For people who want to get started investing but don’t want to take the risk and effort in determining which stocks too chose there are plenty of good options to help grow your savings. For starters a very common way to invest money is through an index fund. An index fund invests in all the companies within a market index such as the Standard & Poor’s 500 to capture the market. Index funds have very low costs and are an easy way to have a very diverse portfolio, I prefer this over mutual funds which often have high fees which I believe is not good for a young investor who doesn’t have a lot of money to put in. Different index funds have different fees and invest in the index at different ratios so they can act differently even though they’re invested in the same market index. A good one to take a look at is the Vanguard 500 some more info on it found here. Other ways to passively invest is through ETFs. ETFs are similar to index funds as they are invest in a wide variety of companies but they don’t always fall in just one index they may have other traits that tie them together, common ones are large cap or small cap stock funds. With ETFs you can have your money be diversified without having to invest a lot but unlike with index funds you have more room to decide on the type of industry or type of market that you feel comfortable with. To trade ETFs I again use Robinhood as my brokerage but there are many other ways to trade ETFs for cheap or for free such as iShares ETFs with Fidelity. There are many different ETFs with different goals such as high dividend paying ETFs which leave you with many options to invest money and be more passive rather than having to keep up on different individual companies you are investing in which is why I think these are a great option for majority of people.
For a long time I wasn’t frustrated that there wasn’t any way for me to be able to invest in stocks with the amount of money I had available, most online discount brokerages charge $5-$12 a trade and that didn’t work for me. Robinhood lowers the barrier of entry to people who want to invest by offering completely free trading and this has been a great tool for me in being able to learn how to trade stocks and better understand the markets. Robinhood is able to offer free trades by earning interest on unused cash in accounts and will offer make revenue on margin trading when it rolls out, more on that here.
My advice to millennials who want to start trading stocks is buy companies you know and buy in industries you understand, if you like sports look at Nike or UA, if you like cars look at Ford or GM, etc. Don’t just invest because someone else said something was a good investment because while it may be for them it may not be right for you. Brands you know well are always a good start because you understand what brings people to these brands. The second thing I look to do is a quick google search, make sure there isn’t any red flags in the news that will effect the company negatively. Third is due diligence on the companies financials, make sure they are making money its gonna stay that way, and this will differ based on your experience but some great resources are the SEC’s Edgar database you can find here, as well as MorningStar which gives key ratios and advice from analysts, luckily through ASU you can access it free here.
As a beginning investor you may not know all the different vehicles to invest in. You’ve probably heard of stocks and bonds but what about ETFs, ETNs, index funds, mutual funds, REITs, etc. My preference has been picking stocks for two reasons, being young you should have a larger appetite for risk because you have plenty of time to recover from a crash and it gives you a better chance at seeing large growth. The second reason I prefer picking stocks is because it gives you experience in knowing how markets work, it forces you to keep up with whats going on in the economy because it isn’t a very passive investment and it allows you to see how market changes effect your investments so you know how to better react in the future. But it is important to always do your due diligence before picking stocks, Ill talk more about this in my next post. Another good option to invest is through ETFs and index funds, these help you have diversity in your investments without having to invest a large amount of money as well as being a simpler more passive vehicle where you can watch your investment steadily grow. ETFs and index funds are cheap, meaning they don’t have fees like mutual funds do which help make them a great option for young investors. I will further discuss these funds as well as stock picking in greater detail in later posts.
In this blog I am going to talk about how to invest as a college student or a recent grad, how to get an early start and ways to invest on a smaller income. This week I am going to talk about investing platforms. It took me a while to get into investing in the stock market, although I wanted to start investing early trying to find a proper avenue to do so was difficult, most discount brokerage websites I had found charged $5-$12 per trade and there was no way I could make any money investing amounts I could afford with those fees, even for the long term. I eventually some ways aimed a millennials to help get me started. I first started investing using an app called acorns, this is a great option for more passive or unexperienced investors who don’t want to get into the difficulties of stock picking. With Acorns you can make regular deposits as well as rounding up transactions on a debit or credit card that’ll be deposited in your acorns account. Acorns then invests the money into 5 different ETFs aimed at capturing the entire market, it gives you 5 different levels depending on how aggressive you want to be, all put together by nobel prize winning economist Harry Markowitz. After using Acorns for a while I saved up enough to be able to start making more investment decisions on my own rather than them being chosen by the app but still the online discount brokerages were too expensive until I found Robinhood. Again Robinhood is a mobile app but it is an accredited online brokerage that allows you to make trades with zero fees, ill give more on their revenue model in a later post. Robinhood allows you to buy stocks as well as ETFs at zero fees which is great for college students who want experience in the stock market without needing thousands of dollars available to invest. In later posts I will discuss how to use these platforms effectively as well as proper techniques and principles in investing to help you have strong financial growth while still in your early 20’s.