AAR04 - 5 Steps to Start Investing NOW!

24:53Andrew Sather:You are not trying to min max the situation whatsoever. The brokerage is not going to have a large effect on your end outcome. There's enough options out there with essentially the same feature set, just with different user interfaces. There's no reason to go searching out for some specific and niche one or whatever, at least not for standard investments. Maybe if you're trying to get into niche versions of crypto or something, you might need some specific kind of brokerage account. But for most people, just follow the basics and you'll be completely fine. The key indicators to look out for is that, like we said, it's reputable.

25:25Andrew Sather:You can find good trustworthy reviews absolutely all over the place. It's SIPC. Sorry, let me say that again. SIPC insured has a$0 commission, which essentially means when you go to make a trade, you don't want it to be charging you a fee for making that trade. That used to be the standard, but nowadays we've moved to a$0 commission standard for most brokerages out there. Make sure it has partial shares, meaning you can trade and purchase companies and stocks based on a dollar amount. So if you want to go buy$5 worth of Apple, you can, as opposed to them saying, well, a single share of Apple is$150.

26:02Andrew Sather:You need to have$150 available to buy a single share from us. We want to avoid that at all costs because we want you to be able to put in X amount of dollars on a monthly basis and buy whatever shares that is. You know, if the stock has moved up, it might be a smaller fraction of shares. We don't care. We're caring about how much money you're able to put on a regular basis. And make sure it has no low or minimum balance. Some accounts, some brokerage accounts out there, this also apply to high yield savings accounts, normal savings accounts. they'll have a minimum to say you need to have$500, let's say, in your account at all times for you to be able to bank or broker with us.

26:38Andrew Sather:The issue with that is say you put in$600 and then your investments tank after that. Now you might be below that minimum. You might be being charged fees. You don't even realize it. That's just something we want to avoid. We want you to be able to put in$1 into your account and be completely fine. That's the ideal here. The one other thing to take into account is like I mentioned, I like Robinhood Fidelity because they have good account options. What kind of account are you looking to open? Now, this is a whole separate topic whatsoever. We're not going to be able to dive into everything or all the options here, but the two main ones for most people are going to be either a retirement or a normal, quote unquote, normal taxable account.

27:14Andrew Sather:A retirement account, the pros and cons on it are that you're going to get more tax or return advantages. So maybe you're not paying taxes on the gains. Maybe you're able to put in pre-tax funds to it. Maybe you're not, you don't have to pay taxes when you pull the money out during retirement. You're going to be able to essentially compound your returns much more quickly and powerfully at the trade-off of making it much more difficult to access. So there are accounts out there like a 401k, for example. If you want to pull out that money early, you're going to pay pretty hefty fees. You're going to have to pay the taxes at that point, blah, blah, blah.

27:45Andrew Sather:Whatever money you see in your account is not what is going to end up in your bank account when you try to withdraw it. If that flexibility of being able to pull that money out essentially whenever you want is important to you, then something like a taxable investment account might be better. It has fewer tax advantages. There's still some things you can leverage, like for example, long-term gains. If you hold onto that investment for longer than a year before you sell it, you're going to pay a significantly lower tax rate on whatever returns you gain. But just to make it simple, let's see it as having essentially no tax advantages compared to something like a retirement investment account, but it's going to be much more accessible.

28:20Andrew Sather:If you want to pull that out at any point, the only thing limiting how quickly you can pull it out is how quickly you can get that investment sold, which for the most part, if you're trading on big companies, is going to be very quick. And then how quickly it could come out of the account, which will vary greatly depending on the broker, but it shouldn't be longer than three or four business days at the very most. Do you, if somebody was like doing this for the first time, do you have a recommendation of which one to do first? yeah I would say if this is money that you're just trying to learn how to invest I would say a taxable brokerage account at that point it's more about the learning process and understanding what the stock market is getting used to buying and selling seeing your investments fluctuate all that sort of stuff and I would rather give you the peace of mind of knowing I don't think this is the right way to end up but let's say you end up in a place where you're like investing just isn't for me.

29:14Andrew Sather:I can't handle seeing the fluctuations or something like that. I want you to be able to pull that money out without having to worry about it. Otherwise, if you try to invest it in a retirement account or something, and three months down the line, you say investing just isn't for you. Now you're having to pay fees on it, and you're just ending up with a lot less money than you started with. And I want to avoid that. I'd rather have this be a quote-unquote investment into your understanding and knowledge in the learning process than just trying to maximize whatever gains it is here. I would say that start with a taxable account, learn it for a little bit.

29:44Andrew Sather:And then once you understand everything, you can start researching, okay, maybe a Roth IRA is for me because I like the tax advantages that it gives, or maybe I need to focus more on my 401k because I want to prioritize those tax advantages. Then I think you can start playing around with different accounts, understanding you have less flexibility on them, but knowing that you're okay with prioritizing whatever makes it more powerful investment wise. Yeah, I totally agree. Beautiful. So moving on to step three is to make your very first investment. And this is going to be the scary part, but also the exciting part.

30:16Andrew Sather:And I wish I hadn't done it the way that I did, but I'll describe that in a little bit. So we want to deposit five or$10, we'll say just to deposit a small amount of money. Again, we want to have opened a brokerage account that's not going to have a minimum balance on there. So you should just be able to throw a few bucks in there, let's say five or 10 bucks. Then you want to choose what to invest in. So you have the option between individual stocks or funds. Sometimes they'll be called ETFs because they're exchange traded funds, just funds that are traded on the stock market exchange. If you decide to go down the individual route, understand that is going to be giving you much more headroom on the maximum return on your investments, but it's also gonna give you much more headroom on the minimum return of your investments.

31:00Andrew Sather:As Andrew knows, as a prolific individual stock investor, any stock could go to zero tomorrow. A company could entirely bankrupt. For a fund like VOO following the overall stock market, for VOO to go to zero tomorrow, the entire stock market or the entire S &P 500 would have to go to zero. And that is much, much less likely than target, let's say, going bankrupt tomorrow. So if you go to an individual stock, it's going to require much more effort up front for you to do research on that stock. You want to be doing valuation. You want to be looking at the history of it. You want to be looking at metrics.

31:32Andrew Sather:It's going to require much more effort, but it's going going to give you a much larger potential return. So I tend to stick with funds for the sole reason that I just want to save time. Really. I feel like I could get the historically, I could get the majority of the returns for far less time. And that's what I've decided to prioritize. There are other people like Andrew that enjoy this. It's essentially a hobby for them and they enjoy valuing companies, looking into companies. And so they're able to earn higher returns and he definitely does, but it takes more time to get there. So it's just what you want to prioritize.

32:04Andrew Sather:And then depending on what you decide on, you want to search for that ticker in the brokerage account. So in my case, I would search VOO through the brokerage account. Then you're going to hit buy, and you're going to choose to buy based on dollars, not shares. Like we discussed before, if you're buying a stock where each share is valued at$300, you don't want to have$300 available at a time to buy that stock. You want to be able to buy the$5 or$10 like you put in the brokerage account worth of that stock. So like I said, I tend to just stick with VOO. It just makes it a lot easier to invest in, and it'll also be very simple for somebody who's just getting started out to throw$5 or$10 in there and not have to do complex decision-making prior to that.

32:46Andrew Sather:That leads me perfectly into step four, which is to automate those future investments. We talked a ton in a previous episode about automation, so I'm not going to dive into it too heavily here, but ideally we want to take that habit that you just formed by doing it once and set yourself up for the indefinite future by automating that amount. So you can just start by taking whatever amount you decide to do up front,$5,$10, and set up an automation for it. This exact method is going to vary by brokerage, so I can't give you a perfect step-by-step for it, but you're going to be looking for either recurring investments or automated investments, something like that, that's going to be able to invest for you on a regular basis.

33:22Andrew Sather:So on Robin Hood, for example, which I use, you can go over to your account menu, then there's a side menu, go to investing and then go to recurring investments. And then a fidelity, it's a very similar process where you go to transact and then you're looking for a recurring investment. Again, varies by brokerage what this user interface is going to look like past this, but you're going to essentially choose what you want to buy. So in my case, I choose VOO, how much you want to buy. So again, we're going back to our budget to decide how much you're able to put into these investments, how much you're able to afford to put in these investments and how often you want to do it.

33:54Andrew Sather:I tend to just do a monthly basis because I feel like it's a little bit easier to track. I don't want to be seeing investments going in and out too often because then it just becomes a little bit more complex to track and keep track of. So I keep it on a monthly basis and that's all there is to it. Then you just save it, save that recurring investment. And then that money will be pulled out of your bank account on whatever basis you choose and then invest it into whatever you told it to on that regular basis. And then now every month through owning$10, let's say a VOL and bang, all said and done.

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35:01And so basically what you're saying is whether you're using Robinhood or Fidelity, it will automatically purchase, let's say it was VOO. You will get shares of VOO to your account every month after they've kind of taken that cash from your account. I think it was Coinbase and the cryptos they all started that I think and then Fidelity and Robin had copied but that's essentially what you're talking about right like you will get A certain number of shares for VOO every month and you don't have to do it

35:31Andrew Sather:Yeah, it'll generally be that easy with no effort whatsoever the only I do still obviously have visibility to it whenever I want I don't want people to see it as just So much of a set it and forget it that they're blind in the situation you can always see what upcoming recurring investments are, what history there is to it. But when it happens, I'm taking a zero action whatsoever. The only action I'm taking is seeing the email notification coming in saying the recurring investment happened and dismissing that notification because I've seen it at that point. That is literally the only action I'm taking on that monthly basis for those investments.

36:02Are you doing like a drip or anything like that?

36:06Andrew Sather:Do you want to explain what a drip is for the people out there? Yeah, sure. Dividend Reinvestment Plan is what DRIP stands for. And it does the same thing as this automation where you're telling it to buy a certain number of shares. But it's doing the same thing for when you receive dividends. Basically, companies that are later on in their journey, they tend to pay out part of their profits as a dividend. A fund like VOO takes all the dividends of all the companies, distributes it for you once a quarter. so you can set up a drip on i don't know the the case for robin hood so maybe you can share on there but for fidelity there is a place where you can manage what happens to your dividends in the settings and in there you can tell fidelity which stocks or which funds you want the dividends to automatically reinvest and so for example let's say i earned 20 bucks in dividends for voo they would take that dividend and buy$20 worth of VOO.

37:11And that all happens in the background. So you don't have to go in and sign in and have to think about all that. And I'd actually do that with all of my stocks. I have, depending on what year we're talking about, I could have 15, 20, 30 stocks in my portfolio, all of them set to drip. So I don't have to go in and figure out what I'm doing with that income. It just continues to snowball in the background without having to think about it.

37:36Andrew Sather:Yeah, I can't swear on this, but I'm pretty sure that for both Robinhood and Fidelity, the default was to have drip on. It might ask you that during the brokerage setup process. But for me, I do absolutely have drip on both accounts. And yeah, I have it set to just reinvest into the same stock it started in. Like you said, I know some brokerage out there, I don't believe Robinhood even offers this option, but I know some brokerages will offer, take all of my dividends and invest it in this stock instead. You can have your dividends kind of move around and everything. I've seen that. I believe that was available TD Ameritrade to be able to invest in different stocks with your dividends.

38:12Andrew Sather:But I do have Drip turned on for it to just reinvest it back into the same stock. And that kind of feeds into the simplicity of the investments as much as possible. Like I've talked about, that's a big focus for me. So having Drip on to just reinvest back into the same stock makes it so simple and easy as well as as increasing the compounding as much as possible a lot of people don't think of it this way but dividends are just a another form of compounding that can happen with your stock market investments and so we want to maximize that as much as possible the last thing you want is for dividends to come out and just sit there as cash that would be the worst case scenario absolutely so we've got all the steps we've got some emergency fund savings we've got our brokerage account open we made our first investment taken that first step we've set ourselves up long term for success because now we have this habit that happens in the background don't even have to think about it the market still will potentially scare us we'll feel like we need to take action or we'll just get nervous about our investments so what do you do next?

39:17How do you kind of start to handle the portfolio that you're starting to build out? What's your take on that?

39:25Andrew Sather:Yeah, so my take on that is the final step here to keep an eye on them, but not too close. Like you mentioned, the market is going to fluctuate. We're going to get scared. It sucks to see you put in X amount of money and see that X amount of money decrease. That's not a good feeling whatsoever. But like you discussed earlier in the episode, the market is cyclical. The market is seasonal. So you may be in a bit of a downturn economically. The market may be in a bit of a downturn for whatever reason. There's just so many millions of factors that go into it. You may not know what that exact factor is, but the market going down isn't a bad thing.

40:00Andrew Sather:It's not a bad thing for a couple of reasons. One reason is that especially if you have automation set up, you're going to buy during that downturn. And what that means is that whatever you buy into is going to be cheaper. So let's say you're buying into Target. You could usually buy into Target, you know, let's say one share was$100 usually. Then there's a bit of a downturn and now one share of Target is worth$90. So that$100 you put in is actually going to get you more than one share. And then like we talked about before, since the market has moved up statistically, historically over the last 200 plus years, you can feel pretty confident that a company's largest Target or all the companies that are included in whatever fund you invest in are going to move up in the long run.

40:40Andrew Sather:So you can feel confident that this downturn is just going to be short term and that when it comes out of that, you're now going to own more than you would have otherwise. So that's the other reason that a downturn isn't necessarily that bad is that in the long run, these downturns are always not only just leveled out, but overcome by upturn in the stock market. So you can feel confident that over the long run, it will actually end up more valuable than it started. So I say to check on it and not too close or not keep an eye on it too close because if you do, then you're going to see a downturn in a company like Target and you're going to get scared.

41:15Andrew Sather:And what that turns into is people panic selling. That's why downturns tend to get as bad as they do is the market takes a bit of a downturn for one reason or another. People see that and they say, crap, I need to pull out before this goes too low. And then the drops a little bit and the next person thinks I need to pull out before this goes too low. And everybody is thinking the same thing and suddenly the market absolutely plummets. And then that's also why you'll see a very quick rebound sometimes is because all those same people who feel like they panic sold at the right point are thinking, okay, now it's the bottom.

41:42Andrew Sather:Now I'll buy back in. And then all of those people are increasing the demand of everything and it can shoot back up. We want to avoid being part of that vicious cycle or trying to time any part of that vicious cycle. We want to just be in there. I don't want to say blind to the situation, but patient in the situation, calm in the situation. You want to be calm during that storm, keeping your automations going. It is absolutely okay to decide to change your automations at some point, specifically in a situation where maybe your expenses change, they change up or down, or maybe your income changes up or down.

42:15Andrew Sather:At those points, it is okay or even good. It's a good idea to revisit whatever automations you have set up and think, you know what? I did just get a raise. I probably have some more money I could put in these investments. My needs aren't really going to change. My monthly expenses aren't really going to change. So let me actually bump up this automation a little bit. Those are the kinds of revisits that we want to be doing. We don't want to be revisiting on a weekly basis and saying, oh, my portfolio is down right now or my portfolio is up right now and let your mood change based on that or let your investing decisions change based on that.

42:47Andrew Sather:Now, this varies a little bit or significantly if you're invested in individual stock because whatever decisions you came to make that individual stock purchase are going to affect what decisions you need to make and how often they need to be made. There are people out there that will day trade or swing trade and they may be making much more quick investment decisions. They may be making investment decisions based on a 30-minute timeline or maybe a few days timeline or a couple weeks timeline. Those aren't the kind of investments that I have ever really dipped into and those aren't the kind of investments that I would, definitely not the kind of investments I would recommend a beginner getting into.

43:24Andrew Sather:If that's where you decide to go in the long run, no problem whatsoever. But upfront, that is just going to introduce a massive amount of stress and a massive amount of guesswork into your finances and into your investing process. I would say just put on a recurring easy investment into a large individual stock or into an index fund or something like that, like we discussed before, and that'll make it much easier to track. Feeding back into the budgeting process, I do think it's important to note down these monthly values in one way or another. Not because we want to be tracking that performance on a dollar by dollar or percent by percent basis, but solely so you can say, I have this money in a taxable investment account or a Roth IRA or something that I'm going to be using to buy a house in 10 years.

44:07Andrew Sather:And you want to know your progress towards that goal. If you don't keep up with your investments, you're going to have no clue what money is in there. The money may have gone down. It may have gone significantly up. you have no clue. So I think it's important to have a general grasp of what's happening with the account so that you can make good decisions for your financial future and for future purchases. And absolutely ignoring that sky is falling news along the way. That's going to constantly be blanketing the news no matter what's happening in the economic space, political space. There are always going to be people saying that everything is going to break down right now.

44:41Andrew Sather:And considering the stock market hasn't broken down permanently in 200 plus years of world wars, crashes of the market, bubbles, political turmoil. None of that has affected the market long enough to make it so that it's not profitable in the long run. It is still averaged out to around 10 or so percent annually throughout all of that. So I'm going to say that I doubt that what's ever happening right now or in the future in the past is going to overcome anything that's happened previously. So if you see headlines that say stock market bloodbath or a sea of red hits the markets today, you're not logging in your brokerage account and figuring out how can I get out of here?

45:25Andrew Sather:No, I'm probably hitting the three dots on the post and hitting not interested. There you go. Let's see that kind of news. It's not going to feed into my investment, so there's no reason to keep up with it. Valuable life hack. Try to get that out of your feed. a lot for you. Yeah. This was awesome. Really great, tangible steps to start investing. If someone's still on the fence, if they're like, I'm still skeptical, or this all sounds great, but maybe it's not for me. Do you have any final words for that person, that little bit of encouragement to get them to go down this journey? I would say one would be that this whole process, these five steps that we walked through can easily take you less than 30 minutes.

46:17Andrew Sather:If you have a little bit of free time on the weekend or a little bit of free time during your lunch break or something like that, you can follow through with this entire process. You can have made an investment. You can have set up that automation if you decided to. It's also okay if you want to make that investment and then wait a day or two just to see how it plays out and feel comfortable with the fluctuations in the market. But let's say 30 minutes worth of active time that you have to put into it. And then the second thing I would say is, as I mentioned before, and continue to mention, I'm a numbers-based person, database person.

46:49Andrew Sather:And so when I hear that the market has returned as much as 10%, which is a significant return, over 200 plus years of all of these horrible worldwide events, which is obviously going to include the US and include the US stock market. Considering it has managed to give a solid return throughout all of that, that gives me a ton of confidence that no matter what's happening right now or what's going to happen in the near even long-term future, the market is going to be able to overcome it. It gives me confidence that my money isn't just going to crash out of nowhere or like you said, in a stock market bloodbath, I'm just going to lose everything.

47:27Andrew Sather:That's not what happens. You only lose everything if when it dips, you sell. That's the only time that you're going to lose anything from this situation. As long as you see the dip and you say, I trust that it's going to rebound and you just sit there and don't do anything or even better, just let your investments keep running. Then when the market rebounds, guess what? You quote unquote got everything back. You didn't lose anything because you stayed in that investment. That's what we want to do. And that's going to avoid you from losing anything from any downturn that happens. And I feel confident that no permanent downturn is going to happen where you're just going to lose money indefinitely.

48:06Andrew Sather:That has never happened through the entire history of the market. And so I don't see it happening anytime soon. Yeah. Great advice. Beautiful. So, Andrew, this was incredibly valuable. As always, I'd love to hear whether you as the listener invest, how you invest, or what your experience with investing has been. Feel free to email me at evaninvestingfreebeginners.com. And remember, financial freedom is built one smart move at a time. Keep it simple. Keep it steady. And at any rate, I'll see you next time. Peace.

48:45This message comes from Betterment. Dan Egan, VP of Behavioral Finance and Investing, explains how Betterment takes the time-consuming work out of smart investing. I grew up learning about finance and investing myself and realizing that I needed to reinvest dividends and rebalance my portfolio. And if there was an opportunity to tax loss over time. And then I realized that I was doing all of these things that were pretty straightforward to implement. I just needed to spend my time doing them. Betterment automates the same good practices so that I know I'm doing portfolio management and goal-based planning in a way that makes sense and is responsible without me having to spend hours of my life doing it.

49:26Learn more at Betterment.com. Investing involves risk, performance not guaranteed. Betterment does not offer tax advice. TLH may not be suitable for all customers. Learn more at Betterment.com slash TLH dash terms.