For 2018, try a less traditional resolution by exploring stock investing. It’s never been easier to get into the market. Easy-to-use trading platforms and an abundance of information and training materials have removed most barriers. We’re experiencing record-breaking market performance.
We’re at a moment of “I should have invested, yesterday.”.
The typical resolutions and goals can take a back seat — here’s what you should know about getting into stock investing this year.
A Quick, Investment Disclaimer
The following information is for general information only. There is no guarantee the following suggestions will deliver a positive return. All investment is done so at your own risk. We encourage you to research each investment opportunity. If you do not understand the risks, seek professional services. Past performance does not indicate future returns.
Know Thyself — Knowledge and Mitigating Risks
Convoluted systems and platforms are a problem with stock investing, and one of the reasons many shy from this form of investment. Show them a screen from TD Ameritrade or ask their thoughts about chart patterns and you’ve lost them. Those, and the capital investment, of course.
People understand the opportunities… they don’t realize how easy it is to get in.
Let’s not overcomplicate things — start with the basics:
Start easy with index funds
You have a variety of investments such as common stock, bonds, mutual funds, ETFs, and index funds.
Index funds are one of your easiest investments. Your investment (with other investors) is pooled across a wide range of stocks mirroring those listed on stock indexes such as the S&P 500 or Dow Jones. So, when you hear “The Dow is up 30 points” you’ll know you’re earning with this investment.
You may choose to refine your selection of index funds based on market sectors like technology, energy, retail, and more if you believe these areas are expected to perform. Also, index funds are handled through passive management which lowers the management fees. There is a minuscule charge for participation or selling.
Consider looking into:
Warren Buffet, investor extraordinaire, is a champion of buying index funds. His approach is simple enough for anyone interested in stocks: buy and hold.
Know what moves the market
The market will go through wild ups and downs – you’ve likely heard these two in the news:
If you could predict how investors react to the news, then you’d make a killing. Unfortunately, investors are fickle. Stock prices can plummet when earnings calls are positive. Big announcements during NASDAQ holidays can send investors into a frenzy the following day trades are back open.
It’s why they say, “you can’t predict the market”.
However, you should pay attention to these influencers:
- Corporate or government conflicts (e.g. a CEO suddenly leaving or political turmoil)
- Tax adjustments (e.g. our recent passing of the tax plan)
- Mergers and acquisitions (e.g. Amazon buying Whole Foods)
Bigger risks spell bigger rewards but it’s best to avoid trading based on speculation and news-worthy moments. You never quite know how the market will react. Stick to “boring” investments (at least in the beginning) less affected by big shake-ups.
Set it and forget it
Don’t micromanage your portfolio.
There are professionals doing this for a living, day in and day out, that have terrible runs. What do you — novice stock trader — think you have as an advantage?
- Manically checking stock prices as you do work email
- Calling your broker every time there’s a big dip
- Chasing investments because you heard a “hot tip”
It’s best to buy in and leave it be.
The average return on the S&P 500 (from its introduction in 1923 to 2017) has been 9.30% if you’re adjusting for inflation and dividends (try it using this stock market calculator).
This is if you’re not meddling with the portfolio. There will be some ups and downs but ultimately, you’ll come out on top. Otherwise, you’ll panic sell when things start to drop, lose your investments, and feel the dread as it climbs back up.
Here’s what happens when most newcomers’ try to manage portfolios:
- Selling low, feeling FOMO (fear of missing out) as it rises, and buying back in when it’s high effectively destroying whatever position and earnings you had prior.
- Doing frequent trading has you paying trading fees. Even a couple of quick, successful trades can become a dud if you eat the cost of the fees.
That’s not a sound investment in any book.
Use a bucket strategy
A bucket strategy is widely used to build retirement income. A time-segmented bucket strategy is the most commonly suggested since it accounts for risk and timing. Someone using this strategy will withdrawal investments as they see fit to cover expenses while allowing their portfolio to grow.
Sounds a lot like “diversify your portfolio” doesn’t it? Because it is.
An example of this bucket strategy:
- Bucket #1: Owned assets and cash (e.g. savings, home, low investment businesses)
- Bucket #2: Mid to Long-term investments (e.g. 401ks, mutual/index funds, IRA’s)
- Bucket #3: High-risk investments (e.g. emerging market stocks, IPOs, venture capital)
The traditional route to retirement comes into play here. One should strive to build equity and wealth through tried-and-true investments like homeownership, retirement funds, and real estate. But, also put aside extra toward items like mutual funds, index funds, and the occasional individual stock.
- Mid to Long-term holdings could include Boeing, FedEx, Amazon since these aren’t likely to go away anytime soon.
- High-risk holdings could include movers and shakers in fintech, biotech, automation since these are emerging technologies possibly set to change the future.
Keep at your traditional retirement advisory but don’t feel intimidated exploring investing in companies you believe in (and have shown long-term, positive returns) for bucket #2.
Risk Mitigation is Your Friend
You should only invest what you’re willing to lose. Don’t bet the bank.
Use extra funds after you’ve covered main expenses and savings. Place some into mutual/index funds and bonds. Test out volatile markets by investing in common stock.
A smart way to keep risk at its lowest is through:
- Windfall investments
- Stop losses
Windfall investments come from those moments you receive money unexpectedly. Such as an inheritance from some long-lost aunt. Or, a holiday bonus because it was a good year. It’s money you weren’t accounting for with the budget. Don’t think of it there, rather place it into investments – you won’t feel too bad if there’s a loss.
Likewise, stop losses will sell off investments if there’s too hard a dip. Traditionally, a person holding a diversified portfolio won’t worry too much about the ups and downs because of the history performance of the markets. However, a stop loss can prevent those uncommon moments when stocks tank.
The investor may choose to walk away from the investment due to its volatility. Or, wait for an opportunistic moment if the stock continues to dive and buy it back at a lower cost. Of course, the stock can continue to drop but it could go up thus giving you a greater margin if it returns to its previous levels.
Set recurring investments
Most trading platforms and apps offer automatic investments. This is a perfect opportunity to funnel additional income toward investments on autopilot.
- Work your budget and find extra funds, then set a small amount to automatically deposit
- Forget the money was ever there and resist the temptation to constantly monitor the portfolio
And there you have it… you’re on track with growing your portfolio!
The sky’s the limit with what you do with these funds as the market matures. Early investing in emerging markets can show incredible returns as they radiate from their country of origin. Solid stocks from established companies here in the States will continue to show dominance.
The Easy-to-Use Tools to Get In the Game
The trouble with taking control of your investments is usually found in the tools. Like it was mentioned before, seeing a trading platform will turn many off and have them sticking with investment managers.
However, modern tools have eased access to investments like ETFs, common stock, mutual funds, and more, with little or no trade fees. These “Robo-advisors” are computer systems handling the transactions which further removes the costs of managing investments.
A few tools of note include:
- Betterment – Individual taxable accounts, IRAs, 401ks, and advice. Read our Betterment review. I even rolled my 401(k) over into Betterment. Read my Betterment 401(k) rollover review.
- Robinhood – Stock trading phone/desktop app
- Wealthfront – Automated, diverse investing with rebalancing
- Quickbooks – Accounting software to keep track of everything
If you’re curious about Robinhood or Wealthfront, then check out our Robinhood vs. Wealthfront faceoff!
More traditional investment tools include:
Else, consider using a full-service broker to help get a footing with online trading.
If You’re Committing to Something — Commit to Finances
Losing a bit of weight, getting out more, and being a better person are great resolutions. But, these can start at any time (you don’t need to wait until the new year). Your finances, however, benefit the earlier you invest. And, with the direction, the market is going? You should have started, yesterday.
The Dow Jones has nearly doubled in the past 10 years. It’s had its ups and downs but even on a 100-year timeline, the stock market has shown a positive return. Investment benefits those willing to ride it out. The more you begin, today, the more you’ll have in the future (if you hold).
You can begin with as little or big as you want.
Make this the year you finally overcome those investment barriers. In the future, you will praise your early efforts – especially if it’s securing your retirement. Good luck!