Investing in stocks and bonds can be an intimidating and overwhelming task when you are just getting started. Most people get stock advice from their friends, family members, or even acquaintances and jump into it with a “hot stock tip” that will get them HUGE returns! Well, I’m here to tell you that usually leads to failure, frustration, and a negative outlook on investing in general. Instead, this guide is to help you get started on the right foot with realistic expectations of the stock market.
As a whole, historically the stock market in America always wins. Long term it is undefeated and consistently reaches new highs. Bottom line, if you stay in the market long term you will make money on your investment. You will definitely see crashes, dips, and corrections, but the goal is to not sell during those times. In fact, one of my favorite quotes is “the right time to buy stocks is now, and the best time to sell is never.” Timing the market, or trying to buy low and sell high, is the worst mistake you can make and leads to the most losses. The most expert and seasoned investors still cannot predict or time the market, so you as a beginner should not try to do so either. Instead a patient and long term approach is what consistently wins here.
That being said, let’s dive into exactly how to build your portfolio, and what I think is the best strategy for beginning investors. There are tons of online stock brokerages that make it simple and easy to purchase stocks now. Some of my favorites are Fidelity, Vanguard, and Robinhood. What I’m looking for in this category is ease of use, a simple user interface, and most importantly LOW FEES! One of the fastest and most frustrating ways to lose money and stunt your portfolio growth is to pay exorbitant fees to brokerages or fund managers. Most people overlook these fees as part of the process, but I urge you to make these fees a priority as the long term cost of fees are devastating (when you factor in compounding interest). Thankfully many of these sites, especially the ones I listed above, now have free trading options where there’s little to no commissions to trade.
Now we have to decide exactly what to purchase! This is the fun part, but also the scary part. My number one tip for this is to do your research! Look into the company you want to own (yes, you’re buying part of the company) and think hard about their future. Do you think the company will grow? Do they have money to invest and expand? Do you like the leadership team running the company and the direction they’re headed? These are all factors you should be thinking about when buying a stock. But realistically as a beginner you should keep it much more simple than this. Really you should be buying stocks you already know and use. Apple is a great example. Everyone knows Apple, they have huge cash reserves in the event of a downfall, and they put out quality products that we all know and love. Historically, Apple has been an excellent company to own! But I like to make it even more simple than this. As a beginner, the best option for you is to buy many many stocks, not just one. Diversification is safe, reliable, and many times more profitable in the stock market than choosing individual stocks. This goes back to what I said earlier, the stock market has always won. Many companies have failed and lost money, but as a whole, the market has always gone up. So why not own all the stocks in the market? As long as history repeats itself you will win too. This is the exact strategy I recommend for new investors (or the average investor that doesn’t have the time or desire to do all the research). BUY A LOW COST INDEX FUND! These funds mimic the market as a whole and invest in many many stocks. In essence, these funds are the stock market as a whole. Take for example the Vanguard S+P 500 ETF (VOO). This fund mimics the S+P 500 as a whole. If the S+P goes up, the fund goes up. Simple right? You pay one low cost to buy shares in the fund and the fund buys hundreds of stocks for you! You have built in diversification, low fees, and the safety and security of knowing that the S+P usually wins in the long term. There are tons of low cost index funds out there just like this one. I suggest you find one you like, and start dollar cost averaging (fancy talk for putting money in every month) right now. Buy and hold, and now you’re on your way to financial freedom.
Obviously I can’t cover everything in one blog post. In fact, I myself am still learning and I’ve been investing for over 13 years now. What I can tell you is this, FINANCIAL EDUCATION IS EVERYTHING. The more you know, the better decisions you’ll make and subsequently the more time and money you’ll save in the long run.
“This was a life changing book for me and it will be for you too.”
To start, I’d highly highly recommend the book by Tony Robbins: Money, master the game. This was a life changing book for me and it will be for you too. Read it, listen to it on audible, make your grandma read it to you, I don’t care how you do it, just consume it. Trust me, it’s worth it. After that, read the book Rich Dad Poor Dad by Robert Kiyosaki. Those two books changed the outlook and direction of my life forever and it will do the same for you. Cheers.
