Back to the Basics: A Starter Guide for New Investors

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2:20And if you don't have a good reason why you're kind of going down a path, you'll just jump to the next path. And so if you can nail down the why for the stock market, that helps you dig through some of the concepts.

2:50Step-by-step premium investing guidance for beginners. Your path to financial freedom starts now. Starts now. All right, folks. Welcome to Investing for Beginners podcast. Today, Andrew and I are going to discuss a guide to investing for beginners. We're going to talk about some kind of high-level overviews of things you need to start doing if you want to start investing. Most people get super excited about talking about stocks and what kinds of things you're going to pick, but there's some groundwork and there's some backstory you need to figure out before you start investing. And so we thought we would talk about that to help you get started on the right foot.

3:33So with that, let's go ahead and dive in. So where would you start, Sir Andrew? I think this applies to a lot of things and it's easy to gloss over it. And it sounds a little bit like you're overthinking it in a way, but it's really not. Before you engage in something, you really want to have your why locked down. And the reason for that is because you're going to be excited about something, but eventually that excitement will wear off. And if you don't have a good reason why you're kind of going down a path, you'll just jump to the next path. And so if you can nail down the why for the stock market, that helps you dig through some of the concepts and ideas that can be a little bit challenging and force you to think a little bit and learn a little bit.

4:23Because that can be something that's harder for us to do. So in your opinion, why invest in the stock market and why go through all the effort to learn something that's a very confusing and jargony and complex place? Well, yeah, I guess the easy answer is it's the best place to grow your wealth. the, if you look at the returns that you can get from putting your money in a savings account, for example, the returns you're going to get are exponentially better in the stock market than they would be in a savings account. And at today's savings rates, we've talked about this before, but with Wells Fargo paying a blistering 0.5 % to save your money, you're losing money by leaving it in there by the impact of inflation.

5:21And when inflation is up like it was a few years ago, then it even doubly makes it worse. So savings accounts are a great place to store money that you're going to need for liquidity, but to grow your wealth, not so much. So the stock market has proven over the last 100 years that this is the best place to grow your wealth. depending on which survey study you look at with dividends, you're going to get anywhere from 8.5 to 10 % returns over a long period of time. And so putting your money in the stock market is the safest way to go. And I know a lot of people are like, safest? Are you nuts? And yes, there is risk to investing, but there's risk in just about anything you do.

6:10and putting your money under a mattress or putting it in a savings account is losing you money. And putting it in the stock market and leaving it there for 30 or 40 years is going to make you money. It's proven over time after time after time. And if you look at any stock market chart, if you zoom out, you see it going from lower left to upper right and moving up in a nice, fairly orderly fashion. If you zoom in to what happened the last three and a half weeks, yeah, you may see all the kinds of jagged edges and sharp ups and downs and everything. But if you focus your viewpoint on the longer term, you're going to see all that smooth out and the market will give you the returns that you want.

6:58And so to me, that's why investing in the stock market is probably undoubtedly, unquestionably the right place to start. I remember coming across a book called Rich Dad, Poor Dad. And that one really opened my eyes because I think people come into the world of money and they just assume, well, if you make a lot of money, you're going to be wealthy. And that's actually not the case at all. And there's lots of podcasts out there and there's lots of studies out there. Human beings have this natural tendency to allow our expenses to rise to our income. And so it really is not about do you make 50 grand a year or 500 grand a year?

7:42It's really about how much of that do you save and how much of it do you invest? Like Dave said, do you stick it under a mattress or do you put it to work? And putting your money in the stock market is putting it to work. And the compounding And the fact that it is also something people don't understand. And that's where the beauty is. Yeah, for sure. And the compounding impact doesn't get enough discussion. Warren Buffett, one of the richest men in the world, he became a billionaire, I believe it was when he was 50. Yeah, when he was 50. And now he's 95 and he's worth hundreds of billions of dollars.

8:29And if you look at his compounding effect of his own wealth, it just basically goes straight up from the time he turns about 65. And that's the impact of investing over a long period of time. But the only way you can do it is to start. And you have to start putting money into the market for it to start having an impact. so i guess what are some things that maybe investors need to consider before they start yeah i mean there's there's a lot something though that just like kind of hit me over the side of the head um for a how many times do you hear like a one billion dollar company become a 100 billion dollar company or in to take that up a step it'd be a 10 billion dollar company turned into a trillion dollar company.

9:19Very, very rare. But an investor like Buffett was able to 100x his money. And that's the power of compounding is you don't have to pick a magical business if you have a diversified portfolio. You can create wealth, to your point, in ways that's not seen in other places. So sorry, completely got derailed. But you said the things we should consider before starting. time horizon is going to be a big one the stock market is very volatile in the short term and it's affected by the economy it's affected by interest rates it's affected by how people are risk tolerant are they risk on or are they risk off is money flowing or is money being tightened what's the Fed doing All of these things have an impact on the stock market, not to mention the companies inside the stock market.

10:17However, over the very long term, you'll see that chart go up and to the right because these companies and the economy as a whole continues to grow. So as an investor, you really have to consider, okay, when do I need this money? And am I able to leave it be long enough for that growth to happen? Because every stock you pick, some will be winners, some will be losers. But you almost always guarantee yourself to be losing if you are forcing yourself to sell at a time that's not opportune for you. and that's where the time horizon comes into play the short-term factors they uh don't matter as much the actual underlying fundamentals how the businesses have grown that matters much much more the longer and longer you invest in something uh the other thing that you would want to consider would be your risk tolerance.

11:24And this goes to how comfortable are you investing in things and letting them do all the hard work. One of the benefits of investing in a stock market is you are putting your money in with some smart people to run these companies, but they need time to do their thing. And the risk tolerance comes into play when if you are going to invest in something that is risky to you and you're going to be, you will pull your money out faster than you may for another investment, then you could miss out on that company turning the corner and becoming a winner. And the studies have shown the longer you keep your money in the market, the better you're going to do.

12:14And so as Charlie likes to say, interrupting compounding unnecessarily is not a good thing. And so as it pertains to risk tolerance, you need to decide what kind of investor you want to be and how much risk are you willing to take. And some of this will depend on how old you are when you start investing, your risk tolerance as a 25-year-old will be vastly different than a 58-year-old. And so that will have some bearing on what kinds of investments you choose to invest in. It also goes into what kinds of companies or what kinds of things do you want to invest in? Do you want to invest in super risky things like quantum computing, which doesn't even generate revenue yet and is very speculative?

13:06Or would you rather invest in something like Johnson & Johnson, which is a 100-year-old company that's probably going to be around for a while longer? And you're going to expect different returns for those two, but they have different risk profiles to invest in. And so before you start investing, I think the important thing is to decide what kind of investor do you want to be? Do you want to be the person that pick stocks like Andrew and I do? Or do you want to be somebody that is comfortable investing in index funds or ETFs? Or do you want to be somebody that invests in their 401k and call it a day?

13:42There's nothing wrong with any of those three. All three of them can get you where you want to go. You just need to decide what you're comfortable with and stick with that and go with it. Don't try to chase returns. We talked about this in the last show. Don't chase returns. that will up your risk tolerance, that'll up your risk and make it harder. And as Warren Buffett said, rule number one is don't lose money. Rule number two is don't forget rule number one. In investing, a lot of times you can be very successful by just not losing money, by taking more risks than you're comfortable taking. And if you can just do that, you can be a very successful investor.

14:24So you don't have to find the next air quote Amazon to be successful. Does it help? Of course, but you don't have to, you can be very successful not doing that. And so that's kind of how I look at risk tolerance. I'm excited to share our friends over at the Plink app release a major upgrade featuring a sleek new look, real-time insights, smoother trades, and tools that help you feel more confident with every move. Here's the bonus I think you'll love. They also released the Dividend Match, where they'll match 25 % of all the dividends you earn up to$250 a year. You can track the match along with estimated dividend payouts all within the income hub on the app.

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16:47Download my ebook for free at stockmarketpdf.com. Yeah, that's great. Next thing to consider that investors should think about that hopefully, you know, it sounds really boring, so it's easy to kind of gloss over it, but fees. when you look at fees and we talk about compounding and how things really add up and snowball when it comes to building your wealth in the stock market, fees are the hole at the bottom of your boat that really just deflate your compounding in a way that really adds up to, it can add up to thousands, hundreds of thousands of dollars as well over a long enough time horizon.

17:29And so what are the fees in today's world? Mutual funds still exist out there, and some of them have quite high management fees, and you don't necessarily need to pay those type of fees. So doing a little bit of the extra step, like looking into index funds that may or may not achieve similar results to a mutual fund with a lot less turnover, which means a lot less activity or volatility within the fund. Saving a percent or two can be massive when it comes to your long-term wealth. So definitely doing that if you're looking at mutual funds, if you're looking at ETFs, even some of these ETFs that are more actively managed or maybe they have access to special investments that regular retail investors don't have, will probably carry higher fees.

18:29So putting the fees in the equation is always a good idea because it can add up. The other fee to consider is whether or not you want to use an investment advisor. In a lot of cases, they could be very helpful, but in some cases, they may not be the best fit for you. And if they charge 1 % or 2 % annually, that comes out of your bottom line. And if those fees will add up over time, and if it's something that you don't necessarily need, then you could look to do other things. For example, you could look to some investment advisors offer one-time services. So in other words, you go in, you sit down, you map out a plan, and then you go out and execute the plan.

19:13And whenever you need help or questions about anything, you book another time with them. And so it's kind of a flat fee structure. And there are firms out there that will do that. And our friend Jeremy Schneider came up with a company. He created a company that will do that as well. And so those are kinds of things that you can use to help reduce some of those fees. And like Andrew said, that's money that's coming out of your bottom line. And if you can reduce it, that's the best thing. Yeah, for sure. All right. So what are some, air quote, perfect investments for beginners? Perfect investments.

19:55Yeah. If you know of any, please let me know. Right. I'll get back to you on that. So where should they start? What is the first decision a beginning investor should make? Yeah. Obviously, you can't invest without a brokerage account. So there are a lot of options out there. My personal favorite sponsor of our show, Plink. They make it super, super easy. It's very clean UI, and I love the app. You also have some of the traditional banks. like the Bank of America of the world and just a lot of different names. It's not hard to find, but you definitely want to get a brokerage account and open it before you start with anything.

20:44It's not hard these days. It's so simple. I would argue it's as simple as opening an account for a Facebook or something. They made it really easy. You can do that. And within minutes, you can be set up and trading and getting that compounding started. So any excuses you have about why you haven't started yet are lame and you should get over them. Yeah, I agree. It is so much easier than even it was five to seven years ago. It's so easy to get started. Like Andrew said, the apps and the accounts online make it so easy to open an account. and you can fund the account today and you can start buying things.

21:29So once somebody gets the account funded, where should they go next?

21:39ETFs, index funds, those are great places to start. And especially the more money you're allocating as a percent of your life savings, the more you should look at index funds and ETFs because to the Warren Buffett idea, don't lose money and your compounding will perform much, much better. And being in a good ETF or index fund can help you do that. So SPY is one of those index funds I've always been familiar with. It'll just buy the S &P 500. Yes, it's kind of AI heavy right now, but whatever the next thing is will probably rise up through the S &P. and so you'll naturally get allocation to that.

22:27And it's an awesome just set-it-and-forget-it kind of strategy. And honestly, for the majority of people, it's probably the best one. No need to complicate. If you enjoy kind of doing the DIY stuff, then yeah, by all means, let's talk about the rest of the episodes on our show. But for most people who just kind of want to check this off their checklist, buy and hold an ETF and don't touch it. That's the important part. Don't touch it for a long time. We'll give you wonderful, wonderful wealth building. Yeah. Yeah. They're great vehicles to grow your wealth and it's uncomplicated and it's easy to do and it's easy to stick to.

23:14And I strongly encourage people if they aren't already investing, that's a fantastic place to start. The next one I would probably throw out there would be the 401k. If you're not investing in your 401k, if your company offers a 401k and has a match and you're not contributing to that, please stop listening and go sign up for that right now. That is free money. That's 100 % return. You can't beat that. Or you'd be hard-pressed to beat that. And that is one of the absolute best ways to get started investing. Most companies that have a 401k. We'll have some options. When I worked at Wells Fargo, we had like 20.

23:59So that was a little different. But I saw that my sister or my daughter-in-law's 401k had four. So a lot of times it's not overwhelming, but that's a fantastic way to start. The money will be taken directly out of your paycheck. And so you don't even see it and it'll compound for you over a long period of time. And it's probably one of the easiest ways to get started investing. If you have zero interest in buying individual stocks, the idea of all these index funds and ETFs leaves you cold, then the 401k is a fantastic way to start. And a lot of companies, because they do have that match, gives you a bonus on top of what you're already earning from the stock market.

24:45And there's lots the 401k millionaires out there. So maybe you could become the next one. Yeah, I should do it. Another option is robo-advisors. What are your thoughts on robo-advisors? I guess I'm a little bit kind of eh on them. I did use a robo-advisor many years ago for, I was trying to find a better way to save money because when I was at the bank, the savings account rate was terrible. And so I thought maybe I could just put a little bit of money in a robo-advisor and see how it worked. I didn't like it because I had little to no control over the investments and I had little to no control over how the money would be allocated.

25:33So they just set a, okay, here's your portfolio. You get this, this, and this, and that's where the money goes. And if I wanted to adjust any of those things, I wasn't available to do that. And so it didn't give me any sort of flexibility, which I hated. And so I did it for about a year. And then after my year was up, I was out. So I think there is a place for them and for people that want that kind of guidance. But I don't think they're as popular as they were a few years ago. So I'm personally not a fan. Yeah. So it's like going to a restaurant and there's one entree and one appetizer and they're terrible.

26:15Yes. And those are your choices. And they charge fees to do this too. So it's not free. So that's the other, I guess, trick about it is that they're doing in essence the same thing you could do with your 401k or the other options, the index funds or the ETFs. But instead, they're managing it for you for a fee.

26:44So another option is individual stocks. If you've listened to us at all, you know how much we love to talk about individual stocks. The beauty of it is you are getting to participate in some of the businesses that are all around you. And you might be a customer. Maybe you have a Netflix account or maybe you buy a pair of Crocs or maybe you love scrolling on your iPhone. These are all companies that are public that you can participate in their profits. And it's super, super easy. I use, like talking about Plink, I have a auto buy for my new favorite bank and it's automatically deducted from my brokerage cash and buys this stock every month.

27:33So that's super cool. I never have to touch it. Shout out to Evan Automation all day long. And those are the kind of tools that we have available now that were not available. You don't have to invest with a lot of money. For a while, it was a big deal. You could invest only$5. Now you can invest just a dollar. So literally no excuse. You can take your pocket change and really build wealth for yourself slowly and over time. And you will be shocked. Even a small amount, even a hundred bucks, 200 bucks a month can snowball to a ridiculous amount. And you'll blink and look behind you and be like, oh, wow, I'm glad I did that.

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