Investing 001

Investing, from the perspective of someone who is still in the journey.

Beginner level courses attach a “101” to their names, but I wanted to go before the “beginner” level—and that’s why it’s titled “001”. This article is for people who have thought little to none about investing at all, why they should, and how they can get started with super easy steps to follow.

What allows me to speak to this is that I started my investing journey in June 2020, and while by no means am I at a point where I would compare myself to “investing gurus” (if you want to call them that), I have made enough progress that today I’m at a net positive gain and doing better and better every week.

Why You Should Invest?

Did you know that the tuition of a private, 4-year university in 1963 was $1,011? In 2019, the same university cost $32,769. In 1963, the price of a movie ticket was roughly $0.86, but in 2019, it was $9.16. Finally, in January 1963, the price of a single family home was $19,613.19, but as of August 2021, the average price is now $342,844.68.

What happened between all these years that’s causing the price of everything to go up in this way is inflation [1].What you can buy with $1 from 10, 20, or 50 years ago, you likely can’t buy anymore because it has gotten more expensive. Inflation has effectively made your money lose its purchasing power.

Why inflation happens is due to many reasons that should be an article for another day, but a quick Google search to “investopedia inflation” should give you solid articles about it. Still, this implies is that if you only save your money, you’re losing your money over time due to inflation.

Since doing nothing (i.e., saving money) makes you lose money, what can you do instead? You can invest it!

How investing works —and really what people hope when they are investing—is that it ties your money to an “asset” whose price grows at or above the inflation rate [2]. So, investing is how you prevent yourself from losing your money to inflation and make your money work for you. If you invest properly, you will beat inflation, and if you invest even better, you can start making extra money!

Photo by Andre Taissin on Unsplash

Why Investing Can Be Hard for A Lot of People

Here are some common ones:

Not Enough Money to Invest

This is absolutely fair, and I actually agree that you probably shouldn’t invest, in the traditional sense, if you don’t have enough money to do so in the first place.

If you’re in this category, read on! My suggestions do apply to you.

Got Debts to Pay

This is similar to the first reason, except it’s that all your money is basically going towards paying off your debts. Most commonly it is student loan debts. Similarly, the same things I said above apply here, so read on!

Don’t Want to Lose Money

This usually comes down to people who don’t have the two problems above to the same degree, and while they may have a bit of money to spare, the risk of losing their money to investing and the fear of that happening outweighs the benefits that they might see from it.

However, let me say this again: if you only save your money, you’re losing your money over time due to inflation. You’re already losing your money. I know it doesn’t feel that way, but just like how you’re supposed to notice the fruits of the labor of investing after a bunch of years of investing, you will notice the impact of saving after a bunch of years of saving—and it won’t be a good one.

I do, however, understand this fear, and it’s why the methods I suggest take this into account. Read on :)

Heard People Losing Money Investing

I’m not going to sugar coat this: if you invest unwisely, you will lose money! However, if you do invest wisely, you are practically guaranteed to make money [3]!.

However, I think this just plays into the fear of losing money to investing that I talked about above. In this blog, I’m hoping that by giving you a set of easy to follow steps that you can follow (for someone who has ZERO experience investing), you’ll land yourself somewhere you feel comfortable with your investments.

Don’t Have the Qualities that Make a Good Investor

What are these qualities? If I had to take a guess, I’d say patience, resilience, and discipline. There probably are others, but I think this is a chicken-and-egg problem.

I don’t know that I was patient, resilient, and disciplined before investing (or whatever other qualities you want). However, I know that after a year and half of investing, I’ve become much more patient, resilient, and disciplined. Investing has made me a good investor, and that’s how it’s supposed to work. Have you ever heard of anyone just jumping into a whole new field or hobby and automatically being good at it? Most often, people get into something, and they initially more-or-less suck at it, but as they persist, they get better and better.

The good thing is, if you have a clear, easy formula (such as the one I’m giving below), you won’t have to suck at it—at least not as much as I did when I started.

Ok let’s talk about how you first get started with investing.

Part 1: How You Start Investing

In Part 1, I’m giving some tips that will help you build the right muscles for investing—prior to formally doing it.

(1) Start Tracking Your Money for 4+ Months

The first thing I commonly hear when I mention “tracking your money” is to use an app that does the tracking for you, something like Mint. However, DO NOT USE IT yet.

Instead, use your app of choice (either Google Sheet or Excel) to track your spendings, and you have to do this diligently for a couple of months—at least 4 or ideally 6 or more. Also, every time you spend or make money, you have to update your sheet as soon as possible.

Why do it with Excel/Google Sheet and NOT through an app like Mint?

The reason you really should use Excel/Google Sheet is because of the manual process, which has multiple benefits:

  • Doing everything manually, at least at the start, helps you become hyper-aware of where your money is and where it’s going.
  • If you have any bad spending habits, getting a perspective on how much it’s actually costing you will give you the willpower to stop.
  • Finally, knowing that you have to update this document—which can be somewhat annoying at time, gives you a little of friction before you go out and spend money on something. This makes you save money in the long term that you can put into investing.

While apps like Mint will allow you to do all the tracking automatically, I would stay away from them at the beginning because they won’t help you build the hyperawareness you get from manual entries and the nudge to not spend unless you really want to.

What to Track

You probably have a solid idea of what you want to track, but I also wanted to share what has worked for me over the past couple of years. For fear of making this article too long, I instead wrote that up in this Google Docs document, which includes the basic stuffs that I track in my finances sheet.

(2) Examine Where You Can Spend Less

You could almost say that this is a benefit of tracking your money, but I put it as its separate section because it’s an extra action that you have to take.

  • The places that people typically can save money are in subscription services. Once you track everything, you’ll realize which services you need and which you don’t.
  • A step further from that is downgrading from service: You realize that a service can be downgraded and still provide you the necessary things that you needed.
  • A next step is to find whether you can get the same product for cheaper. It took me tracking money to realize that often if you can buy groceries in bulk (and in larger quantities), they often cost a lot less.

Overall, the tracking is super instrumental in helping you realize where and how you can save your money. Then, all that money that is saved can be used for other purposes!

(3) Continue and Finish Paying Off Your Debts—ASAP

For the U.S. Dollar, inflation is supposed to be at about 2% according to the Federal Reserve. That means that any money that you save loses about 2% of its value on average every year.

On the flip-side of that, debts is like having an inflation of a much larger percentage. Because the debt’s rate is so high, it is almost impossible (or extremely difficult) to invest in something that makes you more money than the rate at which it grows. For that reason, you’ll often hear the following advice: Don’t invest until you have paid off all your debts.

That advice is true for things like credit card debts or student loan debt. Essentially, if the debt that you have is at a high percentage, it’s probably better to pay it off before investing anything.

So, with any money that you save from step (3) of from elsewhere, make sure to pay off your debt. [4]

Part 2: Start Properly Investing—Part 2

Now we’re getting into the actual investing part. With that said, you need to keep the habit of tracking your money from Part 1. To this day, I continue to track my money using a Google Sheet because it continues to help me be aware of my spendings.

In this section, I would personally suggest doing step (1), (2), and (3) together, then step (4) — although I know some people will disagree [5].

(1) Learn More About Investing

For this step, I suggest learning a little bit more about investing. First, I would suggest learning some basic terminologies about investing.

  • Securities: Security is a blanket term for the thing you invest in. For instance, if you buy a house today for $100 and sell it in 2 years for $300, that house would be considered a “security”. If you buy a stock, it’s also a security. On the other hand, the technical definition happens in terms of filing your taxes, which is that when you buy and sell a security, it’s taxed as a capital gain. All in all, whenever you “invest”, you essentially buy a security for a price (say $100), hold onto that security for some given period of time, and then sell that security for another price (say $300). In addition, you usually are able to (if not easily) tell what the “value” (how much its price would be if you were to sell it right now) of a security that you have is. [6]
  • Stocks and ETFs
  • Market Capitalization
  • Dividends
  • Capital Gains (and Taxes)
  • Other Asset Classes: Bonds, Cryptocurrencies, Real Estate, etc.

These are the terms that I could think of, and as you can see I didn’t spend any time defining all of them (except for “securities”): that’s because Google exist and you can learn them on your own. The investopedia site is particularly good for financial terms.

The next thing I would focus on is learning things that help you become a better investor, and these is a combination of books and videos that can be good. Personally, I would recommend the following:

  • The book Rich Dad Poor Dad by Robert Kiyosaki
  • The Youtube channel Grapham Stephan (maybe go into the older videos to start as newer videos have been more about recent events that take a bit of background info to understand)
  • Later down the line, the Youtube channel Meet Kevin (this one gets really deep into the nitty gritty details, so after you gain some knowledge, I’d go here)

One thing to keep in mind is: don’t spend too much time “learning” otherwise it might just become “procrastinating”—instead, learn some basics and move onto step (2) and (3), and then continue learning to get better at investing.

(2) Open a Brokerage Account

First, what is a brokerage account?

This took me a while to understand when I first got started, but here’s how I’d put it using an analogy.

When you open a regular bank account, you put your money in that bank account, and then you can purchase “things” with the money that’s in it. Similarly, people can send you direct deposits of money (or reimbursements) into that bank account. Finally, you can always take your money out via an ATM machine. What type of “things” can you buy? Practically anything that accepts a debit or credit card!

With that said, a brokerage account serves the exact same purpose except that the only type of “things” that you can buy are securities (as I defined above), and these usually include stocks, bonds, ETFs, etc. Another thing that you can do with a brokerage account is that you can sell the securities that you own in exchange for money. And similarly, you can deposit or withdraw money from it—in this case when you withdraw, it goes into your bank account.

What brokerage account should you use?

There are many out there! I use Schwab as my primary investing brokerage, so I would recommend using it as well. Some friends of mine have suggested using TD Ameritrade, and there’s also Robinhood or Webull, which both allow you to buy fractional shares (i.e., you can own 0.1 stock of TSLA if you can’t afford to pay the full price—which was $1,056.78 on 12/31). Outside of the ability to buy fractional shares, the brokerage you choose doesn’t really matter though, just pick one and start with it.

What’s required of you to open a brokerage account?

When you open one, they will ask for your Social Security Number (SSN) and address, and things like that. They will also ask for proof of all of these as well—and sometimes you may be required to go to a local bank to provide those proofs (or mail copies to some address that they give you). All of this happens relatively quickly—from 1 day to 1 week if you do everything as soon as needed.

(3) Start Investing Through Brokerage Account

First, put some money into your brokerage account. How much? Put money that you’re comfortable not needing for an nondeterministically long time! You can start as small as you want and just continue to regularly put money in your brokerage account, and if you’re scared your money will go away, you can always withdraw it (Remember, it’s just like a bank account!).

Before you dive into anything else, I suggest doing something that’s tried and true, and sticking to it to really get a good feel for how investing works. So, I’ll focus on ETFs first (and here I’m assuming you’ve looked up what an ETF is).

There are ETFs out there that represent the “market”—so to speak, and practically since the stock market started (either NYSE or NASDAQ or whatever), the value of these “market” ETFs have always gone up in any 20 year period and usually are going up. The one people often cite is SPY, so let’s go with that.

As of 12/31, one share of SPY costs $474.96. Pick 2 things:

  • A period of time: 1 day, 2 days, 1 week, 2 weeks, etc. Pick one!
  • An amount of money: $10, $100, $500, etc. Pick one!

Say you pick 2 weeks and $500, then what you need to do is every 2 weeks, buy $500’s worth of SPY (if your brokerage doesn’t allow fractional shares you unfortunately have to buy 1 share or more).

When you do buy it, you can simply make a “market” order [7]. Here’s how you’d do it on Schwab (process is similar in other brokerages):

  1. Click on “Trade”
  2. Type “SPY” under Symbol
  3. Set the Action to “Buy”
  4. Select the Quantity of 1 (this will vary depending on what you pick)
  5. Select the Order Type to “Market”
  6. Click on “Review Order” and review it
  7. Then click on “Place Order”
My own recording of the 7 steps above on Schwab.com

(4) Invest into Your Own Retirement

People always give the advice that you should start investing in your retirement as soon as possible. However, I am of the opinion that if you do it too soon (i.e., before you have some basic understanding of what’s happening), it might just cause extra stress and anxiety in your life (because with retirement investing, you can’t just take your money out—it’s harder to do).

That’s why I suggest doing this as the last step—but make sure to do this as soon as possible after you do step (3).

With that said, I’ll give some overview of retirement investing. There’s 2 paths (both of which are offered by various brokerages):

  • IRA (Individual Retirement Account): which you manage yourself, like your brokerage account
  • 401K: An employer-sponsored retirement account—this is set up with your employer

And for each of those, you can either have it be:

  • Roth: Pay your taxes before each deposits, and then withdraw the money tax-free
  • Traditional: Defer the payment of taxes at the withdrawal time

There is a lot of calculations that goes into whether you should do Roth or Traditional, and I think that discussion goes beyond the “001” spirit that this article has. So, if you want to learn more, I believe that if you’ve done step (3), you would have already built the skills to search how this works. Also, I’ve linked the chart below from this article which should help:

From a Napkin Finance article

Part 3: Get Better at Investing

Some final tips as you continue in your investing journey:

  • Think About Your Long Term Goal: Mine is roughly, “becoming financially independent by the age of 45”. It’s a lot more detailed than that (I defined what “independent” means, what kind of standard of living I want to have, etc). For yourself, think about what you want out of this life, and this will help you in your investing strategy and journey.
  • Invest in Your Knowledge of Money: While there are many tips to investing, understanding how money works is also critical. I recommend two books: Basic Economics by Thomas Sowell and Naked Money by Charles Wheelan. If you want more, the book How an Economy Grows and Why It Crashes by Peter Schiff is also a good one.
  • Talk About Investing with Peers/Friends: Investing is lowkey like a cult. There’s always something to talk about with friends or peers, and you always learn something new. So, I’d suggest doing that.
  • Learn These Tips I Learned From My Mistakes: Without diving too much into details (you can look up why each of these 3 tips are useful), here are some tips that I will give.
    (1) NEVER invest at the IPO date of a company,
    (2) Always Dollar Cost Average (DCA) (the suggestion I gave above does this already 🙂), and
    (3) Build yourself a strategy for investing (mine is something like, “every 2 weeks, invest X amount into one of SPY|OEF|SPYG|DSI, Y amount into one of T|VZ|SPYD, Z amount into crypto, etc”—and this is something I continue to refine every so often based on my long term goals).
  • Expand Your Asset Classes Once You Feel Comfortable: Once you’re good with the SPY strategy above, try expanding into other asset classes. Maybe dive into stocks. Then, later on I would suggest diving into cryptocurrencies as well. Still, know that whenever you switch to a different asset class, the volatility/risk of it changes, which usually means changing how you invest in it.
  • Get Mint: I suggested not to get Mint originally, but I would suggest getting after some time investing (at least a couple of months). Mint gives you your net worth by combining the value in all of your accounts (brokerages, bank, properties, cars, etc), and it’s cool to see your net worth.

That’s it! While investing is not your “get rich quick” trick, investing is your “keep your money” and “make your money work for you” trick. Do these steps, and you should be on your way to your investing journey. Thanks for reading :)

End Notes

I’ve written the endnotes at the end of this Google Docs document.

Disclaimer

Because this article talks about financial advice, I have to put in a disclaimer my guys 🥵

All opinions expressed in this blog are from my own personal research and experience, so these are indented as educational material only.

Thanks again!

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Robert M. Vunabandi

I’m a human, living on earth, and doing Software Engineering. I enjoy reading thoughtful posts, and I like to write! So, here we are.