Investing for Beginners
How I Got Into Investing (and you can too)
I am in no way a financial planner, all opinions are my own.
Having more money is not about having more stuff, it’s about have more choices and being empowered by your financial situation. Not stressed. Investing for beginners is a serious topic but we can do it together.
According to Business Insider, 43% of Americans own stock. Of those, 51% are from Generation X (36-51 years old) and 48% are Baby Boomers (52-70 years old). That leaves 1%… lol
I’m part of Generation Y, which is after Generation X and not at all mentioned above.
On top of that, I have no family or friends that invest that I can go to for advice. Friends that I feel comfortable discussing financials with that is.
Back to our first statistic, 43% of Americans own stock. The reason why this is important? I want you to realize how silly it is that both you and I are not stock owners. Let’s go over some more stats.
74% of Americans believe in God (Source)
70% of American men are obese while 62% of American women are obese. (Source)
46% of Americans voted for Trump while 48% of Americans voted for Hilary. (Source)
Investing for beginners is not rocket science. We can do this! Even if you’re 100% in the dark about this.
What did I do first?
I’m big on reading. I actually love books and reading. I believe even more in research. You can’t believe everyone and everything you see/hear/read. You have to collaborate information from one source to another.
Anyway, I was looking for a book that was Investing for Dummies but instead came upon these other two highly suggested books.
That being said, here are some of the top tips I learned and highlighted in this book.
- Money invested in the stock market has grown over long periods of time by an average of 10% a year. Compare that to some of the interest rates you’ve seen with savings accounts. And remember that 10% of $100 is $10 and 10% of $1,000 is $100.
- Compound Interest – Interest is made on the initial investment as well as the gains on that investment. Meaning if you invest $100 in stocks and it grows by 10% in the first year (and there are no withdraws), the second year you will make interest on $110 (the initial $100 invested plus the 10%).
- There’s this thing investors go by called the Rule of 72 – to determine how long an investment will take to double in value, divide 72 by the average annual rate of return earned on the investment.
- Intrinsic Value of any investment is just the future income stream that it will produce.
- Bonds – a type of IOU from a user of money
- Mutual Funds – pools together money from many different investors and invests it in a larger pool in a portfolio stock
- Creating your portfolio and it’s overall asset allocation is the most important investment decision you will make. The most important principle? Diversification – investing in multiple asset types.
30% US Stocks
30% US Real Estate
15% International Stocks
25% US Treasury Bonds
Now there are apps that make getting into investing a much smoother transaction. Like getting into a heated pool versus one that is not heated…..and the weather just went above 70.
There are these things called robo-advisors that have been created and it sounds pretty awesome. Basically, you take a financial advisor and make their decisions based on trading algorithms and not human input.
These robo-advisors make all of these apps possible. Financial Advisors need to get paid, and not many people can’t afford them. And you shouldn’t have to until you you’re investing a good amount.
Let’s go over a few of those apps and some key points about them.
Acorn takes your loose change and invests it. As simple as that. Your purchases on your credit or debit card are rounded up and are put into a computer managed investment portfolio.
There is no minimum to start and it costs $1/month or free for college students.
Acorn is best seen as a savings alternative versus a full investment plan. But it is a good way to get started and is super hands off.
Once the roundups from your debit or credit card purchases reach $5, Acorn withdraws the money and invests it in the stock portfolio of your choice.
Betterment is a leader in the startup apps.
The management fee is 0.25% a year of assets for any accounts under $100,000. The company uses exchange-traded funds that represent up to 12 asset classes, depending on your risk tolerance and goals. All of which you choose when you first sign-up.
They base their theory on modern thoughts about diversity in investments being best. After a lot of research, I definitely agree.
In early 2018, Betterment had $11 billion in assets and over 300,000 clients. Betterment has a thing called SmartDeposit where you tell it how much you need in your checking account to cover expenses, plus a buffer, and it harvests the unneeded cash towards investments. I like this idea because it takes the thinking out of how much to invest and protects the user from overspending.
Stash is an app that helps investors make decisions while they are building an ETF portfolio. This app makes it really simple and approachable to invest by using themes based on risk-tolerance, goals, interests, and values.
The minimum to start is $5 and it costs $1/month for accounts under $5,000.
Stash repackages ETFs (exchange-traded fund) in to easy to understand themes (like robotics). This app is going to guide you through building an ETF portfolio.
A free trading app for anyone looking to buy stocks and ETFs while avoiding fees. No minimum account balance.
This app lets you buy individual stocks. It’s easy and fast to use and there’s no commission fee when you do use the app to buy stocks.
What’s My Plan??
After all these books and research, I should have a plan, right? And I do!
As I mentioned before, robo-advisors make it easy to get in the pool. That’s where I will start. Acorn investing is a keep the change program and I like that because I won’t financially notice the investments. It won’t affect me the way a reoccurring $20 monthly payment would.
I want to grow my Acorn account to $200. Once I do that, I will move the $200 over to Stash app. Why? My research led me down the route of videos. I watched people trial out both apps to see which grew your money faster.
Stash app seems to give a better, or higher, ROI. I’ve seen people get anywhere between 5-8% return on their investments with the Stash app. My experience with the Acorn app has been about 1.8% and I have chosen the highest risk level.
Again, I like Acorn a lot because of it’s keep the change technique, you can also do additional investments but I didn’t, it is allowing me to grow my cash to invest without it significantly affecting me financially.
Today, I have been using Acorn for about 4 months and feel comfortable taking about 78% of my earning and moving them to the Stash app.
Stay tuned for a full Acorn App Review that I am excited to write. Hopefully, I remember to link to it here. You can always do a search of my website to see if it’s up.
I also plan to do a full update on the Stash App as well, but that’s months away.
I know, as much as the next guy, getting into investing for beginners can be scary. You’re putting your money into something with this idea that it can disappear. You hear and read about these huge losses that people take and it’s worrisome. Life is all about taking chances, and signing up for one of these apps isn’t a huge risk. It’s just a start. And this is one of those things that needs a leap. Just get started!