How to Start Investing

The economy went down the drain in 2020 and still hasn’t recovered from the fall.

This is a big deal since we all really need it to work properly—at the height of the crisis, unemployment was over 11% and we have seen thousands of companies fall under. Moreover, this kind of misfortune will likely leave a mark for the years to come.

Millions of Americans who lost their jobs and sources of income unexpectedly have turned to investing to keep things afloat. Indeed, after such a chaotic period, people everywhere are starting to see investing as a mandatory hobby and a bulwark against financial inequality.

So, why is investing money so important? Essentially, you can buy cheap assets that grow in value over time and sell them later when they’re nice and expensive. Let’s be honest, this is way better than leaving your cash in a bank and letting destiny play its wicked games with it.

Luckily, starting investing today is probably the easiest it’s ever been. The stock market is growing at a break-neck pace and all investment services are competing to be as cheap and accessible as humanly possible. That’s the idea, but there are a few more things you need to know to get started.

This article will explain what you need to do quickly and in very simple terms—you don’t need to know everything about the stock market to secure your retirement and multiply all the money you make by 10% per year or more.

Let’s see how important investing really is, where you can find a good broker, and what investment strategies make sense in today’s messy economy.

Why Investing Is a Must 📈

We all need money, right? What’s more, it’s better to have a lot of it than too little—and this is the way to make sure you get richer as time moves on. Investing is important because, without it, your savings will lose value due to inflation. Let’s explain that a bit more.

Inflation means there’s more money in the economy. As a result, all prices rise, but so does your paycheck—everything is nice and balanced. Well, except for one thing—your savings.

Say you have $1,000 in your savings account today, and say we’re facing a 2% inflation rate. This means that your money will lose 2% of it’s purchasing power every year (you would get less stuff for the same amount of money a year later).

So, 30 years later your $1,000 would suffer a total 60% loss in value due to inflation. This means you would effectively retire with 60% less money than what you saved up—yikes! 

This happens almost in every country—governments “print” money so they can boost the economy and stay competitive, but that increases inflation and destroys your savings. Governments destroying pensions is nothing new, which is why you must take matters into your own hands and make your money grow instead of letting it shriveling away.

To summarize—you save up money for a house or retirement, inflation eats your money over the years, by the time you retire—most of your money is gone! Luckily, you can avoid this and make sure your money grows at a reasonable pace—let’s see how much exactly.

How Much Money Can You Make by Investing? 💰

Unless you’re a wizard, investing won’t make you into a billionaire in a couple of years, but it can help anyone retire a millionaire even if they start very, very small. Can you set aside $200 per month regularly? If you don’t think you can, seeing the following figures will make you figure out a way to make the impossible possible.

Let’s say you save up $10,000 and invest it at the age of 22 with an average return rate of 10% per year—this is a very reasonable, realistic return rate, by the way. This means that 43 years later when you’re ripe for retirement, you will have over $600,000. 

Only the top 25% of 60-year-olds have $600,000 or more saved up—and that’s just if you make a big one-time deposit early. If you make better annual returns, let’s say 15%, you’ll be sitting on more than $4 million by the time you reach your golden years.

This is all possible with a one-time deposit of $10,000—but imagine if you add a few hundred bucks to the investment pile every month. If you’re in your 20s now, you can be north of $1 million well before you meet your grandchildren—early retirement makes sense now, doesn’t it?

Money can grow so much because of a compounding effect—$10,000 grows by 10% and becomes $11,000 in a year, $11,000 becomes $12,100, and so on. Eventually, you get to some seriously big numbers—so, let’s see exactly what kinds of investing there are, and how you can get started.

What is Passive Investing? 😴

As the name suggests, passive investing is when you buy assets and let them sit and grow for the next 30 years, more or less. Basically, it’s a form of investing where you don’t have to do much and can focus on living life. This investment approach can have huge tax benefits and you can also get experts to invest for you for a reasonable price, as we will see in a moment.

Robo-Advisor—Automated Investing Explained 🤖

There are many ways to let someone take care of your wealth for you—and the cheapest one is getting a robo-advisor. When robo-advisors are compared to traditional financial advisors, the primary difference is that robo-advisors use computer algorithms and programs to take care of your trades automatically.

Human experts create and oversee all investment strategies but the computers do all the legwork. Since robots don’t need paychecks, a robo-advisory service can be as much as 8-10 times cheaper than a human financial advisor—now that’s quite a discount. 

If you’re worried about results, here are the numbers. The top robo-advisors of today make anywhere from 7% to 13% annual returns for you, depending on how risky you want your portfolio to be. 

However, these services usually have many more interesting features—for example, Acorns rounds up all your purchases to the next dollar and deposits that into your investment account. That way, you can invest more and more by buying daily groceries and going out for a cup of coffee—robo-advisors are a truly automated investing service.

Fund Investing 101 📚

If you want to invest for the long term, you’ll probably like the idea of mutual funds and ETFs. These are companies that buy a diversified bunch of popular stocks—you can buy these funds and that gives you a small piece of all stocks they own. This means, you just need to buy one thing, and your portfolio is diversified, and thus, safe.

However, buying funds comes with its own risks. Since ETFs and mutual funds are extremely popular among retirement investors they are often expensive, some would even say overpriced. 

Also, in some cases, their methodology consists of just buying popular American stocks without too much research and analysis—meaning the good stuff gets mixed in with the trash.

This means you would get a much more valuable product by studying stocks yourself and just getting the best ones. If you want to go down this route, you should get a broker with cheap and numerous ETFs like Vanguard and Charles Schwab.

IRAs—a Path to Retirement Investing 👛

IRAs are tax-free retirement accounts you can have with a bank or with a broker. If you’re looking to save up for retirement and don’t plan on spending your investment money before you’re 60 years old, IRAs are the way to go—these accounts allow you to avoid most taxes, making growth faster.

In some cases, upon reaching retirement, you will be able to sell your assets tax free. A benefit like this can save an average retirement investor tens or even hundreds of thousands of dollars.

Traditional IRA vs Roth IRA ☑️

These two are different in terms of how and where you get a tax break. With a traditional IRA, all funds you contribute are tax-deductible in the year they are deposited. On the other hand, a Roth IRA allows you to get tax-free withdrawals after you’re retired.

What’s Active Investing? 🏃‍♀️

As the name suggests, active investing means buying and selling stocks and other assets regularly to make a profit. If done correctly, active trading should yield much greater profits than passive investing but it’s a much more difficult discipline with numerous associated expenses.

To be an active investor, you should follow the stock market and the economy closely so you can predict where prices are going to go. If you manage to analyze the markets well enough to buy low and sell high, the rewards are numerous.

Active investors who trade on a daily basis are called day traders. They often make predictions on the daily level and profit from short-term price changes. This profession requires technical stock analysis knowledge as well as a free broker—if you plan on trading often, using the best brokers that offer free stock trading is essential, as it can increase your profits dramatically.

Start Investing Online in 6 Steps 🎯

Starting a new endeavor always seems difficult and a lot more complicated than it really is—that’s just the nature of jumping into the unknown. When it comes to investing, there are various levels of expertise, but you can make a good profit and secure your savings even if you just know the basics. Here’s what you need to do to get started.

Open a Brokerage (or Robo-Advisor) Account 👨‍💻

To invest, you need an investment platform—this is where a brokerage is essential. Brokers allow you to legally trade stocks and other assets through their online platforms and usually give you research tools and educational resources you can use.

With this toolkit, you can trade at the top of your game and that means more profits for the broker—they mostly make money by taking a tiny piece from every trade you make. However, if you want someone else to do the legwork for you, you can always get a robo-advisor like Betterment or Wealthfront and they will invest for you for just 0.25% of your portfolio every year.

If you’re looking to invest from a smartphone, check out the following popular options:

Pick Your Budget and Make a Deposit 📝

The next step is to figure out how much money you can set aside and invest every month. This amount of cash will determine how quickly your portfolio will reach your financial goals. 

Making your monthly deposits regularly requires the most discipline out of anything in the investing process, and is very rewarding. When you know what resources you’re working with, make the initial deposit and set up automatic monthly deposits from your bank to make everything run like clockwork.

Set up Automated Deposits ✅

Most brokers and robo-advisors let you link your banking account to them and set up automatic deposits. This way your money will be invested automatically, and you don’t have to think about your finances as much. If possible, try to set aside about 20% of your income for automatic deposits.

Develop a Strategy 🎯

Investing without a plan is about as sensible as running across a highway with a blindfold on—not great. That’s why you need to make a strategy —preferably, it should focus on the sector of the industry you understand and find interesting. 

For instance, if you’re an IT person, looking at technology stocks would make sense. On the other hand, a home renovator ought to focus on real-estate and so on. We’ll talk a bit about how to make a safe and diversified portfolio in the following section so you can implement your strategy efficiently.

Research and Buy Your First Asset 📚

If you have a rough idea of what you want to invest in, you must take the time to research and analyze.

For example, if you’re looking at technology stocks, you should pick out your favorite companies and look at their fundamentals, check out their future projects, measure up their competition, see if their management is responsible, etc. 

Knowing how to properly research stocks will give you a huge advantage over investors who invest very passively and just buy popular ETFs. In general, a diversified portfolio of well-analyzed assets should fare much better than a randomized collection of stocks. 

Diversify Your Portfolio 💡

Even if you’ve researched everything perfectly, there’s still a chance your stocks will lose value due to some unfortunate and sudden events like the COVID-19 pandemic.

That’s why you need to diversify your portfolio across multiple sectors of the industry (and countries if possible). Don’t just put all your money into 3 stocks—spread your cash out so that you’re safe in case one or two of your investments fail completely.

Keep an Eye On the Markets 📈

The fact you researched something once doesn’t mean you’re done. New developments and news can impact prices and you should be aware of what’s going on if you want to predict when you should sell your stocks (or buy some more). Keep an eye on what’s going on in the sector of the industry you’ve invested in and it will pay off.

Investment Strategies You Can Try 🛠️

Expert investors use a thousand and one mathematical, statistical, and other methods to determine what the stock market is doing and make strategies accordingly. You don’t have to go to such depths to make a solid portfolio, though.

Here are two portfolio strategies—one that’s worked great since the 70s but might be outdated, and another that’s brand new and shows much promise.

Risk Parity—the “Traditional” Approach ⚖️

The story goes like this—the stock market has been on the rise since the 70s and the risk parity strategy bases its success on that fact. This portfolio consists of stocks and bonds—usually 60% stocks and 40% bonds. 

The idea is to get stocks that can be risky but grow quickly and to get bonds that are extremely safe but have almost no growth potential. If you want to be on the aggressive side, your portfolio should mostly be stocks—and the more conservative strategy is to get a ton of US treasury bonds. 

So, if you’re an IT person (again with the same example, sorry) and you want a safe portfolio, getting 40% technology stocks and 60% bonds is the way to go according to the risk parity strategy. This is the approach that almost all robo-advisors and most financial advisors use and have been utilizing for the past 50 years.

The Dragon Portfolio—Modern Risk Management 🐲

What if the economy goes into a long recession, though? Well, in that case, the risk parity portfolio is not a great idea as it will almost always lose most of its value if the stock market is bearish and uninspiring.

So, how can you save your wealth from a sudden recessive period (like the whole COVID-19 episode) and still make money if the economy is growing?

In theory, the dragon portfolio should show growth in every situation—regardless of whether the markets are going down or up. It was designed by Chris Cole—a hedge fund manager who tried to make a portfolio that would constantly grow in every economic environment in the US in the past 100 years. Well, his study was a success and the result is this new portfolio type.

Here is how it looks—the dragon portfolio should be roughly 24% stocks, 18% bonds, 19% gold, 18% commodity trend stocks, and 21% long volatility assets. Bonds and gold are your safety net—if the stock market goes down, these assets will rise in value because they’re safe.

Next, almost a quarter of the portfolio should be in stocks you like, but the rest should be split among very long-term stocks (like Coca-Cola or some other immortal company) and commodity trends. 

A commodity trend is that brand new thing that’s very popular as of late. For example, if you’ve invested in the company that made Fidget Spinners a few years ago, that would’ve paid off in the short term.

This is the only part of the portfolio that needs regular maintenance to work properly. All in all, this is the type of portfolio you can get if you want to be as immune as possible to any potential recessions and market crashes.

Investing During COVID-19 🦠

The US economy dropped by about 30% at one point during the COVID-19 pandemic, which devastated everyone’s financial plans. Most Americans decided to save money wherever possible, which led to a decrease in demand, a.k.a. every business’s worst nightmare.

However, the stock market had other ideas—after the crash we’ve seen in March this year, stocks have reached an all-time high and are still going strong except for an occasional drop here and there. Needless to say, bullish investors who invested in previous months are having a great time—but will this trend of growth continue?

There are arguments for and against stock market growth—on the bright side, unemployment has fallen to 8.4% recently and is still going down. Also, the promises of an anti-COVID-19 vaccine have motivated an even greater boom—however, this excitement might be unfounded.

On the other side of the argument, the stock market still seems overvalued since the economy is relying on government social benefits. Moreover, mortgage delinquency rates have spiked to a level second only to the middle of 2010 when the world was still shaking from the housing market collapse.

One more thing to keep in mind is that the FED has kept interest rates super-low (around 0%) since the pandemic started. Lowering rates always boosts the stock market, but they can hardly go any lower than they are now—this has convinced some investors that buying gold and even Bitcoin might be a good idea since they tend to rise whenever a recession hits.

How Should I Invest in 2024? 🤔

First of all, paying off all of your debt is a form of investing—that’s because having debt means having a regular expense you’d be better off without. Luckily, you can use this chaotic period to get rid of all your obligations easily. 

For one, if you’re not on a tight budget, you can use the government checks to pay off your credit cards and other obligations. Alternatively, since interest rates are low as can be, you can get a debt consolidation loan and replace all your debts with a single, cheaper, stretched-out obligation.

If you decide to invest in the rising stock market, you should probably focus on the areas of the industry that haven’t been affected by the Coronavirus and are still on the rise.

These include food and drug retailers, the medical industry, telecommunications, various online services, as well as tobacco and beverage companies. For example, Amazon and Netflix have seed dramatic growth in the era of lockdowns.

On the other hand, if you want to invest safely until things are back to normal, you can consider getting bonds, bank funds, and bank CDs. Also, if we’re going to have another market crash on our hands, gold will probably rise as it had during all previous recessions.