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How do I start?
How do I start?
Your first decision is deciding how to invest your money over time. Some people enjoy purchasing their favorite stocks of products we use, see around us everyday, or that are integrated into our daily lives. Others want an easy way to invest in those same stocks without having to check your investments or without large sums of money. In this section, you will learn about several different ways that you can invest your money.
Option 1: Buying Invividual Stocks
Option 1: Buying Invividual Stocks
Purchasing shares allows us to get the full benefits of owning shares: dividends, ability to
When starting out in investing, most think about purchasing shares of individual companies that they know, see everywhere in their daily lives, and/or use. This is not a bad strategy and often is used by many investors. The issue with purchasing individual companies are:
Cost for each share may be excessive (Costco $800+ / share, Microsoft $400+ / share, Nvidia $141 / share)
Relies on you knowing about the company, how they are performing, and understanding the changes to the business and economy that may impact operations (e.g. Blockbuster was the largest video rental business)
While I would still recommend purchasing individual shares, here are a few ideas on how you can still invest in companies that you like, but at a fraction of the cost.
Option 2: Index Funds
Option 2: Index Funds
Standard & Poor's 500 (S&P500 or SPY)
Standard & Poor's 500 (S&P500 or SPY)
Index of the top 500 performing companies across 11 different sectors in the United States stock exchange (List of all Stock Exchanges in the US)
Why track the S&P500?
One of the major index that reflects the overall markets health/strength
Established in 1957 and has lasted through recessions, wars, and economic shifts
Consistent returns annually (10% since inception); 13.94% over the past 15 years
Poor performing stocks are removed from the index every year allowing you to invest and hold your position, while emerging or stronger stocks are added
If your efforts are not consistently beating the S&P500 or are not similar to the index, consider investing in the S&P500
The top chart represents the Annual Return by Year
Notice how a bad year (-4.45 in 2018 or -18.14 in 2022) is always followed by significant returns that are often greater over the next couple years
In the bottom chart, we see the average return on investment (ROI) is 10.49%/year; over the past 15 years it has been 13.94%
Nasdaq (Nasdaq 100 or QQQ)
Nasdaq (Nasdaq 100 or QQQ)
Why track the Nasdaq 100?
Another one of the major index that reflects the overall markets health/strength of the top 100 stocks in the Nasdaq Exchange
These stocks often reflect the top stocks in the S&P 500
Consistent returns annually (9.94% since inception); 18.68% over the past 15 years.
Founded in 1985
Stocks must meet the following criteria to be on the Nasdaq 100 or they will be replaced
Nonfinancial - Financial companies tend to be dividend focused and not growth focused. You will get more dividends and be stable in price, but growth potential is often limited. This is why brokerages that manage your investments often move monies into financial stocks as you get closer to retirement to provide stability, dividend returns, and hopefully consistent, albeit lower, returns.
Traded for at least three months on an exchange
Minimum average daily trading value of $5 million (measured over the previous three calendar months). Average volume depicts the interest and may often reflect the potential appreciation of a stock (Higher demand, higher prices), higher value.
The top chart represents the Annual Return by Year
Notice how a bad year (-0.14 in 2018 or -32.49% in 2022) is always followed by significant returns that are often greater over the next couple years
In the bottom chart, we see the average return on investment (ROI) is 9.94% / year; over the past 15 years it has been 18.68%
While past returns do not mean future returns, the Nasdaq has been stronger over the past 15 years than the S&P500. Since the S&P500 tracks the top 500 companies, there are more companies that could lag the index causing price to be stagnant. On the other hand, while the Nasdaq is only the top 100 companies, it often reflects the strongest of companies that are often making breakthroughs are large gains when they are a part of the index.
e.g. Moderna during Covid, NVDA in their dominance and expansion of the semiconductor market, Amazon during Covid and in their expansion of company
Option 3: Mutual Fund
Option 3: Mutual Fund
Step 1: Decide on a Management Firm that you would like to invest in
Look at the minimum investment, fees, and mutual fund options
Step 2:
Option 4: Targeted Date Fund (Mutual Fund)
Option 4: Targeted Date Fund (Mutual Fund)
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