Updated with non-US options.
Friedrich makes $15,000 and spends $14,000 monthly.
Every month Stewart earns $5,000 and spends $3,000. Who’s richer?
At $2,000 of savings per month, I’d strongly argue that Stewart is richer. On top of that, if Stewart invests this money, he will become exponentially richer over time.
If you’re Friedrich in the above example, this article is not for you. This article will not teach you how to save money.
However, if you already know how to save your money then you’re about to take a giant step forward in your financial security. I am going to describe your options as a novice investor and tell you exactly how to get started.
“The poor and the middle-class work for money. The rich have money work for them.” Rich Dad Poor Dad
While raised in a middle-class family, I remember hearing often about how money can’t buy happiness, blah blah blah. While that might be true, money can solve a LOT of problems. Money makes life easier.
This blog will explain the most common investments you can make and if you don’t know where to start, I’ll tell you the easiest place.“The poor and the middle-class work for money. The rich have money work for them.” Rich Dad Poor Dad Click To Tweet
While in Miami, my friend discovered that I’m an investor. Investing is a topic I know a lot about and I have a lot to say.
Being an inquisitive person with a real interest to understand this new and bizarre world, he had many questions to ask. Some I knew, some I had to educate myself to know.
What I realized is that his level of knowledge, like most, was the same as a first grader’s. We’re never taught anything about investing for beginners. We learn if we seek it out.
I’ve never been good at bullshitting with the fellas. Just talking to talk. But, talking about intellectual things is my fortay. Documentaries, outter space, behavioral psychology…
So began our lengthy conversation…
I first started investing in 2003 with Certificates of Deposit at Wells Fargo Bank.
In 2008, I made my first stock market investment of 30 shares in Franklin Universal Trust (FT). I realized the stock market was down. I also knew it would recover and I happened to have an extra pile of cash to invest this year.
By fate, if you believe in that, my grandma gave all of her grandchildren a savings bond to mature on their 18th birthday, except mine. Mine was to mature on my 21st birthday, in 2008.
The same amount, just three years later. Who knows why, but it turned out for the best because I’m nearly positive I’d start investing in 2005, at the top of the market, had the money made its way to my hands that year.
Along the way, I learned about a whole bunch of other ways to invest your money. In 2017, I learned how to trade options from an oil tycoon. He showed me the basics while executing trades on his “funny money” account, as he called it, of $12 million dollars. Let’s just say he knew his stuff and I’ve been 100% on my trading of options since then.
Let’s learn how to invest for beginners…
Ten out of ten, or 100%, of the world’s richest people, invest and 100% of the world’s poorest don’t invest.
Investing is any activity where your money works for you. You’ll remember this from the popular 1990’s book Rich Dad Poor Dad.
Investing is similar to saving with one big difference.
With saving, you’re either leaving your money in the bank, dropping coins into that giant-sized coke bottle or piggy bank or hiding it under the mattress. Saving is by default. You don’t make any decision except to not spend your money. You have full and unrestricted access to your money. We call this being liquid (you can spend your money when you want).Saving is by default. You don’t make any decision except to not spend your money. Learn to invest. Click To Tweet
When you invest, you make a conscious choice. From my experience, this sole choice separates the men from the boys. The successful from the unsuccessful. You are a future-thinking human.
Everyone knows about compounding interest, but those who choose to invest understand it’s value. When you invest, you have access to your money, but it’s restricted. An action must be taken (maturing of a CD, selling of a stock) to receive the cash in your hand (ie to become liquid).
There are a million ways to invest, but you can generally think of it as anything where you tie your money up today for a future benefit tomorrow.
You still own the money, but you don’t have immediate access to it. If it’s a “CD” you have to wait for the maturity date that is months or years in the future. For stock, you have to sell it. For a house, you have to pay off the mortgage or wait for your property value to grow.
The opposite of investing is debt.
Your credit card is debt. But for the bank, it’s an investment. They’re lending you money in advance for an interest rate. You’re paying this interest rate for the convenience of liquidity.
Dip your toes in the world of investing here.
I found this wonderful website while listening to Money Girl podcast in 2011 at which point I signed up. It makes investing in stocks and bonds super simple and straightforward. And, it’s meant for beginners.
The agreement is that you’ll pay them an annual fee of 0.25% per year for a professionally managed portfolio. It’s an incredibly small fee. You tell them how risky you want to be (which means how much they should invest in stocks versus bonds on your behalf) and their professionals will manage your money for you.
You can choose to automatically invest a set amount each month so you don’t have to think about it. Or, you can start with the minimum deposit of $25 and let it ride.
A “Certificate of Deposit” or CD is available from your bank. You are committing a certain amount of money, at least a few hundred dollars, to your bank for a period of time, usually a minimum of 6-months, in exchange for a percentage return of interest.
This interest rate will be much higher than your regular savings account interest rate. But, you will not be able to touch your money for the agreed-upon period of time or you forfeit all interest earned.
Smaller banks and credit unions typically offer the highest returns.
You can sign up for a CD from your home computer in a few minutes simply by logging into your bank’s website and searching for ‘certificates of deposit’.
Your money plus interest is guaranteed unless the bank goes into bankruptcy.
At the end of the term, you must remember to cancel the CD and the principal (amount of money you initially committed) will be automatically returned into your bank account. If you do not cancel, the money plus interest will roll over into the same CD for the same period of time.
I invested in my first CD in 2003 when I was 16 years old. I put $500 into a Wells Fargo CD for 6 months. This was the first financially-related activity I ever did more than saving money and not spending it, which seems to be harder and harder to do these days.
Public companies on stock exchanges (NASDAQ or New York Stock Exchange) issue stock. They issue many types of stock, but the most common is common stock.
To buy common stock, you have to sign up for an account with an online brokerage like E*Trade or TD Ameritrade.
You can buy stock in Netflix, Amazon, or Nike (they are public companies). You cannot buy stock in Airbnb (it’s a private company as of April 2020), Harvard (it’s a not-for-profit enterprise), or the US Government (a governmental organization).
Investing in the stock market usually takes the form of buying stock in a company in the hopes it will rise in value over time and/or pay out a dividend.
There are a whole bunch of strategies in ways to invest. You can look at the technicals of the financial statements to understand if the public value is under the true value.
You can have your pulse on market trends and understand the subtle dynamics of industries.
You could simply invest in a brand that you know and love. I suggest you do this as a novice investor.
I like to invest in companies that lose a lot of value in a short amount of time usually due to an overblow media blitz. The coronavirus is a great example of when I buy stocks.
A good, recent example is Chipotle. They feed millions of people, but a few people got sick and the media covered it like it was truly an issue. The stock plummeted 50%. I bought. Today it’s back up to its original value. There was no change in the business. The only thing that changed was irrational public fear caused by the media.
The only fees you pay will be when you buy and sell the stock. No matter if you buy 1 or 1,000 shares of stock, the fee is per transaction and usually $5-$10.
I recommend you steer clear of penny stocks and day trading, especially at the beginner level.
This might be my favorite. It’s truly passive meaning there’s nothing really you can do after making the investment and basically guaranteed due to diversification.
When I choose to invest with LendingClub.com, I am ensuring high-risk debt, typically in the form of credit cards in exchange for a higher-than-normal interest rate.
Due to the risky nature, the company allows for many small $25 investments.
Sign up for an account, deposit money, and choose the level of riskiness you want to invest in. Choose between grade A (6.91% interest rate) to grade D (18.37% interest rate) debt. The higher interest rate is offset by a higher default rate (folks who do not repay their debt).
Lending Club will estimate your return after removing fees and defaults from your selected investment choices. I always select grades C and D (and E or F, if possible) and my return after years of using this service is 6.68%.
Mutual funds are professionally managed and diversified investments. Because they’re professionally managed, you’ll be paying an annual or quarterly fee. They’re diversified because you’ll be buying small stakes into numerous companies.
Think of a mutual fund as if you’re putting $1 in 100 companies instead of putting $100 in one company as you would with a stock.
You can choose a fund that invests in retail, developing markets, bonds, stocks, or any other investment.
You can invest in mutual funds through a 401(k), buying directly from the company that created the fund, or through an online brokerage like E*Trade or Betterment. The platform that I use is called Franklin Templeton Investments.
A bond is a debt issued by a company or government. Typically, a bond is synonymous with the government. When an investment advisor asks you how risky you want to be, they’re deciding the breakout between public company stocks (riskier) and government bonds (less risky).
I’ve never invested directly in bonds. That is to say, a mutual fund or Betterment may invest in bonds on my behalf based on selections that I’ve made (80% stocks/20% bonds).
There are more details to bonds, but it’s not something I recommend the beginner start with due to additional terminology you’ll need to understand. All you need to know is that bonds are considered safe investments with low rates of return and issued by governments.
As a beginner, you will not trade options. However, they’re a common investment option that I want to explain in very basic terms.
Options are based on an underlying asset, like a stock. If you buy or sell an option, you are betting that stock will either go up or down in the future. The future can be anywhere from one day to many years from now.
Or, digital money.
My first Bitcoin position was in 2013 when a friend sent me $0.11 worth of it for my birthday. That turned out to be the best gift ever in terms of percentage ROI. Just a few years later in 2017, when I started buying more bitcoin, it was worth $1.29.
Since then I’ve sold most of my traditional investments, only getting back into them recently, to purchase cryptocurrency between the summer of 2017 and today.
I don’t really know what cryptocurrency is. Writing that sentence alone gives me pause and makes me wonder if I should sell everything. I hope that only usually (not always) it’s a bad idea to invest in things you don’t understand.
Based on some personal beliefs, I see tremendous value in cryptocurrencies in the future, if they can work together with fiat currency. Cryptocurrency will never take over as it would have the effect to collapse governments.
While it’s true fiat money truly has no value, it’s backed by tremendous firepower thus giving it substantial worth.While it’s true fiat money truly has no value, it’s backed by tremendous firepower thus giving it substantial worth. Click To Tweet
The countries that can benefit from this the most, seem to be the ones without the ability to use it. For example, to pay my teacher in Guatemala for some online Spanish lessons, she had to find someone with a Paypal account, I transferred the money to this random person’s account (losing money on the transfer between accounts), this person withdrew into physical cash (losing money on the exchange from US Dollar to Guatemalan Quetzal) and gave it to my Spanish teacher. Wow. Or, I could transfer 0.0037 from my bitcoin account to hers.
At this point, bitcoin is an investment and not something you would spend on goods and services like the above example.
The most popular website in the USA to buy and sell the most popular cryptocurrencies are CoinBase.com.
This is not an investment service, but it is an awesome website to track your assets and spending including budgeting.
Essentially, you will connect all of your financial accounts to this website: bank accounts, credit cards, investment accounts, 401(k), physical assets like cars, and other debt. And, your real-time net worth will be calculated by measuring your income (deposits into bank accounts, investment income) to your expenses (credit cards, withdrawals, investment loses). It’s got a bunch of other useful features.
It’s free and I highly recommend creating an account today.
An alternative is PersonalCapital.com.
Some early feedback I received from this blog was ‘X doesn’t work in X country.” That’s true. And, I didn’t know my audience is so international. My answer at the time was: read the comments. I don’t include anything on my website that I don’t have personal experience with.
As part of my life 2.0 where I’m diversifying my assets outside of the USA, I now have a need to research these options. As such, below are all of the ways you non-US people can think about investing.
Today you can invest with as little as $25. There’s no excuse, really.
Some things in life you have total control over. Money is one of those things.
I dated a girl who used to work in the casinos in Las Vegas. She told me the quantity of money she’d made, most of which was in tips and not taxed at the time because it wasn’t a requirement to report it. She made well over $100k per year for a part-time job. She also spent all of her money on shoes, none of which she owns anymore less than 10 years later.
She invested $0 and has nothing to show for it. She lived well for a few years while sacrificing her future. Now she’s dependent on her boyfriend for her finances including significant debt she has. Don’t live like that. Don’t be dependent on someone else.
It’s true, money can’t buy happiness. But, it can buy everything else and it makes life and a whole lot easier.
What’s the best or worst investment you’ve ever made?