The Newbie Guide to Investing in the Stock Market. How to Get Started with Little Money, or No Knowledge!
There are three main ways that MAJOR wealth is created in the United States, and throughout the World. Those 3 are by creating a Business, selling or renting properties in the Real Estate market, and investing in the Stock Market. Of those 3, guess which is the easiest to get started in, and takes the least amount of money? You guessed it, investing in the Stock Market! Well if it's so easy, why doesn't everyone do it? I think one of the main reasons is that we, as well as your traditional Financial institutions, and investing gurus, make it seem more difficult than it really is.
In the simplest form, all it takes to invest in a company via the stock market is 1) Opening a Brokerage Account (as easy as opening a Checking or Savings Account), 2) Depositing money into that account, and 3) Selecting the company or companies* you would like to invest in! Yes, investing in the stock market is as easy as 1,2,3! So why do Financial Institutions, the gurus on CNBC and other forms of media, as well as your friend's coworker's 3rd nephew who hit it big in the market, make it seem like it is so difficult that you MUST pay them (or someone) to do it? Like most things in life, you can make them as simple or as complex as you want.
For example: Warren Buffett is the greatest investor of our lifetime. Over about a 50 year period, he averaged over a 20% gain per year in the stock market, while the overall market gained about 10% per year. Yes, he basically DOUBLED the average gain of the market, which means there was someone (or thousands of others) who gained less than average in the stock market. Traditional wisdom might tell you to just pay Warren Buffett to invest your money, or someone else may tell you that if you pay them you can get similar gains from the stock market. Or you could literally get the exact same gains as Warren Buffett by purchasing stock in the company he is the head of...Berkshire Hathaway, Ticker: BRK/A or BRK/B. Before 1996 you would have needed $33,500 (now over $319,000) in order to purchase 1 share of BRK/A. But in 1996, Berkshire Hathaway created a 2nd class of their stock (BRK/B) in which its cost per share was only $22 (now over $200). As you can see, both are worth about 10x more now than in 1996, so performance for both classes of stock percentage wise, are basically the same. This made it affordable for the Average Jill to invest in Berkshire stock, and let Warren Buffett literally be the captain of their investment ship.
But Wait, There's More!
There's an even easier way to invest in the stock market, without putting all of your trust into one person or company (although you can't go wrong with Buffett!). Lets say you've never heard of Warren Buffett...or maybe you have heard of Buffett, but you never knew Berkshire Hathaway was his company. This is not unusual for those who do not follow stocks on a regular basis. What if you wanted to just get the average market return. You don't care about trying to get the best return possible, but you also don't want to risk losing the majority of your money since you don't really know what you're doing. Well there's an easy option for you, that was created over 40 years ago. It's called an Index Fund! An Index Fund is essentially a group of stocks, which are combined into one package, and sold as one entity. For example, the Vanguard Total Stock Market Index Fund ($VTSAX) or the Total Stock Market Exchange Traded Fund ($VTI) consist of over three thousand of the publicly traded stocks that are listed on the NYSE or NASDAQ. Instead of buying the individual companies, you can buy this one Index Fund or ETF and own a stake in ALL of those companies! You can literally get the average return of the market, without paying some guru or Financial expert, which essentially will cut into some of your profits. In addition, over 80% of professional investors CAN'T beat the average gain of the stock market! Checkout my YouTube video where I discuss why you shouldn't buy individual stocks, and recommend John Bogle's "The Little Book of Common Sense Investing" for further information on this. Bogle is the creator of the Index Fund, when he was the CEO of Vanguard before he passed away earlier this year. Rest in Peace.
If this is so simple, why don't more people do it?
If you knew better, you would do better! For most it comes down to having the knowledge, seeking the knowledge, or having someone you know with the knowledge beat you over the head with it. Financial institutions don't have a financial incentive to tell you to take this easy route. In fact, many don't have a fiduciary responsibility to do what is best for you, versus what is "suitable" for you. Some of them may even be able to beat the market, legitimately, so their promise of the potential to get Warren Buffett like gains doubling the market or better yet tripling the market is very enticing ;-). They don't however tell you how the fees will eat up a lot of the additional gains (if there are any), and how they will still get paid those fees even if they don't beat the market or lose money. It's a win win for the financial institutions, because they will get paid either way! The problem is that, according to John Bogle and Vanguard's research, 80-90% of those professionals can NOT beat the market on a consistent sustained basis. You're looking for a needle in the haystack, instead of just buying the whole haystack with the needle in it! The haystack is the Total Stock Market Index Fund or ETF. Oh, and guess who endorses the use of Index Funds? Warren Buffet!
Now what makes this even simpler is the technology we have available, and the options we have to purchase stocks. In the past 10 years that I've been in the stock market, the brokerage account options that are available to you have changed drastically. There are platforms that allow you to purchase stocks without being charged a fee, as well as having the ability to purchase just a portion of 1 share of a company. These did not exist 10 years ago when I first started seriously looking to invest my money into the market. Now there are several companies that give you 1 or both of these options within their platform.
Free Trading: Robinhood, M1 Finance, SoFi Invest, WeBull
AJ Mobile Money
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