Investing in stocks may sound complicated to many millennials, but if I managed to learn the basics then so can you. I am by no means an expert in this field. However, when comes to managing your finances you need to learn the basics with how to invest in the stock market. This is just my opinion, but the less you know about this subject the more prone you are to paying unnecessary fees. In just a few I’ll show how easy you can start investing in stocks while you educate yourself even further.
I know there are many people out there who generate most of their income through stock investments. In my opinion however, this wouldn’t be my primary choice. I stick to the motto that you have to be passionate about what you do. This doesn’t mean that I will stay away from stock investing, but that I will include it as a part of my income portfolio.
One important concept you should consider in your investment journey is to act rational, and without emotion. Chances are if everyone is talking about the Nike stock going up, you should think twice or even 9 times before investing. Remember the 2008 crisis? So many people lost thousands, or even millions in just one day. However, it was a “mega-sale” for others. Why? Because high performing stocks that rarely went low were at the best price to buy!
When I first became hooked in with the stock market I quickly learned how time consuming it was. I literally had the Bloomberg website as my homepage, and listened to news about the market on my way to work. As I fumbled around for different online resources, I learned about “robo-advisors”.
So what are robo-advisors you say? Think of them as your virtual advisor that manage your stock portfolio with little to no human intervention. These advisors are essentially just computer algorithms that large companies such as WealthFront & Betterment use. These algorithms depend on historical data to choose the most effective way to rebalance your portfolio. You even get cool features such as tax-loss harvesting, which let you deduct any losses with your investments against your capital gains.
Capital gains = the money you gain from your investment
The cool part about Wealthfront’s robo-advisor is that you don’t have to pick which stocks to invest. When you set up your profile initially you’re asked a set of screening questions that dictate your tolerance level. A good rule of thumb is that the younger you are, the higher your tolerance will be. The tolerance score ranges from 1-10, where 10 is the highest risk.
My tolerance score was an 8. This meant that I had a better chance to obtain a higher capital gain, but also a bigger loss. You can always customize your tolerance level, but I would personally stick with what Wealthfront recommends. You can lean more here. My investments were diversified with different ETFs (exchange-traded funds) that Wealthfront recommended.
I personally started investing with Wealthfront, but I’m sure Betterment would have provided similar results.
Note: Wealthfrong requires a minimum of $500 to start investing. They’ll manage your first $10,000 free!
This meant that all I had to do was invest my money monthly, and watch my money grow! As previously mentioned, it’s important to not get emotional with the money you invest. When I initially invested my $500 I saw my money go up and down constantly throughout the day. This is normal since people withdrawal their funds, and reinvest daily.
I Initially set up Wealthfront to automatically withdraw $200 from my checking account each month, and I eventually started seeing my money grow. After 8 months I accumulated a little over $3,000 with the money I personally invested.
Taking out all my chips
Unfortunately, I withdrew all my money from Wealthfront around August 2016. This would have been 8 months since I initially invested my money with Wealthfront. In the eyes of the government this would have been considered a short-term investment, and therefore this amount would count towards my annual income. I withdrew my money since I was working on build many different sources of income at one time.
I wanted to build additional funds that would allow me to survive 3-6 months without my job. At the same time, I was focusing on contributing to my 401K, and stock portfolio. The result of this was a bunch of headaches, and feeling like it would take forever to accomplish anything. Hence, why I decided to focus on building my liquid cash first.
To be honest I didn’t think I would have made much in my capital gains, but to my surprise I ended up with $168.44 in an 8-month period. Now this might not be a lot, but it was money that I had set in auto-pilot!
This would have been roughly $21 of monthly income. ($168 / $8)
Could I have done better? Of course, there are plenty of effective approaches that I could have taken. However, I didn’t want to spend months learning more about stocks while taking no action. There’s still so much I need to learn in the realm of investing, but I’m now more confident in reinvesting my money in the stock market.
I believe that making my first stock investment through Wealthfront opened the doors to new questions, and answers. Because I became curious on how to invest in the stock market I became more financially savvy. I still have a long way to go, and although I’ve temporarily postponed investing in the stock market I plan to invest in the near future.
Investing in the stock market became my catalyst to discovering new ways on building passive income. There are many passive income opportunities that don’t include the stock market. This is great news for a lot of millennials (like me) who find the stock market challenging to learn.
I challenge you to start your investment today. Starting an investment through Wealthfront requires a minimum of $500, and a minimum contribution of $100 a month. If $500 is too much at the moment, then you can open an account with an online broker like eTrade, MerrylEdge. After opening your account, you can start purchasing your first stock. The price for one stock can range from $1-$50 depending on your budget. Don’t be afraid to pick a bad stock, but do some research.
You don’t have to do a ton of research, but I recommend you pick a stock from a well-known company. One way to narrow down your research is to think of the items you already purchase constantly, and pick a company that sells them.
For example, I constantly purchase Nike shoes, shirts, etc. So I would research Nike further to see how their stock has been performing in the past 12 months.
If there’s one thing I’ve learned through making my first investment in the stock market, it would be that taking action means everything. Don’t be scare of making mistakes because we will all make some at one point. Learn from your mistake, and make smarter choices.
Good luck investing!
Questions for you:
Are you already investing in the stock market?
How do you do your taxes each year?