How To Invest for Beginners
Today we’ll show you exactly how to invest for beginners. Investing your money is one of the most important financial decisions you’ll ever make in your life, but how to get started with investing seems like an impossible question to answer. Luckily, investing is much simpler than a lot of people like to make out. All you really need to do is put your money into index funds like the S&P 500 and hold for the long term.
In this video, you’ll learn exactly how to invest in index funds in a simple and digestible way, ensuring that you have the knowledge to work toward financial freedom. And don’t worry. You don’t need to be an expert to understand- all the financial terms are explained in the video.
If you follow these principles on how to invest, you will grow your wealth exponentially, allowing you to retire early and build generational wealth. You no longer need to be born into money to become a millionaire in 2023, so get started with the stock market today and begin accumulating wealth.
Investing is scary and confusing. In this video, I’m going to give you a complete guide to investing to make things easy, simple, and stress-free whilst also maximising your returns. If you’re sick and tired of other YouTubers overcomplicating this topic and want a no-nonsense guide that will help you build generational wealth, keep watching.
Oh, and just a little disclaimer before we get started. You shouldn’t take this video as financial advice. What you do with your money is your decision, and you should consider talking to a financial advisor before you put your money anywhere. Anyway, let’s dive into the video!
What is investing?
If you’ve clicked on this video, you’ve probably got a basic understanding of what investing is, but let me give you a clear definition so everything I’m about to talk about will make a bit more sense. At its core, investing is the action of putting money into a ‘thing’ for a period of time in expectation of receiving a profit. It’s really that simple, yet so many people on the internet love to overcomplicate the topic to confuse new investors.
So, why would you want to invest in the first place? Well. For one, investments can help you combat the effects of inflation. Whenever you store money in a bank account, it’s going to lose 2-3% of its value every single year because money becomes worth less and less over time. The value of a good investment will consistently keep up with inflation, helping you to retain the value of your money.
Offsetting inflation is all well and good, but an informed investment will actually outpace inflation by some margin, helping you to grow your money over time. Let’s say that you invest in stock ‘X’, which has an annual return of 10% a year on average. This will mean that, instead of losing or merely retaining its value, your money will actually grow by about 8% per year, factoring in inflation. This is called ‘capital gains’ and is how billionaires like Warren Buffet have built their wealth over time.
Finally, if you invest correctly, you can actually use your money to make money through something called a dividend. Basically, when a company makes a profit, it likes to reward investors for sticking by the company, so it will pay out a small portion of its profits to every investor. Generally, this is around 1-4% of the value of your investment. Theoretically, with enough investment, you could live off of dividend payments without working another day in your life.
This brings us to something which Einstein once labeled the ‘seventh wonder of the world’- compound interest. Compound interest is the process by which you start to earn interest on the interest of your savings and investments. Think about it. Let’s say you invest $100 in year one, and it grows by 10%. So, at the start of year two, you’ve got $110 in that investment account. That means that the same 10% return will generate $11 in year two, as you’ve begun earning interest on your interest. Over time, this will literally spiral out of control until you have more money than you thought was possible.
Let me put the power of compound interest into perspective for you. At age 83, Warren Buffet was worth 58.5 Billion Dollars. Fast forward nine years, and he’s worth 109 Billion Dollars. How? Two words- compound interest.
I know this might all sound pretty confusing. For now, I want you to imagine that an investment is almost like sending your cash to work- each day, it’ll go out and earn a little bit of money and bring it back to you, helping you to grow your wealth over time.
What can we invest in?
By now, you’re probably thinking that investing has the potential to earn you a lot of money with very little effort on your side. And you’d be correct. So, how can you get started, and what can you actually invest in?
The most common investment you’ll find is in public liability companies. PLCs, like Apple, Microsoft, and even McDonald’s, allow normal people like you and me to buy their ‘shares’.
A ‘share’ is a minuscule portion of the company. The shares that you buy will then increase, or decrease in value, depending on the projections of the company, and can be sold at any time. To help you visualize this, imagine that a company is a pie divided into 1000 equal slices. Each slice is a share, and the more you own, the more control you have over the company.
You can also invest your money into crypto. Cryptocurrency has massively grown in popularity in recent years and has made a lot of people a lot of money. Cryptocurrency, such as Bitcoin, is essentially a decentralized currency powered by a blockchain. There’s a finite amount meaning it cannot succumb to inflation. However, crypto is a very volatile market, and if you’re looking to get into investing, it’s probably a good idea to get some investing experience under your belt before you dive into this world.
The final major form of investment is real estate. Real estate is a fancy term for property and is another incredible tool for building your wealth. Like a stock, the value of property generally increases over time, meaning that you can simply buy a property, hold it for a few years, and make a profit, depending on what the markets are doing. You can also generate a monthly cash flow by renting said property out. However, real estate is a rich man’s game, and unless you’ve got the time, money, and credit history to secure a mortgage, fund a down payment, and deal with needy tenants, you’ll probably want to stay away from real estate for the time being.
In this video, we’re going to focus on stocks and shares simply because it’s the easiest form of investment for anyone to get into and doesn’t require as much knowledge, experience, or research as other forms of investment.
So, we’ve seen the power of investing and gained an understanding of what an investment actually is. So, let’s now take a look at how you can get into the market. There are actually two main methods of buying shares. Let me tell you about them both, and then I’ll explain which route to go down.
The first method is to buy singular stocks. This basically means manually buying a fixed amount of shares in an individual company of your choosing. When it comes to individual stock picking, most people think of big tech companies like Apple and Tesla.
To buy singular stocks, you’ll need to sign up for a trading platform like Trading212 or Freetrade. It’s really easy to open an account, and once you’re in, you can search for the stocks that you’d like to buy. It’s honestly as simple as that.
The advantage of picking singular stocks is that you have complete control over where your money is going. You can also jump onto big opportunities that may have unprecedented returns. Just think about Tesla- in 2010, a share was worth $17. Now? You’re looking at $186 a share.
The second method is to invest in something called an index fund. If you’ve never heard of this before, don’t worry, most people haven’t! I’ll try my best to break it down as simply as I can. Basically, an index fund is a big pile of stocks from markets like the S&P 500. Whenever you put money into an index fund, your funds are distributed across all of these companies proportionate to their share in the market. So, instead of investing in a single company, you’ll be investing in several hundred at a time.
To invest directly into an index fund, you’ll need to open an account with a dedicated provider such as Vanguard. From here, you can pick the index that works for you, and boom; you’ve just opened up an index fund. On average, an S&P 500 index fund grows by 10% per year and offers a dividend of 1-2%
To be completely honest, I would almost always recommend that you go for option number two and invest your money in an index fund. Why, I hear you ask? Well, index fund investing has so many advantages over stock picking, especially for new investors.
Firstly, index fund investing requires pretty much no effort on your part. You don’t have to research an individual company’s balance sheet, profits, and all of that nonsense. You just have to pick a fund, chuck some money in your account, and let the magic of compound interest do its thing.
Secondly, index fund investing is a lot more risk-averse than stock picking. When you invest in an index fund, you’re basically counting on the economy to prosper- which it always does. If one company fails, another will succeed, and everything will balance itself out. I mean, no one in history has lost money in an S&P 500 index after holding it for 30 years.
The story is just not the same with stock picking. Putting all your eggs into one basket is so risky. What if the CEO of the company decides to quit, and the company goes into disarray? What if a lawsuit ruins the company’s image? What if a pandemic wipes out the need for the company’s service, causing the share price to plummet? These scenarios might seem far-fetched, but all it takes is one wrong move, and you could lose all your money by investing every cent into a singular company.
Oh, and there are basically zero advantages of individual stock picking. Even expert stock-pickers have been unable to beat the market with individual stock picking. Don’t be fooled into thinking that you know better, and put your money into something safe yet effective.
So, let me summarise this all for you. Put your money into an index fund. Watch it grow every year. Retire early.
Key Investing Principles
Now that you know what to invest in, I want to share a few key investing principles with you that will make you a much more successful investor in the long term.
First things first, you need to get into the market as soon as you can. Compound interest is a beautiful thing, and the more you take advantage of it, the better. I mean, just look at how Buffet’s wealth literally doubled in 9 years, thanks to the decades that he’d been in the market. So, as soon as you’re done with this video, get yourself into the market.
You also need to think long-term. Contrary to what a lot of people on the internet may tell you, investing is a long game, and you’re not going to become rich overnight. So, broaden your expectations from years to decades, think about the future, and one day soon, you’ll be thanking yourself.
Bouncing off of this is the principle of investing little and often. You don’t have to be a millionaire to get into investing. Instead, you just have to be willing to invest a small chunk of your paycheck each and every month, keeping your long-term goals in mind. Even if you’re only investing $5 a month, it’s going to give you discipline with your budget, and hey, it’s better than keeping that money in the bank anyway. Be frugal if you have to, but make sure you’re investing something whenever you can.
You also want to be as risk-averse as possible. Reducing risk is really the core of investing. So, diversify your stock portfolio as best you can. Of course, the best way to do this is by investing in index funds and minimising the number of picked stocks in your portfolio. But you can also look into other methods, like branching into crypto and real estate.
Another key principle is to buy the dip. Let me explain what I’m talking about. When the market hits a recession, stock prices, in general, go down. The reasons for this are all pretty complicated, and I won’t bore you with them too much, but essentially, if the economy isn’t doing well, neither is the stock market. Most people are terrified of a recession because the value of their investments decreases significantly. But I want you to view things differently. Think of recessions like a ‘stock sale’, where you can get more bang for your buck. Sure, past performance is no indicator of future results, but the market has always bounced back from a recession, and if you hold for the long term, you’re almost certainly going to build wealth rather than lose it.
Finally, it’s a good idea to build yourself a small emergency cash fund. Sometimes, you need a little bit of liquid cash lying around, just in case something unexpected pops up. If you have all of your money in stocks, you run the risk of being forced to liquidate when the markets are down to pay for an emergency bill. So, it’s a good idea to reduce this risk by keeping a little cash in the bank, just in case something goes wrong. Fingers crossed, you’ll never need it, but as I’ve said in this video, investing is all about reducing risk and being ready for anything.
Books to read on investing
Now, if you’ve made it this far into the video, I’m guessing you’re pretty serious about this whole investing thing. If you really want to take your knowledge to the next level, I’ve got a few book recommendations that you might find interesting.
The first book to read is called The Intelligent Investor. This book is infamous in the investing world and will teach you core principles and investing patterns to help you choose stocks and grow your wealth. To be honest, it is a pretty dry read and is also very outdated at times. But, if you can get through the dull tone, you will really grow your investing knowledge.
Another title that I recommend to any keen investor is The Psychology of Money by Mloegan Housel. This book is literally a gold mine for investing knowledge. It’ll help you visualise just how rich you can become if you just invest little and often, and will also give you loads of useful tips on how you can manage your finances and ultimately put more aside each month for investments.
The final book I want you to read is The Life, Lessons, and Rules for Success by Warren Buffet. This book will give you a lifetime of knowledge and insights from the king of investing himself. And don’t be scared about any technical language; Warren is a very down-to-earth guy who likes to make his knowledge accessible to everyone.
So, you’ve studied this video, done your wider research, and have been investing in Index Funds for a while. What can you do next? I’ve got one word for you- diversify.
Index funds are incredibly diverse in themselves, but there are ways to diversify your portfolio even further. Consider allocating a small percentage of your funds to cryptocurrency- say 5 or 10%. If you’re younger, you might be able to afford a larger percentage than this, but always do your research before investing in any coin, as many people online promote ‘pump and dump schemes’. If you play your cards right, you might just land a return of 10X or more!
And if you’re really looking to diversify, get yourself into the real estate market. Sure, it’s not going to be easy. But It’s going to be worth it. Real estate can give you monthly cash flow and a huge increase in net worth, thanks to capital gains. And, with a healthy chunk of real estate in your portfolio, you’ll never need to worry about the stock market going down, and vice versa!
I’ve just thrown a lot of information at you, and I get that it can all be pretty confusing if you’re new to this whole numbers game. So, here’s a quick five-point summary of how to invest:
- Invest in an index fund
- Invest now, little and often
- Time in the market always beats timing the market
- Set it and forget it. Hold for the long-term
- Diversify. Diversify. Diversify.