Investing: An Introduction to the Basics

Learning how to properly invest your money is different for everyone. Regardless of your age, savings amount, income level, and your financial goals, knowing where to start is very important. Surprisingly, knowing where to start is also something that is often overlooked! If you are looking to begin investing soon, or have begun but are frustrated and confused by the seemingly endless options, we are here to help. Here are a handful of approachable topics for you to begin with:

  1. Index Funds / Market Tracking Funds
  2. Robo-advisors such as Betterment
  3. Individual Stocks

Index Funds / Market Tracking Funds

Picking an index fund to invest your money into is often regarded as one of the safer decisions when beginning. At its core, an index, or market tracking fund means that your money will be put into one “group” of investments and then spread out amongst whatever that fund tracks, diversifying your money. Some funds track certain industries (technology companies, green energy companies, etc.), certain size businesses, or even certain locations (business only in certain countries, regions or foreign markets in general).

Similarly, investment advisory funds such as Vanguard will have their own, in house funds offering a variety of different options for choosing your investments. For example, investing money into the S&P 500 becomes simple with multiple funds to choose from Vanguard. Investment professionals manage the portfolio’s holdings of S&P 500 based companies such as Apple, Amazon, Facebook, Exxon, and many others. To give an idea of how diversified your investment is when in a situation such as this, the Vanguard fund tracking large S&P 500 corporations (ticker symbol VOO) holds over five hundred individual stocks! Imagine trying to hand pick that many companies to spread your investment over?

Robo-advisors such as Betterment (our favorite tool)

When it comes to investing, if you are a true beginner with little real world experience, using a service such as Betterment is a great idea. And honestly, as a seasoned investor like Son it’s still a great tool. You will tell their investment software and professionals a little bit about yourself, input some quick details about your investment and financial situation and your goals. From there, the platform will begin its capabilities of automated investing, adjusting as time goes on to best achieve a stable and “tax-smart” return. Everything is extremely personalized and you will have 24/7 support for your account and holdings.

Some immediate benefits of using a system such as Betterment

  • You can start with as little as $10/month (which most of us can afford)
  • Avoid high fee managers who likely will underperform Betterment’s portfolio
  • Avoid a lot of the worries and stress surrounding your start to investing
  • Easily work investment goals into your busy, daily life, stress free.

Individual Stocks

Here are BrainyMoney we will never recommend buying an individual stock. This creates a lot of risk and is honestly the biggest risk when investing. You are an average investor and you are not privy to most of the information that large hedge fund managers are privy to (and even they aren’t that good). So we recommend using Betterment to invest in a diversified portfolio which is the most efficient way to stay away from the biggest risk of investing. Owning a diversified portfolio of over 500 companies’ stock is a much better investment option than trying to find the next Apple, which is pretty much gambling. Son is a Chartered Financial Analyst, Certified Public Accountant and a seasoned finance professional and uses this approach with the majority of his net worth. It’s also the same approach that Warren Buffett recommends. Buy the S&P 500 and sit on it.

Realizing that you want to begin investing is a great place to be, and a smart decision. The possibility to start generating a return over time is exciting, but can be daunting for some. Learning the basics will help reduce your stress and keep a level head through the ups and downs of your investment journey. For more information regarding the topic of investing for beginners (or if you have some experience but just want to refresh your knowledge), don’t forget to visit the Introduction to Stock Markets and Investments course within the Core Four on Brainy Money!

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