Life Kit - Curious about investing? Here's what to know

Episode Date: December 2, 2025

Investing can be intimidating. How do you know which funds to choose? How do you diversify? How much should you be setting aside in a retirement plan versus a savings account or a brokerage account? This episode, we talk to Mary Childs, co-host of NPR's Planet Money, about these questions and more.Follow us on Instagram: @nprlifekitSign up for our newsletter here.Have an episode idea or feedback you want to share? Email us at [e-mail] the show and listen to it sponsor-free by signing up for Life Kit+ at plus.npr.org/lifekitLearn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

Hey, it's Mariel. Before we get to the show, I want to make sure you know it's a special day for NPR, because it's giving Tuesday. NPR celebrates this global day of generosity every year, but we've never had a year quite like this one. You've probably heard by now that federal funding for public media was eliminated as of October 1st. That means NPR is now operating without federal support for the first time ever. It's a big change and a big challenge, but it's one that we can overcome together. We are so grateful for the listeners who've already stepped up to donate, like Stephanie from Kansas, who says,

I frequently listen to Life Kit to jumpstart my morning. Everything I learn helps me practice productive habits. Stephanie, we are so glad to hear it. Please make your Giving Tuesday gift right now by signing up for NPR Plus. It's a simple recurring donation that gets you perks, like bonus episodes of NPR podcasts, and curated collections of Life Kit episodes by topic like health and parents. joining. Join us at plus.npr.org. Thanks again for your support and thank you if you're already an NPR Plus

supporter. All right, let's get on to the show. You're listening to Life Kit from NPR. I remember when I interviewed for my very first full-time journalism job at a corporate finance magazine. I actually tried to talk my future boss out of hiring me. I told her, look, finance isn't my thing. I was an English major. I don't know anything about this. She told me I could learn. And that was true. Over the years, I learned about accounting and taxes, city finances, macroeconomics, the Federal Reserve. I became fluent in a lot of these things. But I think it's worth noting that I felt like finance as a topic was just not accessible to me. Mary Childs felt like this too. I started out as a journalist covering this, I was mystified by it. And you start to just sort of

rhythmically understand that there's like capital flows. That just means money moving. And like different asset classes, that's just stuff you can buy. All this different terminology that like become second nature, but it can feel really foreign. Mary is a long time financial journalist and a co-host of the NPR show Planet Money. Anyway, I think this is how a lot of us feel, journalist or not, especially when it comes to investing, mystified, intimidated, ill-equipped. But we can't let that stop us from trying, because the truth is you can learn, and you should. The stock market can allow you to generate more money than if you just saved your money in a savings account or invested in safer assets like bonds.

And to kind of participate in broader economic growth. So as the economy around you is growing and more transactions are happening and businesses are growing, stocks are going to be going up and you want to be a part of that. You don't want to get left behind. On this episode of Life Kit, Investing 101 will talk about different types of retirement plans and their tax benefits, the various kinds of investment funds, and how to diversify. And we'll also get into brokerage accounts, which you can use to invest for the shorter term. A lot of people invest through a company-sponsored retirement plan, like a 401K or a 403B. Can you just explain what those are?

Those are both simply vehicles that have been created by legislation to have tax benefits to kind of allow employees to invest with a little bit of a boost from the tax regime. So a 401K is typically for employees of four. for-profit corporations, and a 403B is for employees of public education organizations and some tax-exempt nonprofits. And they let employees contribute money before paying taxes. So you get to defer your taxes until you start withdrawing. At the latest age 73, when you're retired and hopefully at that point, your pile of money is so much bigger because you have been investing in this plan this whole time. I can't give investment advice, but this is so huge if your employer offers a match program, like that's free money and you should take.

take it, and you should just ring every dollar you can afford to put into your 401k and get matched because that's just going to benefit you later. Okay. Yeah, I think this is how a lot of folks are introduced to investing. Just to go through some of the basics, what happens to a retirement plan when you leave a job? It just continues. So it will stay as you left it. It's like frozen in time, but it's just chugging along still being invested in the market. And so you got a new job, say, and they have a 401k plan or a 403B, and you can actually combine them. So there are all these, like, buttons you can push at Vanguard or Fidelity or whatever to roll your old retirement account into your new one. And it's pretty easy, I think. What are some other ways,

besides these company sponsored plans that people can invest for retirement? Yeah, there are a bunch of different options. There's a Roth IRA and there's a regular IRA. Basically, it just games when you pay taxes. Are you going to pay taxes today and then put all your money in it and never have to pay taxes again on it when you withdraw, when it's like, you know, compounded annually for the past 30 years and it's a bazillion dollars now, congratulations? Or do you want to pay taxes at the end when you have a billion dollars? All right, takeaway one. There are several different kinds of retirement investment accounts. You might be able to start one through your job. This is known as a 401k at a four-profit company or a 403B at a nonprofit.

And there's a tax benefit to these. You don't have to pay taxes on your contributions or on your earnings until you start withdrawing the money, generally when you retire, which could be great if you expect your tax rate to be lower at that point. Also, your employer might offer you a match, meaning if you put in, say, 3% of your salary, they will also put the equivalent amount of money into your account. That's free money, so take advantage of it. You can also start an individual retirement account or IRA. Often folks will have these if they're self-employed or if they want to roll over money from a company that they've left. Then there's an option called a Roth, and these can be individual retirement accounts or they can be employer-sponsored. The main difference is in how you pay taxes.

With a Roth, you can invest money that's already been taxed, and then you don't have to pay any taxes on the gains at any point. And you can withdraw your contributions at any time, even before retirement, without paying a penalty, which is not true for traditional retirement accounts. One thing I've heard is that it can help if you have the ability to invest in both a Roth IRA and a traditional IRA or 401K or 403B because the tax benefits are different. And so you're sort of hedging your bets there. Yeah. Okay, so let's say that your company does offer a retirement plan. Step one would be to tell your company to withhold a certain amount from your paychecks, right, before you pay taxes. and put it in that retirement account.

But after you do that, you have to choose the stocks and funds to invest in, right? Mm-hmm. Okay. Does that ever get done automatically? It actually can. The automatic stuff is generally because it's really important that people do invest in these, that employees do get their retirements up and running to some degree. And employers know that and have set up a bunch of nudges to make that happen.

Because this decision can be really hard, and it's really overwhelming. And you're like, why do I know if the Vanguard index fund is better or worse than the Black Rock Target Date Fund? Like, how am I supposed to, like, this is just a list of gibberish? Yeah, I think this is where a lot of people get tripped up because there are so many options, different fund names, with different acronyms. Completely. Let's walk through some common terms that you might see when you're starting to invest in funds. What is an index fund? Yeah.

So an index fund is just a basket of whatever things. you have chosen stocks or bonds that aims to track an index like the S&P 500. An index one simply tracks that index and doesn't necessarily make any decisions about like, oh, you know, I no longer like the look of Microsoft or Facebook and I shall sell them. No, the decisions are made automatically based on what the index has and what proportion of each stock is in that index. Now here's the Russian doll question within the question. What is the S&P 500? I love that.

It's just the 500 biggest or most important companies that are listed on a stock exchange in the United States. So it's just the broad market. It's kind of used as the benchmark that we all look to as to say, okay, how are stocks, broadly speaking, doing today or doing overtime. Okay, in comparison to an index fund, there are also funds that are actively managed by somebody, right? That's exactly right. So there are funds that have a person at the helm who is making buying and selling choices daily because they made some judgment. They exercised some discretion. They made a choice.

And that will not happen in a passively managed fund. Okay, another set of terms that people might see are mutual fund and ETF or exchange traded fund. Can you explain the difference between those? A mutual fund is like a pooled investment vehicle. You know, if I go out to buy a slice of an index where I go out to buy a slice of an index where I go out to buy. a slice of a company, a piece of stock. I don't have that much money. But if you and I pool our money and we pull in all of our friends, suddenly we have a lot more purchasing power, right? We can buy more. A mutual fund is just a pooled investment vehicle for a lot of different investors to be

able to kind of buy into this same portfolio that they each get a little slice of. Okay. And then what's an ETF? So an ETF that stands for exchange traded fund. The product itself is traded on in exchange just like a stock. And the reason people really like it is that they are tax advantage. They have a lot of tax benefits that make them a lot more attractive than, say, a mutual fund or other types of products that you might be able to buy. To ETFs also tend to have lower fees? Yes. Because of that tax advantage, ETFs are able to charge less money for their execution. And they are able to charge less because they're generally, passively managed. They are mostly index funds.

Mutual funds are almost always actively managed, managed by a person making decisions, a person who needs to be paid a salary. There are actively managed ETFs, but the general idea that we're talking about is probably going to be an index fund. No one's there making decisions. It's just an automatic thing. It can be executed basically automatically, and that can get pretty cheap. All right, takeaway two. Here are some common terms you might see when you're starting to invest. An index fund is a type of investment fund that goes up and down in value

according to the performance of a particular market index like the S&P 500 or the NASDAQ. And a market index is basically a collection of companies. The S&P 500, for instance, includes 500 large U.S. companies. Index funds are passively managed, so there's nobody at the helm making decisions about what stocks to buy and sell every day. The fund just follows the index, however that's doing. And then there are funds that are actively managed.

Somebody's deciding what to buy and sell based on conditions in the economy in the world. Mutual funds are generally actively managed, and they have higher fees because of that. But they don't necessarily perform better than index funds. ETF or exchange traded funds are typically passively managed and have lower fees. And you do want to minimize the fees you pay because those can really add up over time. So I know there are a lot of funds out there, and you could probably make a case for any individual one, but which of these tend to perform better over time? I think the general consensus is that for individual investors, people like you and me who are

not spending all of our time researching companies and getting an edge on our competition and finding out what companies are going to outperform in the future, people like us are often best situated by just buying an index fund. Like, we're not going to beat the market. We don't have an edge. No offense to us. It's okay. We're doing other things.

Is it a reasonable choice to just put all of your money in your retirement account in one index fund that tracks the S&P 500? I would maybe put some in bonds, you know, just try to jazz it up a little bit so that all my eggs are not in one literal basket. But that's probably fine. Okay, so, I mean, let's talk about what it means to have a diversified portfolio. Like, why do people say that you should diversify and what does that actually mean? of a diversified portfolio is just the idea that a basket of things with different risks, those risks can balance each other out. So like the stock market might have a really terrible day one day, but bonds often go up in price when stocks go down. So if you're all in on the

stock market, you're going to lose money. If you're balanced between the stock market and the bond market, you're going to lose a little less money than you would have in the initial scenario, just as a simple example. Okay. Well, let's talk about bonds because this is a common way that people try to not put all their eggs in one basket, as you said. Yes. What are bonds and why do people invest in them as part of a retirement plan? Yeah. So when a company borrows money, they are issuing a bond.

And that's just a promise that they will pay back that money they borrowed plus periodic interest payments for a given amount of time. And you as the investor, you are lending out your money and in return you get those interest payments. And that's the kind of compensation you get for taking the risk of lending to the company. And the riskier the perception of the company, the higher that yield will be, the higher that compensation. And bonds are safer because they are higher in a company's list of corporate promises than stocks.

So ostensibly, unless the company goes bankrupt, you're going to get that money back plus interest. And that's kind of the comforting promise of bonds versus the risk of stocks that, you know, your money can just kind of totally evaporate. How do bonds tend to perform compared to, say, a high-yield savings account? Oh, great question. So a high-yield savings account, when interest rates are high, they yield more, right? So they track how much where the Fed is setting interest rates. And as a result, you as an investor can get money just for saving, which is amazing. And bonds are supposed to perform better than that. So because you're taking the risk of lending to a company, a company which is going to then go and do business that you aren't managing, right? That is a risk and you're being compensated for that risk with the interest payments. And so the interest you're getting on your savings is literally, just the bank saying, thank you so much for your business. I appreciate having this cash so that I can lend it out. Versus when you buy a bond, you're making the choice to lend to that company and take on that risk. So it's just sort of a question of who's managing it and what risk you're getting paid for. If I wanted to diversify my portfolio or not put all my eggs in one basket, however we want to say it, what percentage of my money should be in bonds? Like what do people recommend? The traditional recommendation, the generic recommendation, which doesn't take into account who you are as an investor. That is for a 60-40 allocation portfolio. So that's for 60% stocks, 40% bonds.

And that means you're taking some risk. You're a little bit tilted toward risk, but you are not risking at all. Takeaway 3. In general, it's a good idea to diversify your retirement portfolio and to not just hold stocks. A common way to do this is to buy bonds. They often perform well when stocks go down. So if you have these in the mix, the market downturns won't hit you as hard. That said, bonds don't pay the same high returns that you can get from stock funds.

So if you want the opportunity to make the most money possible and you have a long time horizon, you might choose to not have bonds or to have a very small amount. Does that change if you're 22 years old or 30 years old? Or, you know, you don't necessarily need to have these really. safe investments if you have the benefit of lots and lots of time. Yes. One thing that I think cannot be underscored enough is the benefit of time. So if you're younger, you can afford to lose money, basically.

You can still generate more money by working. You're going to be able to recover and to kind of fill in any holes if the stock market is to go down. And also, if you stay invested and you don't sell, which we know you're not supposed to sell, the stock market generally comes back. that means that your portfolio will bounce back. Just don't look at your portfolio. Don't open the website because it's going to look really ugly. You're going to be tempted to sell, and that's a mistake. And then as you get older, you want to make re-evaluations.

You want to kind of take a step back and say, okay, what do I need to save and what do we need to have for sure in order to have a comfortable retirement in order to be able to make my rent or mortgage payments and afford food and afford whatever my lifestyle is? and that means that your priorities turn from generating money to protecting your money. And so that means you want to go from a riskier or something or other like stocks to a safer, something rather like bonds. We'll have more investing basics with Mary Childs of Planet Money after the break. What if you don't want to invest in funds that support certain industries, like for ethical reasons? Are you sacrificing performance? This is such a good question. It is a hard one.

You can slice it every which way, and you can find a study that will support whatever your biases, whatever thesis you have might be. But studies have shown that ethical investing or environmental, social, and governance funds, funds that focus on doing better by those metrics, have performed at least as well as traditional portfolios. There is a case to be made for investing in funds that will engage with management and say, hey, we as your shareholders, I own this much percent, and I'm concerned about your use of this or the number of worker injuries or fatalities in production. All of these different metrics that you as an investor can actually say, hey, we care about this thing.

Can you do better? Can you fix it? And the company has to listen because you are a part owner of that company. These funds would generally, they would have to be actively managed, right? Yes and no. It, again, depends on what you want. There are plenty of products that are passively managed, that are their own kind of indices that are like, okay, we are the S&P 500, but minus fossil fuels. Or there are a bunch of different options that are like that. Okay, that's good to know. We've been talking about retirement investments mainly, but there are other ways to invest for the shorter term. And a big one is, to put money in a brokerage account. Can you just explain what is a brokerage account and how is it different from like, let's say, a 401K? Yeah. So a brokerage account is just a little place for you to put

your own money that is not pooled with someone else's money. And you can just invest directly in the market that way. So you would open a, you know, a Schwab account or something like that. And you would have your own little pile of money and you would buy a fraction of a share or a share of a smaller company and participate directly in the stock market or bond market that way. And you can still buy into ETFs and mutual funds that way as well, but there's less of a tax benefit and there's, you're obviously not getting your beautiful employee match. The thing is that if you're putting money in a brokerage account, it's not as long of a horizon. Exactly. So this is money you can access at any time. You don't have to wait until you're retiring as you would in your

401k or 403B account. So given that, like, If you know, all right, like, I've had this money in a brokerage account for a few years. It's been growing. I want to buy a house in one year. Do you shift your investments in that account to a fund that seems less risky? Or do you up the percentage that you have invested in bonds? Everything is relative. So you have to look at the landscape around us and what the market's been doing and what other people expect and how they feel. And this is, of course, where it gets really hard. because no one has a crystal ball. But the idea is like, okay, if you think that we're in an AI bubble and there's a crash coming in the next three to six months, don't put your money in stock market, you're going to then go put your money in a bond fund or real estate or something else that separates you from the AI crash that you think is necessarily coming. And then you may not make 10% off what you invested in, but you're not going to lose the 30%

that you think is coming. Right. So it's that kind of relative value judgment that, you know, anytime you say something is cheap, there's an implied compared to what. Anytime something's expensive compared to what. Okay, takeaway four. In this episode, we've mostly talked about retirement accounts, but there are also ways to invest for the shorter term. One way is to open up a brokerage account, and you might have a different strategy for the investments in this account than in your retirement plan because you're looking at a shorter time horizon. I think it's helpful to remember that there isn't one right way to go about this. There's no one right answer.

And nobody knows, but we have some general guidelines that have seen success over time. Yes. There are things that we can learn from research and from history, and that can help insulate us from mistakes. One other note here, don't hold your emergency savings in a brokerage account. You want to put those in an FDIC insured high-yield savings account where they won't fluctuate with the stock market. Okay, time for a recap.

Takeaway one. There are several different kinds of retirement investment accounts with varying tax benefits, 401Ks, 403Bs, IRAs, and there are Roth versions of all of these. Also, if your employer offers a retirement plan match, take advantage of that. Takeaway two, an index fund is a type of passively managed investment fund that goes up and down in value according to the performance of a particular market index, like the S&P 500 or the NASDAQ. And then there are funds that are actively managed, meaning somebody's deciding what to buy and sell based on conditions in the economy and in the world. Mutual funds are generally actively managed and have higher fees because of it. but they don't necessarily perform better than index funds.

ETFs or exchange traded funds are typically passively managed and have lower fees. And you do want to minimize the fees you pay. Takeaway three, a common way to diversify is to buy bonds. They often perform well when stocks go down. So if you have them in the mix, market downturns won't hit you as hard. But bonds don't pay the same high returns that you could get from stock funds. So if you want to give yourself the opportunity to make the most money possible, and you have a long time horizon, you might choose not to hold bonds at all, or to hold a very small amount.

And takeaway four, once you have your emergency savings in an FDIC insured bank account, consider a brokerage account to grow money that you'll want to access before retirement. By the way, you may have a different strategy for the investments in this account than the ones in your retirement plan because you're looking at a shorter time horizon. All right, and that's our show. But before we go, do you have a friend that you're always talking about personal finance with? Think they'd like this episode? Why not share it?

Spread the word about Life Kit. This episode of Life Kit was produced by Margaret Serino. Our visuals editor is Beck Harlan and our digital editor is Malika Gereeb. Megan Kane is our senior supervising editor and Beth Donovan is our executive producer. Our production team also includes Andy Tagle, Claire Murray Schneider, and Sylvie Douglas. Engineering support comes from Quasi Lee. Fact-checking by Tyler Jones. I'm Mariel Segar.

Thank you for listening.