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Investing (Part 1)

Disclaimer: Although my degree is in FInancial Planning, I am not a financial advisor, accountant, attorney, or tax advisor. These blogs are for informational use and all advice is based on my personal research, my experiences, and my opinions. You have to do your own research and I do not take responsibility for any losses that come with my advice. Everyone has unique circumstances and consulting a professional is always the best option.

➡️ The fact that you are reading this is already a great step towards investing! I wish I could have released this blog before the GameStop/AMC/Dogecoin hype started so that newer investors could have been informed before making impulsive decisions, but I have been busy and this blog is much more in detail than I originally planned, so I appreciate everyone's patience. I am glad the hype attracted more people to invest their money though, and if you haven’t started investing yet, better late than never! Lastly, this blog isn’t any CRAZY, NEW, FOREX, GET RICH QUICK, advice. This is a great foundation so that you are empowered to make wise decisions yourself and not just have your money sit in your savings account or continue accumulating debt.

Why do I need to invest?

Investing is important because it is the key to accomplishing long term goals and a way to make money without doing anything. It is also a way to build wealth not only for yourself, but for the people who come after you. Investing is also important because the prices of the things we buy increase over time. Gas used to cost .50/gal but is now $4/gal. So if I save $10 from 1950 and use it in 2020… that $10 won’t do much for me. If you invest $10 from 1950 and it grows to $2,000 by 2020, that’s more helpful in 2020 than just saving your $10.

Many people are actually already invested in the stock market and don’t know. Your 401K at work that you and your employer contribute to each month is most likely invested in the stock market. You may not have chosen the investments yourself and you may not even know what it is invested in, but you do have access to that information and can change what you’re invested in if you want. If you want to know more about retirement accounts, here is a link to a blog I wrote on that.

Here is a comparison of investing at work versus a savings account. If I decide to save $100/month for 10 years… I would end up saving $12,000, which is great! If I decide to put $100/month into an investment account and earn 10% annually (which is very possible in the stock market!). I would have more than $20,000. Why settle for having $12,000 in my account when I could have more money?

Most importantly, I know investing can be a scary thought (I avoided it for years because I was afraid to lose my money) and no one teaches us about it (at least no one taught me about it)... but just saving your money is not benefiting you either. It is also a risk to just keep your money in a savings account forever. I eventually had to take the leap of faith and you should too. There are plenty of platforms today that do everything for you and you can just automate your savings to be invested. You do not have to be an investment guru to get started. #TakeLeaps #NoLimits #KOtheCOMP

Should I invest first or pay off my debt?

The easy answer to this question is if you are receiving a higher return in your investment account than you’re paying in interest on your debt, it is definitely better to invest. For example, your investment account is earning 8% per year and you also have a loan with a 4% yearly interest rate – in this scenario, it would make sense to put additional money towards investments and not towards the loan.

If you have credit card debt, it is unlikely you will earn enough on your investments to beat the interest being charged on your card. Work on paying down credit card debt first and check out this blog for more info on credit. Student loans and mortgages usually have low rates so there’s no reason to prioritize paying off these debts and postpone investing. However, it is always important to remember that if you are stressed about your debt, your peace of mind is important to factor in when making financial decisions. You can’t put a price on happiness and peace.

What is the stock market?

The stock market is a place for the public (us) to invest in companies that have gone through the official process to offer ownership (stocks/shares) to the public. (That's why all companies aren't on the stock market, you do have to go through a process.) Stocks are partial ownership in a company, so if you own Tesla stock you could say you own part of the company and it also gives you voting rights. In order to buy a stock, someone else has to be selling the stock at that price you want it and in order to sell a stock there has to be someone willing to buy it at your price. (Just like if you want to buy a couch for $300, you would have to find someone that is willing to sell their couch at that price.)

All of this buying and selling is done through the stock market. We all hope to buy a stock at a lower price than what we sell it for to make a profit.

Know your risk tolerance

It's all fun and games until you lose your rent money in Dogecoin. Risk tolerance is how much volatility/change you can handle when making an investment decision. You have to know your risk tolerance so that you can be wise about the amount you are investing and what you are investing in. Are you willing to lose invest $1000 and possibly lose it all or possibly gain $800? Or would you prefer to just be confident you will make $200 from your $1000 investment with a slight chance you’ll lose $50? I'm definitely the second one. If you're the first one, you probably have a higher risk tolerance. If not, you probably have a lower risk tolerance. Personally, I have a pretty low risk tolerance, meaning I prefer to just make consistent earnings on my money in safer stocks. A person with high risk tolerance can put $10,000 into a risky stock, watch that investment drop to $2000, and not panic and sell. A person with low risk tolerance will prioritize avoiding losses above crazy profits and would have never invested in that risky stock. A person with a high risk tolerance will invest a lot of money in hopes that it will lead to a big return, but also aware that they may lose it alI.

Emotions are the hardest thing to control when investing. You see that stock price dropping lower and lower, fear kicks in, and you just want to sell and take all your money out. But the question you should be asking is… Why not put more money into those stocks since the price is low? If you have a diversified group of stocks and an emergency fund in your savings account, there's no need to freak out when stocks drop. You don’t NEED that money right now. When the pandemic first started (March 2020), the entire stock market fell drastically which means most people were selling their stocks, a.k.a. stocks were on sale. Looking back now, if you had put more money in when stocks dropped, less than 2 months later, the market was recovering and hitting all time highs. These are moments where you don’t pay attention to what everyone else is doing and the fear that is creeping in when you see all your accounts plummeting. Instead, be patient and trust that the stock market will do what it always does → go back up. Of course, none of us knows when the market will drop or when it will recover, but if you’re consistently depositing money into your investment accounts, you will catch the market on both good and bad days.

What platform should I use to invest?

The answer to this question depends on your goals. If you've been reading my blogs you know I love Betterment because it diversifies, and rebalances my investments for me. All I do is set up a monthly auto-deposit. I also have a Robinhood account with some “play money” that is for more risky buying/selling. (I say selling but honestly, I haven’t sold anything since starting to invest lol) Other options are: TD Ameritrade, Webull, and Fidelity. The most important thing to consider when choosing a platform is fees for buying/selling and how easy it is to buy/sell. If a platform is confusing to you or provides too much information, find a more basic one. If a platform doesn’t provide enough information for you or is too simplified, there are more advanced options. It really is up to you, but for any beginner that wants to trade for free I would recommend Robinhood.

How much should I invest?

The amount you invest is all based on your goals and your budget. (Yes, remember when I told you to make a budget in the first blog? Lol well you do need to know how much you’re spending to decide how much you want to invest.) No amount is too little, something is always better than nothing. Personally, I have an amount that goes into my retirement accounts each month and also an amount that goes into my personal investment account monthly. The most important thing to remember is DON’T INVEST MONEY YOU NEED RIGHT NOW!!! If you need this money for your car payment in 2 weeks, don't put it into stocks trying to double it real quick. The stock market is supposed to be a longggg game… it is extremely volatile in the short term and you can quickly turn $200 to $0. It's difficult to time the market because you can’t predict the future. If you consistently invest the same amount of money every week or month you can catch the market at highs and lows. Compare putting $12,000 all in January when the stock market was really high and now all that money has dropped to $8,000, versus putting in $1,000 every month. Only a few months are bought at high prices and a few months are bought at low prices, it will average itself out.

To decide the amount you should invest, assume you will keep your money invested for at least 1 year and I never recommend anyone invest money that they will NEED in 2-3 years. This time frame depends on your risk tolerance though. If you’re okay with possibly not having that money available when you need it and have planned ahead for that, that's your decision. You never want to be in a position where your investments have dropped, but you need the money now so you are forced to sell at a loss, meaning you now have less than you started with. As for me, I am not gambling. Here for a long time and a good time🤪

What should I invest in?

The hardest question of them all…

I don’t want this blog to be too long so I’m going to stop here and continue in Part 2

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