What is Investing?

According to the Merriam-Webster Dictionary:

While there are many ways to invest according to this definition. One of the most passive and easily accessible ways is investing in the stock market. This is what I will cover today.

What do I need to get started? 

In simple terms – You need some money and an investing account (called a Brokerage Account). 

You can get an account many places. Your bank or employer (through an employer sponsored 401k) may even offer options which can make set-up easier. Since I talk mostly about Schwab and Vanguard, their hyperlinks are here:

Vanguard

Schwab

After you sign-up, you want to link a bank account, each site will walk you through it. They will ask for routing and bank account numbers. These you can find on a physical check (if you have one) or through your bank account online. You may also be given the option to validate through a 3rd party. To do this, you select your bank from a list, then log-in with your credentials. The system automatically links the accounts accounts and information.

This step may seem scary, but especially for a manual account registration (not selectable on the list). To reassure you (and the brokerage) there will often be a transaction check. A low amount transaction (under $1) is sent to your bank account fro the brokerage firm, then you confirm the values through the website. It gets reversed, so you don’t get to keep the money, but it can give peace of mind that everything is working okay. 

If you are still nervous (it is your money after all!), you can also do this in reverse and send a small transaction to your “Money Market Fund.” This is a minimal risk investment fund where money flows into and out of from your investment account.  You usually need to put money here before investing in other stocks or funds.

If you are still concerned and want to check your money will go where you want it to, you can double check with a small transfer before making any bigger money moves.  

After you have money in your account, you can begin investing!

How much do I need to get started?

If you only have a few dollars, I recommend starting with Schwab. Not only do they allow lower dollar investments, they also provide a one-stop-shop platform for money management by offering investing, banking, and credit card options.

At the time of writing they even have a starter kit program. If you “fund your account with a minimum of $50 within 30 days of opening the account to qualify” they deposit $101 into your account for investing.

While many places let you start investing with as little as $1, the fact that you get 200% returns after just 30 days is a great perk to take advantage of. They also have some good Investing 101 info to start learning. 

If you start with Vanguard, depending on the fund you want, you may need to save up or wait for a big tax refund to meet the minimum $3000 buy-in. They do have some fund options without this limit.

My personal approach

When I first got out of university and was trying to understand paying off student loans, 401ks, IRAs, and taxes, I read this book: “The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns.” By John Bogle, Vanguard’s founder. 

In it, I learned about the power of index funds. These are stocks made up of other stocks, so buying one of them gets you tiny pieces of lots of investments which helps mitigate risk and eliminate the need for an investor to buy them individually. This typically offers broad market coverage in the investment area of the fund. 

They are also less actively traded/adjusted than other multi-stock funds so expense ratios (the % of profits taken by the investment/fund manager) are low, meaning you get to keep more of your money.

The cost of the index fund can also be cheaper than buying a single company stock that is in the fund is invested in.

Schwab came into the picture a little later when I invested in a few individual stocks. While Schwab has been good, I still regret these few single stock investments. I wish I had stuck to 100% index funds and learned from the experience that I do not like the added risk, complexity, and volatility of individual stocks. That said, it is better to know, than to still be wondering “what if.”

Per all this, I am a bit biased towards Vanguard. For your long term investment planning, keep on your research journey and make the best decisions for you, your goals, and your risk tolerance. Other companies, like Schwab, have their own index funds as well.

On to some fund examples:

Investors Just Starting Out:

VFIAX – Vanguard 500 Index Fund Admiral Shares – This follows the stock performance of 500 of the largest U.S. companies.

VTSAX – Vanguard Total Stock Market Index Fund Admiral Shares – Vanguard Total Stock Market Index Fund is designed to provide investors with exposure to the entire U.S. equity market, including small-, mid-, and large-cap growth and value stocks.

Another type of fund I invest in, is a high dividend yield ETF (Exchange Traded Fund):

VYM – Vanguard High Dividend Yield Index Fund ETF – If you are looking for more “cash flow” AKA money being made available to you, without having to sell stocks, dividends are a good way to go. Dividends are a distribution of a company’s earnings to its shareholders. AKA – Each pay period (usually each quarter) money is deposited back into your investment account. You can choose to take it out or re-invest it (automatically or manually). For my wealth building journey, automation has been my best friend by not letting me forget to reinvest, making sure my money keeps working for me.

This is one of the funds you can invest in with just $1 if you prefer to start out with Vanguard.

Expanding your portfolio

As you build your portfolio and get more comfortable investing, you may want to expand into other types of investments.

Large-Cap (VLCAX), Mid-Cap (VIMAX), & Small-Cap (VSMAX) – These funds focus on either Large, Medium, or Small sized companies. Smaller companies pose more risk, but there is also a risk vs. reward consideration that many investors take when diversifying their portfolios.

Bonds

You will also want to consider Bonds as part of your long term investment strategy. Many target date retirement funds move more investments into bonds as the fund approaches the target retirement date. This attempts to reduce risk and volatility. With just starting out and wanting to learn about the stock market, this may not be your first investment, but I wanted to include it so you can compare it to the other funds.

VTEAX – Vanguard Tax-Exempt Bond Index Fund Admiral Shares – You can also invest in an index fund of bonds. This fund seeks to track the performance of a benchmark index that measures the investment-grade segment of the U.S. municipal bond market.

In Closing

I hope this overview was helpful to get you started on your journey.  There are many resources available and you should gain confidence as you gain experience, so get out there!

For some inspiration to get started, check-out my other blog article: How to Start Building Wealth with $1 a day.