Has everyone around you been talking about investing and the markets? Yet, you still feel confused about how to invest? 🤯 That’s exactly how I used to feel, which is why I’ve created this guide. My previous article explained key technical terms that will make you a smarter, more knowledgable investor. This article will help you apply that knowledge so you can start investing today. Disclaimer: nothing here is financial advice, just my personal thoughts/learnings.
Part 1: Savings vs. Checkings Account (read here)
Part 2.1: Investing - Definitions (read here)
Part 2.2: Investing - Start Now (this one!!)
Part 3.1: Retirement Accounts - Roth IRA (read here)
Part 3.2: Retirement Accounts - 401k (read here)
Part 3.3: Education Accounts - 529 & Coverdell
Part 4: Credit Cards
📝 Today’s Agenda
Risks • Investing in the Markets • Investing through Robo Advisors • Investing in Cryptocurrency • How much to Invest • When to Invest • How to Decide What to Invest in • Additional Tips • Take-Aways
📋 Overview
Disclaimer: Investing is not as straightforward as the other topics I’ve written/will write about. It’s very dependent on your situation (loans, debt, expenses, ability to take risks, income, etc.). I’m writing this based on my personal experience over the past year, hoping that you can benefit from my learnings. I have no partnerships with the companies I mention below.
Investing your money could benefit you over time. My overall 2020 return was ~30%. This definitely depends on market conditions and what you choose to invest in. Generally, the market goes up in the long run with an average annual return of 10%. This means if you invest $1000 today, you would have ~$1100 in your account the next year. The same $1000 would be worth ~$7000 in 20 years. I only started investing in my Senior year of college. I wish I had started earlier, especially since my college/internship earnings (after paying expenses) were simply sitting in my savings account. I found starting to be the most challenging part, so I hope you feel more informed to open your account after reading this article. Let’s get into it…
💰 Start Investing Today
Risks? ❌ Investing your money carries an inherent risk and does not guarantee that you will realize profits. The average market return is 10%, but yours could be lower and even below 0%. On one of the worst market days in 2020, I was at a 40% loss. I’m still at a loss on some of my holdings. Don’t invest money that you immediately need for tuition, credit card payments, rent, etc. Being able to pay your bills and daily expenses comes first.
Investing in the market? 📈 If you’re looking to buy individual stocks, ETFs (check out ARK ETFs), mutual funds, bonds, etc., you will want to open a trading account. I’m a fan of TD Ameritrade. The account setup process is easy, their interface is very beginner-friendly, and their customer support system has been great. You can also look at other brokerages like SoFi. You’ll have to connect a checking or savings account (see my post on why you should keep your money in a savings account) to transfer money into the trading account. Take some time and open the account today!
Investing through robo advisors? 🤖 If you don’t want to spend time doing your research or want another stream of investing, robo advisors are a great way to invest your money. Robo advisors generally allow you to pick your investment goal and sometimes specific sector preferences. Based on your answers, the robot creates a portfolio for you and manages it. The returns may or may not be as high as what you could make investing on your own but likely still higher than the interest you get in the bank. I put in a certain amount of money into my Morgan Stanley robo account every week (I even have a weekly Google calendar reminder for this). I received a ~11% return in 2020. The SoFi Automated Investing platform seems a great option since it has a 0% annual management fee and a minimum deposit of $1.
Investing in cryptocurrency? 💳 Cryptocurrency value has been rising for the past couple of months. If you think it’ll keep going up, open a crypto trading account. I recommend Robinhood for investing in crypto (0% transaction fee), although I wouldn’t use Robinhood for investing in the market. You can also consider Coinbase Pro (0.50% transaction fee) as it has lower fees than Coinbase (several hidden costs that add up). The main difference is that Robinhood doesn’t allow you to export your tokens yet, whereas Coinbase does. However, if you don’t plan on purchasing items using crypto and only want to buy/sell coins, Robinhood’s 0% transaction fee makes it very attractive.
How much to invest? 💸 There’s a general rule of thumb that the percentage of cash that you should have invested in stocks is (100 - your age) because your ability to take risks in the market is higher when you’re younger. If you’re 20, you would want ~80% invested per this rule. Some articles now say that this rule should now be (120 - your age) since life spans are increasing. However, don’t invest all your money in one day to meet this rule. If you’re just starting, it’s okay to reach that proportion over time. For example, I’m currently at ~40% cash ~60% invested and keep investing more money every week. Again, this is an approximate target - don’t invest money that you immediately need for tuition, credit card payments, rent, etc.
When to invest? ⏳ It can be a good idea to dollar cost average, which means investing a certain amount every so often (weekly, biweekly, etc.) rather than all at once. This method could result in slightly lower returns than putting in a lump sum of money when stocks are down. Still, it also helps decrease risk by balancing out your average purchase price. You could certainly do both - consistently invest and put in a little more when the markets are down (this is what I do).
How to decide what to invest in? 🧠 When I started investing, I spoke to my cousin to determine what we thought would be a good buy. I read on Google to see what other experts were predicting/recommending, used Zack’s Research to see what they viewed as strong buys, used Yahoo Finance’s performance outlook area. Suppose you’re in college and have access to Bloomberg terminal in your business school. In that case, you could read equity research reports to see what research analysts (who predict what stocks will do in the future for a living) are saying about individual stocks that may interest you. There’s also a new app Iris Stock App that lets you follow people and see what they buy or sell in real-time along with their % gain or loss.
Additional tips? 💁🏽 I invest for the long run (rather than day trading). I’ve found it helpful not to focus on my portfolio being down one day because the market fell. Warren Buffet once said, “I made my first investment at age eleven. I was wasting my life up until then”. If you’re thinking about trading in the future, open a trading account and/or robo investing account and transfer some money in today.
If you have any questions (regarding content, opening an account, etc.), feedback, or suggestions for future articles, please reach out. I’d really appreciate it! If you haven’t already, subscribe above to get Part 3 (Roth IRA) delivered straight to your inbox.
Well written. I wish they read it and act on it. I never knew about these robo advisors