Please subscribe to my YouTube channel @MoneyWithJames
#Money #Education #StockMarket #RealEstate #Learning #Finance #Investing #Learn #Wealth
So you decided it is time to start investing in the stock market?
Well done you! The journey begins now!
So where do you start?
First, you will need a stock broker, which today means an online account/app. Pending which country you live in the answer will be different.
My advice is to choose the lowest cost online broker. Personally, I use, Interactive Brokers. They are one of the cheapest online brokers in the world servicing most developed countries. It’s pretty professional and maybe too complicated for some to start with but if you can learn the basics then it will serve you for a lifetime with functionality that is good enough for professionals, which is why I started to use it.
I have included my referral link here. I am not sponsored by Interactive Brokers but if you wish to support my blog and YouTube channel then please use the link when setting up your account.
Otherwise please see a starting list below for some popular low cost brokers in your country. If I have missed your country then just search online for “low cost online broker”. Or consider using your bank, as most major banks also have online stock broking accounts you can easily set up.
So you now have your broking account open! Transfer in your starting capital and you’re finally about to begin! GAAAAAA!!!!
So, second step! My general advice, along with Warren Buffett’s advice, if you haven’t heard of him, he’s widely considered the greatest investor of all time, is to start with an S&P500 index tracker. For 90% of people out there this is the easiest/safest/most diversified option and probably where you start and could even finish. Why complicate things!? So start with what you can, $1000 or $5,000 or $10,000 and then each month or each quarter add more! Even if just a few hundred dollars. This way you are constantly averaging into your entry price (meaning buying through ups and downs) and over time “compounding” (the eighth wonder of the world, according to Einstein) your returns.
One extra thing to consider are your brokerage fees. When investing with a broker they will typically charge you anywhere from as low as $0.50-$1 or up to $10-25 per trade. So if you are investing regularly you need to factor in how much your brokerage fee is as a percentage of your investment. If you are investing $100 a month, then a $10 brokerage fee is immediately taking away 10% of your capital which means you need to get about 11% in growth before you even get back to $100. This is a very bad idea. Therefore you need to wait to invest every quarter or find another broker. You ideally want your brokerage fee per trade to be less than 1% or as close to or lower. Therefore if investing a small amount regularly please factor this in and my general advice is to wait a few months so you have a better brokerage to capital ratio closer to 1%.
UK => Interactive Brokers; XTB; eToro; Interactive Investor
USA => Interactive Brokers; Robin Hood; TD Ameritrade; E*TRADE
Australia => Interactive Brokers; CommSec; eToro
There are many more…
If you want to get really advanced you could consider adding double or triple during times when the S&P has pulled back >10%. Meaning when it is lower you buy more.
So what is the S&P? The S&P500, or the S&P for short, is the biggest stock index in the world. As per the name, it includes 500 companies. They are the 500 biggest companies in the USA. So, at the time of filming, the biggest are all the massive tech companies like Apple, Google, Microsoft, Nvidia, etc. but it goes all the way down to the 500th biggest. So by simply buying this index you get access to the earnings and growth of these 500 massive companies. They all generally have global revenues so you are not only diversified across sectors (meaning tech, industrials, consumer, mining, pharmaceuticals, etc.) you are also diversified globally in terms of revenue. So both of these things are considered quite safe and good things to do for a starter/safe portfolio.
So what is an index tracker? This is basically a publicly traded asset called an ETF, exchange traded fund, (but from your perspective it is just like a stock) that anyone with a stock broking account can easily buy and sell. Simple as that. It is created and managed by a big asset manager and they take a tiny fee, usually less than 0.1%. So it is a really low fee and replicates the return of the index pretty closely.
Personally, I typically use SPY but there a few other major ones (VOO and IVV) come to mind.
Now, one other consideration I need to mention, just for all those folks not living in the United States, is the currency risk. What that means is that each time you buy the SPY or other S&P tracker ETF is you will need to buy with US dollars. This means that whatever currency your own capital is in will need to be converted to US dollars each time you buy SPY. To keep things simple, this is not a big deal for most developed countries. This is a long term strategy. Therefore some months your currency will be stronger and some months it will be weaker. At the other end, in years to come, when you decide to sell you will also likely sell in small pieces and average your currency conversion back to your currency. Sadly there is of course a small risk this goes wrong and you buy mostly when USD is strong and then sell mostly when USD is weak. That is unfortunately the risk you take. In my opinion it will average out okay for most but sadly nothing is certain and it is worth being aware. Generally most brokers will do these currency trades for you automatically, so if you deposit $500 of your local currency into your account then try to buy $500 of something in a different currency the broker will warn you and automatically convert it for you. Sadly adding a little extra fee but Interactive Brokers does this the best I have found. FX conversions are as good as you can get and cost cents on the dollar.
So there we are. Get yourself a low cost online broker and then start to invest! Of course you can also invest in individual stocks or anything else but my general advice for most people starting out is to use index tracker ETFs for the majority, if not all, of your stock market investing. Over time I will get into more details about individual stocks and the associated risks but for now that’s it.
Leave a Reply