How to start investing in the Stock Market today!
You have probably reached this post with the following question in mind: “How can I start Investing in Stocks right now?” and guess what? This is exactly what I’m going to teach you in this post. By the time you’ve finish reading this post you will have accomplished the following:
- Open your first Investing Account
- Understand how to invest in autopilot mode
- Feel comfortable knowing how the stock market works
- Take control of your money and be certain that you will have plenty of money when you retire!
It might seem like an ambitious goal for a humble post like this one, but is not. Investing is really simple! You might be thinking “Of course Derek, you are an expert at Investing, is easy for you, but not for me” and nope, I say that is simple because it actually is, there’s so much misinformation and fear mongering regarding investing in the stock market like: “You will lose all your money!”, “You can’t invest if you don’t have $100,000 in cash”, “You have to have a financial advisor who takes care of your money”….
These are just a bunch of lies! You can do this! And nope, you don’t need tons of money, do you have $100 or $20 available? If the answer is yes then awesome, you can start investing right now.
I know you are eager to start investing now, but let’s make this pact. I will teach you “how to fish” first, and then you will go fishing okay? So, bear with me while I teach you the very basics of stock market investing, I promise it will be easy to read.
What is the Stock Market
I will give you a brief explanation about how to the stock market works, if you feel overwhelmed is okay, because by the time you finish this post, I will show you a method to start investing in stocks right now, without having to do stock research, spend hours studying or anything else like that, I will teach you how do it automatically by yourself!
The Stock Market is a place where you can buy and sell shares of public companies. This means that when you are buying a stock, you are indeed buying a little piece of a company. I will say it again, you become owner of the company!
You are buying a business, not a lotto ticket or a get-rich-quick scheme. This leads to the following question: “How to make money in stocks, and how can I prevent losing my money?”. When you buy a stock, you are expecting the company to keep growing in the future and that it will last for several decades. If the company is making more money year to year, growing in size, opening more stores or expanding its business, this directly translate to you as a shareholder (owner of the stock), when all these happens, the share price goes up, so if you bought shares at $100, and now it’s worth $110, your investment when up by 10%.
Also, if the company has grown a lot, and has so much money that it can’t continue growing fast, something really nice happens, the company will share a portion of its earnings with you, this is called Dividends, and is usually between 1% to 5% of the share price. So if you have shares at $100, and it has a dividend yield of 5%, you will receive $5 for each share you own every year. Sounds really good right?
The other part of the question is “How can I avoid losing money in stocks?”. Up to a point, one can expect to lose money in stocks from time to time, this is because stocks goes up and down and this is normal, and in the long-term one thing is certain, most of your investments will be worth a lot more. This is a fact.
To avoid losing money in stocks you have to remember that you own a company, this means, don’t buy a stock of a company that has no competitive advantage, that is having troubles to grown, a company that you would never buy/own/use their products/services or that have a bad reputation. Why? Because if everything looks bad for that company, it means that is slowly dying, losing value and eventually will go bankrupt, and when this happens, it will take your money with it.
Just ask yourself when was the last time you made a purchase from Sears or bought a General Electric product? Well, you and a bunch of people stop using their services a long time ago, and that’s the reason the stock price went down and now this companies are having troubles. Would you own those companies? Most likely not. On the other hand, do you expect Apple, Amazon, Walmart, TD Bank (among many other companies) to disappear in the next 10 years? most likely not right, therefore, those are companies that I (me personally!) would be very comfortable owning.
And this is the basics of stock market investing! Now I’m going to show you 2 ways to invest.
How to Invest in the Stock Market
There are mainly 2 strategies to invest in the stock market:
- Invest in automatic mode by owning the entire market
- Choose individual stocks to own
If you are new to investing and stock market investing, then I will suggest to invest in “autopilot mode”. While I personally enjoy and prefer researching stocks and deciding which companies to own, I know that this is not for everyone, not everyone feels comfortable deciding which companies to own or simply don’t have the time to research. This is why autopilot investing is amazing, and is proven that you will have an amazing performance when you invest this way, this is what Warren Buffett recommends to most investors (including his wife), so if this strategy is good for the wife of the best Stock Market investor that has ever lived, then I assure you that it will be good for you too!
Investing in autopilot mode
Investing in autopilot mode is achieve this way:
- Open an account with a Roboadvisor
- Choose a portfolio that you like according to your risk tolerance
- Fund your account monthly
- Keep funding your account even when the market is going down
- Enjoy your money by the time you retire/fund your kids college/life happens and you need your money!
What is a Roboadvisor? First, is not a robot, but an institution that provides model portfolios that promises you to always invest your money the best possible way, in order to grow and protect your money while charging minimum fees. Does it sound like a mutual fund? Well, kinda, but it’s not the same. Roboadvisors charge way lower fees than mutual funds, will let you buy and sell your investments without charging you gouging fees and won’t do stupid things like trade stocks diminishing your returns.
Roboadvisors in a nutshell: They have portfolios of stocks usually divided this way:
- A large chunk on US and Canadian Stocks of great, reliable, strong companies.
- Smaller chunk on great companies with great potential located in Europe, Asia and Emerging Markets
- Smaller chunk on Bonds, which are loans to either a government (like US or Canadian Government) and corporations (Like Microsoft, Apple and others)
Roboadvisors already did the math and tested their portfolios for many scenarios, which means, they have a balanced portfolio of stocks and bonds to protect and grow your money. And the only thing you have to do is select which fund you like the most (only 1!), put more money monthly and watch your money grow.
Wealthsimple – The Roboadvisor I prefer
I’ve reviewed several US and Canadian robodavisors and have found that wealthsimple have one of the lowest fees in the market, the most easy to use interface (you can invest from your phone!) and has the lowest minimum fund requirement: $0! Yes, you can open an account with $0!!! You can open an account with wealthsimple if you are located in the US, Canada and the United Kingdom
Wealthsimple is designed the following way:
- Will automatically rebalance your portfolio so its stay as it should.
- Auto-deposits: it will withdraw from your bank a set amount of money you want to invest monthly so you won’t forget about investing!
- Dividend reinvesting: every time a company pays you dividends, wealthsimple will buy more stocks with those dividends, it’s like a snowball effect!
- Personalized portfolio: you can choose a portfolio according to you risk tolerance and how many years you are planning to invest
Wealthsimple have only 3 portfolios to choose from
Conservative portfolio: this portfolio is designed for people who want to have their money really safe and they achieve it by having over 60% of the portfolio in bonds (loans) and less than 30% on stocks
Balanced portfolio: this portfolio has a better performance than the conservative portfolio, but you will see more swings with your money, this is because this portfolio is almost a 50% bonds / 50% stocks portfolio
Growth portfolio: this portfolio is almost 20% bonds and 80% bonds which is perfect for investors that will be invested in the stock market for at least 10 years.
How to choose a portfolio
I could go really technical and boring and explain to you why I prefer portfolio with a high percentage of Stocks over bonds if you have over 10 years before retirement, but instead, I will show you the performance of these 3 portfolios since they were created in 2014:
Conservative: $10,000 invested here would be $11,059 today (10.6% growth) November 30. 2018
Balanced: $10,000 invested here would be $11,478 today (14.8% growth) November 30. 2018
Growth: $10,000 invested here would be $12,669 today (26.7% growth) November 30. 2018
Which one would you prefer?… Now you see that having a portfolio “risk free” would also mean having a portfolio with low returns. Going from conservative to Growth portfolio will net you $1,610 more in only 4 years, can you imagine how much more can you make in 10 or 20 years? a lot more!
The benefit of owning bonds is that when the stock market declines, like it did in 2008, and now recently in 2018, bonds usually stay steady, while stocks can dip hard, but on the other hand, when the markets go up, bonds barely go up, but stock tend to fly! You most likely want bonds if you can’t stand seeing a loss on your portfolio for 1 year if the market declines, or if you have less than 10 years before retirement. I can’t decide which portfolio is best for you! You and only you know how much risk you can tolerate and what kind of investment will let you sleep easily at night.
Now, go and invest!
Don’t you feel empowered? That you understand how the stock market works and how long-term investing with a roboadvisor is a simple strategy that can help you build a retirement/college/dream life fund? I know you do! Now is time to take action, go and open you investing account and if you still have some doubts or question, please feel free to write me a comment and I will do my best to answer those questions.