in general, is to remember that retirement is not an age. It's an amount of money saved.

Ain't nobody going to serve retirement up to us on a silver platter when we're 65. We're not Europeans. And then I'm not saying that it's good.

I don't think that it should be this way. I think there should be a much more humane system for saving and investing for retirement. But unfortunately, it's not the one that we as Americans are in.

And so you get to retire. You get to walk away from work when you have enough resources to do so. That means that we control the point at which we are financially independent by our savings rate.

It's kind of just a little pulley system. If we want to retire sooner, for example, if we want to retire at age 40, then we need to be saving like 50% or 60% of our income. If we only save 10% of our income, that we won't get to retire until much later.

You know, even 20% is kind of a guess as to the amount of money that you need to save and invest for normal retirement age. And why is 20% a guess? Because nobody can tell the future.

I mean, think of the uncertainties that we have to contend with. First of all, investing returns are not necessarily a foregone conclusion. We can't count on them.

Next, anything could happen in life. There could be a death in the family, a divorce, a significant job layoff. And also, I don't even know how old you are, right?

Like, I can't tell somebody that 20% is the right amount to invest when they're 25 and when they're aged 65. Like, that makes no logical sense. So when somebody asks me, should I save X amount?

Should I save X amount? My answer is always the same. We just need to save and invest like hell.

Not because I think that saving is easy. Not because I think that saving is the morally right thing to do. We just have to save and invest like hell because we don't know what the future holds and also because we happen to live in a country that does not have our back when things get tough.

OK. So next question. Should I use ETFs or index funds?

Woo. OK, so this is another one that I get a ton of confusion on. And so what do you say we just clear it all up at once and for all.

Let's talk about what is a mutual fund versus what is an exchange traded fund and how do index funds fit into the mix? First, an investment fund. A fund is really nothing more than a big old basket of some other investment type.

So it could be a big old basket of stocks, of bonds, of real estate holdings, or some combination. And you've probably heard me use my bouquet example before. Whereas buying a single stock is like buying a single stem, a single rose.

Buying a fund is like buying a whole bouquet. Got it? OK.

Good. So next, we're going to make three distinctions about investing funds. So distinction one, funds are built in one of two ways.

They are either mutual funds or exchange-traded funds, or ETFs. Really, it's all about how they're constructed. Really, they just trade differently.

Mutual funds are older. They've been around forever. Exchange-traded funds, trade on an exchange, like a stock, hence the name, and they're faster.

And they're newer. Really, it doesn't make that much of a difference unless you are going to be a trader, which 99% of you are not going to be. So let's continue with that bouquet example.

It would be like buying one bouquet that is wrapped up in cellophane and buying another bouquet that is wrapped up in paper and twine. Really, it's just the wrapping. And which you ultimately use is probably going to depend on context.

What do you have available to you? What does the guy down at the flower shop use to wrap his flowers in? But no matter whether you use a mutual fund or an ETF, what is more important-- and this is your distinction number two-- is what is being held inside?

Is this a fund that holds stocks? Is it a fund that holds bonds? Because ultimately, that is what you are going to be invested in.

So back to our bouquet example. The decision to buy a bouquet of sunflowers versus the decision to buy a bouquet of peonies is significantly more important than whatever the bouquet comes wrapped up in, right? And it's the same idea with funds.

The most important thing is going to be what is held inside. And your third distinction is index funds versus actively managed funds. Think of this as a choice as to who is managing what goes inside that fund.

And this is where people get a little bit tripped up, understandably. So first of all, mutual funds can be either actively managed or index. ETFs can be either actively managed or index, although they are usually index.

Here's how each works. An index fund is going to invest you in the entire stock market or some representative sample of it so you get a mix of everything. They are low cost, super easy peasy, and you are essentially paying no manager.

There's nobody else involved. The counter to the index fund is the actively managed fund. Here, there is going to be a manager that's making a decision about what the best investments are to hold inside of that fund.

And you are going to be paying them for this service, whether or not they perform better than the index average. So let's do our bouquet example one last time. So the index bouquet holds a representative sample of all the flowers on the farm.

The actively managed bouquet is comprised of the flowers that some random dude in an expensive suit who you will never meet chooses what he thinks are the bestest and the most prettiest flowers to go into the bouquet. And you will be paying him a fee for this service. So whether you are using mutual funds or ETFs, both can be totally great.

The more important questions are, what's being held inside that fund, and then is it index or is it actively managed? Otherwise, just choose one, get to it. The more important thing is actually doing the work of investing.

And I know that that was a really big answer. So why don't we go ahead and call it a day today. Thank you so much for sending in your questions.

Come find me @dumpster.doggy for more investing education. If you want to learn even more about your different investing options and which options make the most sense for you, I would love to have you in my Invested Development course. It's 15 super fun video lessons, over 11 hours of education, and then office hours with me.

You can ask me any questions about any of the material in the class. We'll link to the course below, and I'm offering a special discount through TFD. Thank you so much everybody, and have a wonderful rest of your month.