How to Invest: for Beginners

I opened my first investment brokerage account under the guidance of a corporate CFO when I was 18 years old.

I double-majored in Accounting and Finance. During college, I interned at a wealth-management firm, and professionally I have been an accountant at two, reputable Private Equity firms that invest in real estate. 

I invest some of my money in the stock market, sometimes I make a trade or two on my Robinhood account, and many of my mentors manage investment funds in various asset classes.

Do any of these make me an expert investor?

Absolutely not.

What they do make me is informed when it comes to the concept of investing.

I love finance, and I love growth and success. I want everyone to participate in the capital markets in some way because that is the best way to learn how the economy really works. 

It seems like everyone knows that ‘investing’ is a great idea, but it is a nervewracking experience to move money from your bank account into an unknown void of hoping for the best.

I want to break down what investing is and how to do it safely because it truly is the best way to build wealth, AND it’s fun.

What is investing?

At its core, investing is putting money into a venture with the expectation of financial gain in the future.

Some examples are: buying shares of stock, purchasing a restaurant franchise, or investing in an early-stage startup company as an angel investor. 

All three of these have different levels of risk, require a wide range of funds on hand, and are in entirely different markets.

What they all have in common is that they are all forms of investment. You are not loaning money to anyone in these cases.

Instead, you are hoping that the money invested will grow at a higher rate than it would in a high-yield savings account or under your mattress. 

*For the rest of this post we will primarily look at financial products in the capital markets since they are the most accessible

How do I invest?

The simplest way to invest is to use a brokerage service.

These services link buyers and sellers for financial products. Institutions like Vanguard, TD Ameritrade, Charles Schwab, or Robinhood all make creating an account safe and straightforward.

Once you make an account, you can buy and sell pretty much anything you want.

I would recommend transferring a very trivial amount of money into the account at first so that you can learn the mechanics.

Enough so you won’t be at any severe financial risk. Ideally, $500 or more would be a great goal because, as the market moves, you’ll have a good gauge of what it does to your portfolio (a group of stocks).

What do I invest in?

Time has proven that Index Investing is one of the safest and most efficient ways to build wealth in the stock market.

Wait what? 

Okay, an Index is simply a bundle of different companies’ stock that is all under a similar umbrella. If I say that “I invest a lot in tech stocks,” then you can guess that I probably own shares in companies like Apple, Uber, Amazon, Google, etc.

This is a simplified version of an index. One of the most famous indices is the S&P 500. This is where I recommend everyone invests some portion of their money.

The reason that everyone should own some of the S&P 500 is because that particular index is comprised of the 500 largest companies in the US.

Investing in the S&P essentially means that you are investing in a large portion of the US economy, and with an average annual return of 9.8% over the last 90 years, it is certainly nothing to look down on.

How do you actually invest? You buy shares of a mutual fund, which is a group of stocks, or you buy shares of an exchange-traded fund (ETF), which is a more tradable version of a mutual fund. 

If you want to buy shares of a particular stock that you have on your wishlist, maybe Twitter, then you would put their symbol (TWTR) in your search bar and buy as many shares as you want.

Will the market go up or down? 

Yes. 

When you buy stocks or invest in mutual funds, then your maximum loss is 100% of your investment because the business you own a piece of went out of business. 

If the entire S&P 500 went to $0.00, we all would have a MUCH BIGGER PROBLEM than our portfolio’s performance.

This is why investing in an index is less risky than solely owning shares in a single company. Index investing has diversification.

Diversification is a fancy word for holding different stuff.

For example, Apple may go up, and Amazon may go down or vice versa. If you own both, you have a less volatile portfolio, and if you own pieces of 500 stocks, then the impact is even less.

Once you have a solid foundation, then invest in what you know or would like to learn about.

My good friend buys one share of a stock he may be interested in owning to see how it behaves for a little while before putting more money into that company. I like that strategy.

The market can be very emotional.

Headlines seem to always read “all-time high” or “all-time low” because that’s what draws the most attention.

These headlines shouldn’t affect your behavior because the market consistently goes back up because the economy always comes back. 

What is the ultimate goal?

The ultimate goal is financial stability and peace.

By putting a little money in at first, doing more research on what index you’re interested in, and eventually developing a routine of investing a little more in your portfolio, you will continue to see your money grow.

It will go down sometimes, but when you stick to a routine, the power of compounding will result in a substantial piece of wealth versus leaving everything in your bank account and hoping for the best.

Once you dip your toes in the pool of investing, you’ll realize it isn’t that scary if you practice good habits.

You will have impressive wins and sad losses, but you will come out on top if you stay the course and let your money work for you. 

A great side benefit of participating in the market by investing is that you will learn so much by osmosis.

You’ll find yourself reading the news more intentionally. You’ll see how the Federal Reserve or a strike at a factory impacts everyone at large because you now have a finger on the pulse of the economy.