How To Invest In Stocks
Why doesn't everyone invest? This is a question I've been asking my peers, friends, co-workers, and family ever since I learned the benefits and started investing myself. After months of asking the same question over and over again, the results came down to:
It's too risky & I'm scared
I don't know how to start
If you're part of the first crowd, well let me just tell you everything is risky. Walking down a street is risky, driving is risky, hanging out with friends is risky. However, there are different levels of risk in each situation (ex: driving more than hanging with friends). While investing can be unpredictable at times, history proves that the average stock market return around 8-10% annually for nearly the last century. That's 8-10% better than leaving your money in your checking account. In fact, due to price inflation of market goods, your money is losing it's value day by day just by sitting there in your bank account. It's time to stop being scared and take some action.
If you're in the boat of not knowing how to start, well your wish is my command. I'm here to show you how you can get started.
Before we get into it, one thing to note is that there's many various ways to invest. To name a few, there's self-directed brokerage accounts, IRA's, 401K, ESPP, Real Estate, Businesses, Private Money Investing, etc. The easiest way to get started in the investing world is to start with a self-directed brokerage account. This applies to anyone out there - whether you are a student, a W-2 worker, or have your own business, you can all create a simple brokerage account to trade stocks and ETFs. And that’s what I want to cover today.
Step 1 is to create an account. While I can't tell you which financial service to pick, I have linked the top 4 commonly used ones to help you get started.
Robinhood: https://robinhood.com/signup
Vanguard: https://personal1.vanguard.com/mmx-move-money/welcome
Ally Invest: https://www.ally.com/invest/#started
TD Ameritrade: https://start.tdameritrade.com/open
I actively use 3 out of these 4 accounts to invest and I highly recommend researching them to begin your process. Each of one these brokerages will help you get started on your investing journey. Picking a platform comes down to the interface you like using, the benefits it provides, and ease of use. Once you start investing, checking your brokerage app will be regular activity so the interface is quite important. My morning routine now consists of turning off my alarm, reading my emails, scrolling through Instagram, and checking my Vanguard account.
Signing up for an account will require you to have some basic information ready with you. This includes information such as your Employer (Don't worry Students - you can create an account without being employed), Social Security Number, Account and Routing Number for the bank you choose to fund the account, Contact Information, and other general details. After you submit your application, it can take anywhere from 3-5 days to verify the information you've submitted. Next, you'll receive an email confirming the activation of your account. And you're all set! Once you have your account fully activated, you'll want to transfer some amount of money to it. If you're still scared, start with a smaller amount of money like $50 and scale up to $100, $500, and $1000 as you feel more comfortable (and it makes sense financially).
Remember, once you've put money into your brokerage account doesn't mean it's automatically being invested. I have friends who've made that mistake several times. You have to go and buy certain stocks to make that happen. I know this is the part where you might feel confused or lost as to which stock to pick. This, to me, is the beauty of investing. To invest is to allocate money with the expectation of a positive benefit/return in the future. In simple words, we're all investing in companies/industries we believe are going to do well in the future. While that can seem risky, there are safer ways to invest. Picking one company to invest in with your first $50 can be very intimidating. After all, there's thousands of companies so which one do you pick?
This is why my favorite vessel in the investing world comes in handy: ETFs. An ETF is a collection of individual investments like stocks, while a stock represents a share of one company. This way you don't just have to pick one. For example, investing in Apple sounds like a great idea but what if the next iPhone tanks and the stocks come crumbling down and the company goes bankrupt? You definitely don't want that - for you and for your phone. Apple is a very successful company so the chances of that happening are pretty slim but anything is possible. But let's say you are hoping Apple does well but so does the rest of the technology sector like Microsoft, Cisco, and Intel. There are technology ETF's that you can invest in that cover all of these companies. For example, if you search 'VGT', this is a Vanguard Information Technology ETF that takes into account several tech companies. Investing in VGT vs. APPL provides lower risk to you since there's a basket of other companies being considered as well. The probability of all of those companies going bankrupt is minimal compared to one company going bankrupt.
If you're a risk averse person, I encourage you to start off by investing in ETFs and monitor the change daily. You can look up ETFs in pretty much every industry. There's some for Oil, Healthcare, Technology, Real Estate, Airline, Biotech and so on. Go online to research ETF's in the industry you're curious about and put in a little bit of money and see where it goes. In my opinion, the best way to learn something is just by doing it. If you're risk tolerant, I encourage you to invest in both ETFs and Stocks. You have the freedom to pick which company you believe in and see the results over time. Just remember to do your research!
That is all there is to it! I do want to add a couple of quick notes before you leave to get started.
How Much $$ To Invest
When you are trading, I would recommend putting in money that you know you won't need for at least the next year. This amount will vary based on your particular situation.
I was hesitant at first and started small with $50, bought an ETF, and monitored it for a month before really diving into it. As I felt more comfortable and confident investing my money and watching it grow over time, I expanded to other sectors and companies. To make this work efficiently, I first allocated fixed costs for my basic living expenses such as rent, groceries, and emergencies. The remainder fixed amount of what I have left goes into my investments on a monthly basis. This is something you can implement in your daily life by automating your investing journey so it's one less thing you have to worry about.
And while it's completely up to you how much you invest and how often you put money in, I encourage you to start now. Because if not now, then it might never happen.
Selling Stocks & Taxes
Before you go on to sell stocks, you have to keep one thing in mind: Capital Gains Tax. Capital gains tax is a tax on the profit realized on the sale of a non-inventory asset. This includes Stocks, ETFs, Bonds, Real Estate, etc. To take it a step further, there's two types of Capital Gains Tax you need to be aware of: short-term and long-term.
Short-term capital gains are typically higher and taxed as though they are ordinary income. This is if you sell a stock within a year of holding it. Whereas, long-term capital gains are typically lower and taxed based on your tax filing status and in a certain bracket. You can do a quick Google search to find out what that percentage would be for your income level. This applies when you sell a stock after a year of holding it.
That being said, I encourage you to think about investing in our market as a form of long term sustainability. You are looking out for a future you by making your money work for you.
If you have any other questions, write me an Email, DM me on Instagram, or Schedule a Mentorship Call with me! I check them all daily.