5 Easy Lessons I Learned to Start Investing

Jun 13, 2022 | Investing

Before you begin reading this article, just know that I am not a licensed financial advisor and you should definitely seek professional help if you want to talk about some tips and strategies on how to grow your net worth. I merely want to share what I have done personally to start investing and share some of the things I learned along the way. 

By no means is this an extensive article on stocks and investing, so you will need to research some of the words in this article if they are foreign to you. I will try my best to do most of the heavy lifting by linking the words that were foreign to me when I first started. At the end of the article, I will also share a few key terms I didn’t discuss in detail to help guide you along the way. Personally, I started learning a lot more about the stock market once I had money invested in a few places. Once you start investing in something financially, your level of interest will definitely increase and you will start forcing yourself to learn more as you explore other stocks.

We all hear the benefits of investing and why it’s important to start as early as possible. But if you are new to all of this, you may not know why people invest in the stock market yet. So here is a quick explanation as to what a stock is and how you earn money investing. 

When you purchase a stock, you basically buy a small share of that company (shareholder). In simple terms, you become a small owner of that company. The more shares you buy, the more you own from that company. By buying shares, you can also make money in various ways. When the cost of each share increases, you can sell your stock for a higher cost than you originally purchased and make a profit. Some companies pay their shareholders back (dividends) each quarter for being an owner. By owning stocks, you can make a profit by selling shares for a higher cost than you purchased them, holding on to them over a long period of time until their values increase, and collecting dividend payments each quarter during that entire time. 

Now that we know the simplest ABCs of the stock market, here are a few lessons I learned along the way to start my journey into the stock market as a newbie. This is only my experience and doesn’t really constitute financial advice. I hope that you can share a few lessons you have learned along the way to make it easier for our readers to start investing too.

#1: Assess Your Finances Before Investing in Anything

Before you start investing any money, you want to make sure you have a few things under control financially. For starters, you should not be carrying any large amounts of credit card debt or large outstanding balances. And you should at least have some type of emergency fund set aside just in case things come up. I generally like to have $1000 of liquid cash in a savings account just in case any emergency purchases come up.

The emergency fund is crucial because it will make sure you keep your money invested for a longer period of time without having to pull money out when an unexpected expense comes up where you need money asap.

Once I had all my credit cards paid off and had enough money stashed aside for an emergency to cover a few months worth of expenses, I was finally ready to start investing. That was when I realized I had no idea what to do or where to start.

#2: Make sure to pick the right strategy

Before you begin investing, make sure to have a strategy in mind before you get started. You want to decide early on if you are planning on investing for the long-term or day trading where you track prices daily and try to buy low and sell high. Having some type of strategy or framework in mind will help you make decisions as stock prices move up and down. My personal strategy was to buy and hold for as long as possible and to consistently buy each month regardless of what the prices were over time (dollar-cost averaging). No one best strategy works for everyone, so make sure to pick what is best for you and your risk tolerance.

Select your strategy (what type of investor are you). Are you trying to make a quick buck in the market or hold stocks for the long term? Are you trying to time the market to buy at the lowest price possible or not? These are important questions you want to have answered before you start so you don’t make any emotional transactions based on what other people are telling you to do. Everyone is going to have advice and most people will try and sway you to invest one way or another. Do what makes sense for you. 

Helpful Links

#3: Choose the Best Platform for You

I personally used Robinhood when I first started investing. The main reasoning behind that decision was that Robinhood made it easy, quick, and affordable to get started. I basically created my brokerage account for free and was able to get started right after I created my profile.

Any company or platform you use will require you to create a brokerage account. That is basically a place where you hold your money before you can buy or sell stocks. You can not trade using your checking or savings accounts directly. The brokerage account is similar to those accounts and is needed to invest.

#4: Pick the Right Stocks & What I Picked

After much research, I decided to use Exchange Traded Funds for my investments when I first got started. If you are completely new to investing, here is what an ETF is compared to one specific stock. When you purchase one stock in a company, you own one share of that company and nothing else. When you buy one share, or stock, from an ETF, you buy a small bundle of stocks all at the same time. It’s probably one of the easiest passive ways to diversify your money and make sure you minimize loss. There are different types of ETFs that have a specific focus on the area they focus on. Some ETFs give you a little bit of all top fortune 500 companies, others give you a little of all the tech companies. You can decide which ones you want and start there. I personally have the majority of my money in three different types of ETFs.

I personally chose to invest in one ETF that has a little portion from all the fortune 500 companies in the US, my second choice is a similar ETF focused primarily on the technology industry, and my third EFT has companies that pay back the highest dividends each quarter. These are personal preferences to me. If you want to look up each of the EFTs, here are their names and the top 10 stocks each one holds when I wrote this blog post. There may be some duplication, but I don’t really mind having more shares of the same companies if they are all part of different ETFs.

VYM (Vanguard High Dividend Yield)

  1. Johnson & Johnson
  2. JPMorgan Chase & Co.
  3. Procter & Gamble Co.
  4. Exxon Mobil Corp.
  5. Chevron Corp.
  6. Home Depot Inc.
  7. Bank of America Corp.
  8. Pfizer Inc.
  9. AbbVie Inc.
  10. Broadcom Inc.

VOO (Vanguard S&P 500) Top Fortune 500 Companies in the US

  1. Apple Inc.
  2. Microsoft Corp.
  3. Alphabet Inc.
  4. Amazon.com Inc.
  5. Tesla Inc.
  6. NVIDIA Corp.
  7. Berkshire Hathaway Inc.
  8. Meta Platforms Inc.
  9. UnitedHealth Group Inc.
  10. Johnson & Johnson

VGT (Vanguard Information Technology)

  1. Apple Inc.
  2. Microsoft Corp.
  3. NVIDIA Corp.
  4. Visa Inc.
  5. Mastercard Inc.
  6. Broadcom Inc.
  7. Cisco Systems Inc.
  8. Adobe Inc.
  9. Accenture plc
  10. salesforce.com Inc.

I personally chose Vanguard’s ETFs since they tend to have the lowest fees across the board compared to other companies that have similar ETFs. Feel free to compare the expense ratios of companies that offer similar types of ETFs to see what you prefer. 

#5: Helpful Links and Terms to Know

I included a few helpful links below that I came across as I started learning more about investing and stocks. The more serious I got with investing my money in the stock market, the more I saw myself doing research on the internet whenever I had breaks throughout the day. The benefit of having access to the internet on my phone made it really easy to learn whenever it was convenient for me.

Conclusion

What I covered in this article are the basics I learned before I started investing in the stock market. We really only hit the tip of the iceberg. You have to make an effort to continue learning. Only invest in what you understand and just know that each person’s strategy may look different. Start somewhere and do what makes the most sense for you. Once you start investing, you will begin learning more and gaining momentum. Carve out time each week or month to learn more about investments and teach yourself more each time about the companies you are trying to invest in. Eventually, you will be having a conversation with a few other investors exchanging terms like dividends, and reinvesting with dividends, and realize how much you have learned along the way. Be patient and give yourself time to develop these skills. After all, it’s not stuff we learned in school as a kid, so it will take some time.