First up: as of today August 5, Nvidia is down 30% from its June peak—and my post in which I said it was time to start selling. (Apologies— I’m usually more modest. Not often I nail the timing so perfectly!)
Now, on with the new post.
It's time.
You've been thinking about investing toward retirement forever. You can’t help but know about how fast the market has been moving, how much more can be made in the stock market than in any other investment vehicle. You've noticed a few hero companies whose stocks you wished you owned (Nvidia, Apple, Microsoft..). You've even tucked a little of your paycheck away, preparing to make a move.
But you have not actually hired a financial advisor, or opened a trading account, or have any idea what to do. It seems like a lot of work, it's frightening, you're not sure you have the money, and you wouldn't know where to start. What are you going to have to sacrifice? What if you screw it up?
Your path to wealth has been blocked. You’ve been ducking it, putting it off. Let's take a look at your top excuses.
I don't know where to start, or how to set it up, or who to trust.
This is so much easier than many people realize. Setting up a portfolio 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 (they are owned by financial giants Morgan Stanley and Schwab, respectively), and they offer lots of online help and service reps available by phone if you get stuck. Both provide loads of information about the market, how it works, trading parameters, and about any particular stocks you're interested in. Both platforms have a relatively tiny minimum account size. They don’t charge for trades— buying and selling equities is free. You'll need to link your existing savings or checking account and then transfer in the opening balance. It’s about as complicated as setting up an account on Amazon.
Of course, you should decide at some point if you want professional help. It’s not generally necessary at the start of your investing career, as your needs are straightforward and simple to achieve on your own. But as your portfolio grows and becomes more diversified and complex, it might make sense to seek assistance. The Wall Street Journal’s Is a Financial Advisor Worth It? (paywall) is a great starting point. The piece describes various types of advisors, benefits and concerns, and expected costs. In some cases, you might not even need or want one. Do a little research to determine whether your needs would benefit at this stage from pro advice.
But the biggest hurdle for most folks is actually sitting down to deal with it. It never seems easy or convenient, so it’s like steam cleaning the carpet or painting the laundry room— it gets forgotten or put off until years have gone by. Don’t let that happen.
I haven't done it because I don't have enough cash to invest.
But you do. Most working people can find at least a few hundred or even a few thousand per year if they get just a little more disciplined— and if they transfer a little cash into their investing account automatically with each paycheck.
Watching your money earn for you, while you're busy working or sleeping or vacationing or otherwise completely ignoring it, is among the greatest pleasures. Why toil endlessly for your income when you can eventually teach your money to the heavy lifting? You'll want to do it more. Unlike nearly any other activity, the secret to investing is not to do more, it’s to do less. The harder you work, the more you trade in and out, the worse your returns. Learn to let it ride.
I usually advise to invest any and all funds you are confident you won’t need for at least three years. Rainy-day fund, nest egg stuff. Then set up your checking account so that 5% of your direct-deposited paycheck automatically transfers into your portfolio. You’re a lot less likely to spend money you don’t see, and you can probably withstand a 5% hit to your cashflow to pay yourself forward like this. You might even throw in part of a bonus, or ‘found money’ from finally selling that stuff in the basement. It will add up! Then increase the dollar amount or even the percentage over time as your income rises.
I haven't done it because it's tons of work and it's scary. What if I blow it?
What does your savings account pay you in interest per year, one one-hundredth of a percent? Why don’t the banks just admit that’s effectively zero? And in the US, the average annual inflation rate has generally been 3-6%. Which means if you're keeping your cash in savings you're constantly losing money.
Doesn’t it make you mad that your savings is worth less every year? Of course! But if instead you put that cash to work for you, even in a simple S&P 500 index fund you’ll average 5-10% per year more or less forever.
And you absolutely don’t have to pick stocks to achieve impressive returns. Stock-picking is more art than science. It requires study and experience to choose well and you need a strong stomach to endure the inevitable slides. But investing your hard earned savings in a couple of broad stock indexes over time turns out to be a low-risk high-reward way to capitalize on the markets. At very low cost, exchange traded funds (ETFs) trade just like stocks but offer broad exposure to an entire index with one trade.
A broad-index ETF like these will rise and fall week to week but will grow over time. In the long term you basically take on broad economic risk but get rid of individual-company risk. If you always put in cash you don’t need for a few years, and you ride through a few inevitable recessions without panic, there will always be more in the future.
I won't pretend it isn't scary. It’s not Monopoly money. If you choose individual stocks instead of or alongside your index funds, you will inevitably make some bad choices (after 30 years I still blow it regularly). There will be some losers among your investments. That’s normal, and it an essential part of learning to do this, so don’t let it get to you. But if you read or 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. You don’t want to get rich quick; you want to build wealth slow.
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 or a broad and stable index. If you're looking for overnight riches, as I've said before, look somewhere else. But we already know you're patient, or you wouldn't have read this far. You can succeed in the stock market.
You just need to get started. Right now: heck, compared to last week, the whole market is on fire sale this week! What a great time to begin!