Investing is available to everyone, not only the rich
Everybody wants to improve their lives and income by educating to a profession and progress in career to earn better. However in many cases people are quite locked in to given path or job and feel like there is no practical way to earn more in their job or carrier path. Investing is stock market is possibility for everyone to increase their earning by practicing long term discipline instead of short term thinking. Investing in fact can be described as improving your wealth in long term by worsening your wealth sort term. Meaning if you but money aside, it is locked away from short term usage. Common misunderstanding among people is that investing is only for rich because only they have enough money to put aside. You can start investing with very low money by first saving a lump sum before doing an investment decision.
Why in stock market is the best option
Here is the deal
What the picture tells us is that one dollar invested into stock market in 1801 was worth 8.8 Million dollars in 2001. And what is more amazing is that when you add the return from 2001 to this date(2016), total sum is about 17 million dollars! Also all the other investment classes have done worse. Especially see the gold. Gold has only kept up with inflation (CPI) This means that you can buy same amount of stuff today with same nugget of gold that you could back in 1801. This in other words means that there is no real return in investing in holding gold. Great thing about stock investing is that it can be done very passively. Meaning it wont take too much your valuable free time.
How to do it then?
This chapter will cover shortly everything that is involved in stock market investing. Detailed articles will be written later to give more specific guides and tips for each part.
Save up some money before you start
You could start investing with only 10 dollar per month using stock funds and preferably index funds. However if you save some money, let’s say $2000, It opens more options. This period of saving also teaches you about saving with is a major part in investing. You can use your normal bank account but setting up savings account could also be done differentiate the saved money from money that you are using for pay the living expenses. Savings account also give small nominal boost to interest yield earned, but in practical terms this benefit is negligible. Just make sure you know how soon you can withdraw the money for investing from the savings account.
Main choice here is to select whether you want to save money first in savings account or start monthly investments with small increments. So if you like to start building portfolio of stocks and exchange traded funds, you need a broker. Broker is service provider that physically does the trades you order and also is responsible for holding the stocks for you(this is how it works in most countries). Broker also keeps records from your investing and you can use that reporting do the taxes later. Things to keep in mind when selecting a broker:
Costs (trading fees and monthly fixed fees)
Size the company and it a respected player
Minimum portfolio size(in dollars)
If in the other hand you want to start investing straight without broker using Mutual Funds, there is only practical option. Index funds. These mutual funds and very cost effective and are very similar to exchange traded funds (ETS) which are very popular and good options to start investing. Vanguard is the most respected player in index based mutual funds. You will learn more about ETS later in the blog. Read here our full article on selecting broker
Build up portfolio
Portfolio is what you hold in investment account or in mutual funds. Portfolio contents should reflect how long term investor you are and how much risk you can take. For example if you hold 50% of stocks and stock funds and other 50% is cash, your portfolio will held much better when things get rocky in stock market. Also you decrease your potential return by lowering risk. Risk and profit go always hand in hand. There is no free lunches in this. Or actually there is more or less… Portfolio should be diversified. Meaning if you only hold three stocks in portfolio and one company goes bankrupt, you will loose 33% of your money. If in the other hand you hold 100 stocks, portfolio only looses 1%. This is why index funds are so effective for reducing company risk, as they hold hundreds or even thousands of company stocks .
When is the best time to invest?
When you are building new portfolio, best time is usually right now. Especially if you are planing to build portfolio by investing portion of your monthly income, just jump right in.Diversification over period of time is only sensible if you have a lot of money to start with. You just don’t want to drop all that in same day because next stock market crash might happen tomorrow. Not that putting everything right in would reduce your long term expected return, but emotional pain would be horrible if this rare thing might happen.
How to track investments
As previously mentioned, your broker or fund provider will track investment returns but should think whether you would like to do it your self also. You don’t have to look your returns everyday but I recommend doing this each month. To do this just login to site of your service provider(broker). But you can also setup portfolio tracking to some other website with same stocks that are in your portfolio. This way you don’t have to login to see how your portfolio is doing. I also recommend doing this because you can also easily read all the news related to stocks you own. Google Finance has portfolio tool for example.
You should enjoy your new hobby. I will likely be the only hobby that will make you money instead of loosing it 🙂