How to Leapfrog the Biggest Investing Hurdle

The hardest part of investing is getting started...

People have lots of reasons why they don't invest... from a lack of knowledge to a lack of funds. We've heard every excuse.

Today, we hear from a reader who's ready to get started, but isn't sure how. If you haven't started investing yet, we hope our response will give you a boost.

Plus... answers to your questions about why caffeine in coffee is important and the safest oils to cook with.

Are you putting your money to work? Let us know at [email protected].

Q: While it is clear that the majority of people reading this publication are indeed retirement or near retirement age, there are a few lone wolves like myself (age 24) who are trying to get a head start on investing now.

The difficulty for me is that I am both a new investor as well as a small-time investor, meaning I don't have $50,000 or even $5,000.

So, do you have any advice for young investors who are trying to minimize management costs, and keep a balanced and diverse portfolio, all while learning a (hopefully not detrimentally expensive) lesson in risk management? Any advice will be greatly appreciated. – A.M.

A: Great question. This is one of the biggest hurdles that new – and, in particular, younger – investors face.

In the past, we've discussed the importance of diversification and asset allocation for successfully and safely building your portfolio. That's hard to do for someone who's just getting started and may have little money and experience. You don't want Wall Street to eat your profits with fees.

We can't give individual advice, but here are a few things to think about...

Contributing to a 401(k) is a quick and simple way to grow your investment account. Many employers match contributions up to a certain limit... These contributions are free money and the biggest, 100% safe return you will ever receive in the market.

For example... If you contribute 6% of your salary, and your employer matches half of that up to 3% – a fairly typical employer contribution – you've just earned an instant 50% return.

Of course, your options in a 401(k) are often limited, at least to start... Your employer chooses a plan manager and works out the investment options that will be included. Most plans have a decent range of funds to choose from, like mutual funds and index funds.

The benefit of investing through funds is that you get instant diversification, which is helpful for smaller investment accounts. But watch out for management fees. You should be able to get your fees to less than 1% if your plan has reasonable options.

Once you're ready to go out on your own, you can switch to a self-directed 401(k) and use it like a regular brokerage account (if your employer offers this option). And when you leave your employer, you can "roll" your 401(k) balance into an IRA, which is one of the best ways to truly take control of your investment options.

As we mentioned in our essay on compounding, the earlier the start, the more your wealth will grow over your lifetime. So even if you're not ready to start investing, make sure you're at least saving money.

We'll be writing more on this topic in the future, so watch your inbox.

Q: You mention the benefits from drinking two to three cups of coffee a day. Does it matter if it's decaffeinated? – M.S.

A: Coffee reaps a host of incredible health benefits... It lowers your risk of heart disease, dementia, Alzheimer's, skin cancer, and erectile dysfunction. (You can read our full issue on the health benefits of coffee here.)

Caffeine gives most of the benefits in a cup of coffee. And that's the case with the study we mentioned in our issue on Monday.

Researchers believe that the caffeine increases blood flow to the penis. Proper blood flow is essential for an erection.

So if you're drinking decaf, you won't get the results.

Decaf coffee does offer health benefits (just not regarding erectile dysfunction).

A 2012 study from the National Institutes of Health showed coffee drinking lowered the odds of dying from causes like heart disease, stroke, and diabetes. Study participants who drank two to three cups a day lowered their risk of dying during the yearlong study period by 10%... The outcome was the same whether participants drank coffee with caffeine or without.

If you do drink caffeinated coffee, don't drink too much. It can raise your blood pressure. And drinking coffee late in the day disrupts your sleep.

Do what I do and drink two to three cups of a medium- to dark-roast coffee per day. (I occasionally do half-decaf to avoid too much stimulation.)

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Q: In your "Take Two Tablespoons and Call Me in the Morning" article, you state to use extra-virgin for dipping etc. but to cook with refined olive oil. What is wrong with cooking with extra-virgin olive oil? – D.B.

A: Different oils have different "smoke points." As we mentioned, the smoke point is the temperature at which your oil starts sending up bluish smoke. The smoke is a breakdown of the fats in the oil into glycerol, which then breaks down further into poisonous acrolein.

Acrolein is a volatile molecule that is released by the burning of oils used in frying food. It's also released by burning gasoline, wood, plastic, and cigarettes. Acrolein not only irritates the lungs, but it can trigger asthma and cause other respiratory problems.

So the rule of thumb is – use oils that don't smoke until they reach higher temperatures to prevent the release of acrolein.

A study done at the University of Dayton measured the smoke points of four popular oils: coconut, safflower, canola, and extra-virgin olive oil:

Coconut = 374 degrees Fahrenheit (175 degrees Celsius)

Extra-Virgin Olive Oil = 383 degrees Fahrenheit (195 degrees Celsius)

Safflower = 413.6 degrees Fahrenheit (212 degrees Celsius)

Canola = 460 degrees Fahrenheit (238 degrees Celsius)

Unlike extra-virgin olive oil, refined olive oil has a higher smoke point of 406 degrees Fahrenheit.

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