Tuesday, July 28, 2015

Stock Investing: 3 Lies You've Been Telling Yourself

It's time.

You've been thinking about getting into stocks for years. You've heard all the stories about how fast the market rises, how much more you can make in stocks than in any other asset class. You've paid attention to certain hero companies whose stocks you wished you owned. You've been putting a little bit of your paycheck aside for a while now, though not regularly-- it's more when you feel you can, when you find the discipline, when you feel guilty after a particularly spendy patch. You're putting aside a little.

But you have not actually opened a trading account, or come up with an investment plan. It seems like a lot of work, it's scary, you're not sure you have the money, and you wouldn't know where to start anyway. What are you going to have to give up? What if you screw it up? 

Your path to wealth has been blocked. You've been lying to yourself to avoid dealing with it. Let's take a look at your top excuses. 

If the E*Trade Baby can do it ...
1. I haven't done it because I don't know where to start, who to trust, how to set it up ...
This is so much easier than most people think. Setting up a stock trading account at an online brokerage like E*Trade or TD Ameritrade is simple and straightforward. Both are easy to navigate, offer a quality, trustworthy service, have lots of online help and service reps available by phone if you get stuck. Both offer loads of information about the market, about the stocks you're interested in, about how it works, and buying and selling in general. Both platforms requireabout a $500 minimum and charge around $10 per market transaction. They also routinely offer specials (free money) when you set up an account. You'll need to link your savings or checking account-- from your primary bank-- then transfer in an opening balance. In a few days when you get the email notice that the money has arrived you're ready to go. 

2. I haven't done it because I don't have enough extra cash to invest. 
But you do. Most professionals can find a few hundred or even a few thousand per year if they get just a little more disciplined. It doesn't take much to begin: there are plenty of great companies with share prices under $100. The success you have in your first couple of years-- even a modest amount of portfolio growth-- will propel you to dig deeper in the future. Watching your money make money, while you're busy working or sleeping or on vacation or otherwise completely ignoring it, is among the greatest of financial pleasures. You'll want to do it more.

So how to come up with the dough? Well first take some of that savings you've been slowly socking away. Not all of it; half, maybe, or what you're willing to learn with. Don't worry, you almost certainly will not lose it. You are going to be too careful for that.

Where else can you find money? Do you have expenses that you don't really think of as significant? I don't mean the mortgage or health insurance or the car payment. Do you have a daily latte habit? That's $1,000+ a year right there if you instead make coffee at home. What about work lunches? Are you hitting the teriyaki place on a regular basis instead of throwing together a salad before you set out in the morning? That's another couple thousand a year. Can you tear apart your cable bill and drop those channels you never watch? Can you shop more Safeway and less Whole Foods? Are you actually going to the gym, or just paying for the membership? Maybe you can eat out one time less per month. Cut down on the pricey beer. Turn down the thermostat a degree or two. Reduce the shoe collecting. 

It all adds up. And when you balance the pleasure derived from those Tuesday Subway sandwiches against the joy of watching your hard-earned savings work on your behalf, all by itself, it will seem worth the effort.

3. I haven't done it because it's a lot of work and it's scary. I don't want to blow my savings.
What does your savings account pay you in interest per year? 1%? Less? In the US, the average annual inflation rate since 2005 has been around 2.28%. Which means if you're keeping cash in savings you're losing money right now

This is for the broader market. Imagine if you bought Netflix, or Facebook!
Could you do worse than to see your money shrink by 1.5% per year just due to inflation? Of course. But you won't, not if you're paying careful attention, and not over the long term. I won't pretend it isn't scary. We're not talking about Monopoly money here, and you will make bad choices and you will have some losers among your stocks. But if you reread this blog (start here), you'll have a good idea what you're looking for and how overall you can make big gains over time. That's the key: over time. 

Look at the chart above. That is the path of the Standard & Poors 500 stock index, also called the "broader market". The companies you'll choose will, over a 20-year time period, crush the gains shown in the chart: Netflix. Facebook. Nike. Disney. Starbucks. Tesla. Apple, for heaven's sake. There is no faster-appreciating asset class than stocks, no better way for your dollars to multiply on their own than by purchasing shares of a smart and growing company. If you're looking for overnight riches, as I've said before, this isn't for you. But we already know you're patient, or you wouldn't have read this far. You can succeed in the stock market. You got this. 

Drifting to Fifty | Random unrelated nugget of the week
A gentle, deep, professional massage is the best way (apart from sex and without chemicals) to really relax, to feel good in your body and to make peace with the world.

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