36-year-old self-made millionaire: This is ‘my No. 1 investing philosophy'—it's ‘a great way to get started'

Tess Waresmith had to learn about investing the way most people do — through trial and error.

The 36-year-old founder of Wealth with Tess began investing in her mid-20s and made a mistake right off the bat. Unsure of what to do with her investments, she trusted a financial advisor who charged her high fees and saddled her with an underperforming, overly complex portfolio.

It took some self-education to realize she could do better on her own, and once she took control of her investments, things flourished. Waresmith's portfolio currently tops $1 million, with the majority of assets spread among real estate, stocks and crypto.

For anyone looking to replicate her investing success, Waresmith suggests starting simple before slowly branching out into new arenas.

"My No. 1 investing philosophy is learn as much as you can about anything you're interested in and diversify," she says.

Here's what she means.

Start with index funds and diversify

Waresmith began by investing in index mutual funds and exchange-traded funds, which still make up the bulk of her stock portfolio.

Index funds are a favorite of investing pros for two reasons.

First, they're cheap. Because these funds merely aim to track the performance of a given market index, they don't need to employ a high-priced manager to run the portfolio. That means investors pay very little — in some cases 0.03% of assets or lower — in annual fees.

Plus, for new investors, they're an easy way to gain access to a large swath of the stock market. Buying a so-called "total market" fund, for instance, gives you exposure to 95% of the U.S. stock market.  

The case for broad diversification is simple. By owning a large variety of assets, you mitigate the risk that a downturn in any single one of them could derail your overall portfolio.

"Index funds are a great way to get started and to understand the basics of the stock market and to get your money invested in a really diversified, low-fee way," says Waresmith. "Once you've done that, I think it's a great jumping off point to continue to learn."

Much of Waresmith's outside investing is in real estate, but you don't need to begin buying property to broaden your horizons and diversify your portfolio beyond the basics of index funds.

"If you have a good portfolio and you want to take a little bit of money and learn, there's so much power in knowledge," Waresmith says. "I've never discouraged someone from exploring other opportunities outside index fund investing. You just got to know the risks."

The major risk is that some investments — particularly speculative ones, such as cryptocurrency — have the chance of producing harshly negative returns. That means you'd be wise to allocate no more than you're willing to lose on more experimental portfolio holdings.

"Most of my investments are in index funds, but I do have a small portion in crypto, and I do buy some single stocks or market-specific ETFs," Waresmith says. "I'm interested in women's health ETFs or cannabis ETFs, and so I'll invest a smaller portion in those."

The more you educate yourself about the workings of different corners of the market you're interested in, she says, the better. Just make sure you have a solid foundation first.

Expanding into riskier investments "is not something I would necessarily suggest to someone just starting out," she says.

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