Many Americans conduct passive investing, which some call “lazy investing.” Though this is a common way to invest, it has its detractors.
I just finished reading Paul Farrell’s The Lazy Person’s Guide to Investing, for example, and I found myself drawn to the “lazy portfolios” he describes. Lazy portfolios done by are collections of index funds. Because these portfolios are balanced — they contain stocks and bonds — they mitigate risk while providing excellent returns. Best of all, they take very little time to maintain.
Reminder: An index fund is a low-cost mutual fund designed to mimic the movement of a specific market index. A Vanguard 500 index fund (like VFINX), for example, tracks the performance of the S&P 500. The chief virtue of index funds is that, over the long-term, they deliver better returns than most actively-managed mutual funds.
Related >> Are Index Funds the Best Investment?
Five Lazy Portfolios
It turns out that some of my favorite financial writers are also huge fans of passive investing. In fact, many of these writers have designed portfolios of their own. Here are some of the more prominent examples:
The Couch Potato Portfolio from Scott Burns
50% — Vanguard 500 Index (VFINX)
50% — Vanguard Total Bond Market Index (VBMFX)
This two-fund portfolio from financial columnist Scott Burns may be the simplest way to achieve balance. It’s an even split between stocks and bonds, and should appeal to those investors who are both lazy and risk-averse.
33.3% — Vanguard Total International Stock Index (VGTSX)
This three-fund portfolio from Andrew Tobias is exactly the same as Scott Burns’ Margarita Portfolio. It introduces foreign stocks to provide additional diversification.
The No-Brainer Portfolio from William Bernstein
25% — Vanguard 500 Index (VFINX)
25% — Vanguard Small-Cap Index (NAESX)
25% — Vanguard Total International Stock Index (VGTSX)
25% — Vanguard Total Bond Market Index (VBMFX)
William Bernstein is a retired neurologist who has turned his attention to financial matters. He wrote The Four Pillars of Investing, which is one of the best books on investing I’ve ever read (my review). In that book, he offers a variety of possible investment portfolios. This “no-brainer” collection of index funds keeps things simple.
The Coffeehouse Portfolio from Bill Schultheis
40% — Vanguard Total Bond Index (VBMFX)
10% — Vanguard 500 Index Fund (VFINX)
10% — Vanguard Value Index (VIVAX)
10% — Vanguard Total International Stock Index (VGTSX)
10% — Vanguard REIT Index (VGSIX)
10% — Vanguard Small-Cap Value Index (VISVX)
10% — Vanguard Small-Cap Index (NAESX)
The author of The Coffeehouse Investor believes that the secret to financial success is mastering the basics: saving, asset allocation, and matching the market. The latter can be done through a lazy portfolio. (Schultheis recently shared a guest post at Get Rich Slowly.)
Related >> How to Build Wealth, Ignore Wall Street, and Get on With Your Life
The Perfect Portfolio from Frank Armstrong
31% — Vanguard Total International Stock Index (VGTSX)
30% — Vanguard Short-Term Bond Index (VBISX)
9.25% — Vanguard Small-Cap Value Index (VISVX)
9.25% — Vanguard Value Index (VIVAX)
8% — Vanguard REIT Index (VGSIX)
6.25% — Vanguard Small-Cap Growth Index (VISGX)
6.25% — Vanguard 500 Index Fund (VFINX)
Frank Armstrong III is president of a financial planning firm in Florida.
Note: These portfolios were constructed using mutual funds from Vanguard. Vanguard is probably the best source for index funds, but it’s not the only source. My money is actually with Fidelity, which seems to have plenty of options.
Single-Fund Solutions
Building a portfolio of index funds may be lazy, but it’s not for everyone. Some investors crave greater complexity or more control — or they believe they can outperform the market on their own. Others have no interest in building portfolios (even of just three or four funds) or are unable to afford the minimum investments. For this last group of people, there a range of single-fund solutions.
Many mutual fund companies now offer target-date funds, which attempt to create a diversified portfolio appropriate for a specific age group. Born around 1970? You may want to consider a fund like Fidelity Freedom 2035, which automatically adjusts its investment structure as time goes on. (You might also consider building your own target-date fund).
Related >> How to Create Your Own Target-Date Mutual Fund
There are other single-fund solutions, too, including these:
Vanguard STAR Fund (VGSTX)
T. Rowe Price Personal Strategy Balanced (TRPBX)
Fidelity Four-in-One Index (FFNOX)
Actually, the bulk of my retirement savings is currently in that last Fidelity fund. I’ve been too lazy to create a more detailed asset allocation. (And I do need to make some changes. FFNOX allocates 85% to stocks, and that’s too much risk for me.)
Final Notes
If you adopt one of these lazy portfolios, remember to rebalance the funds every year. Over time, they’ll get out of balance. Your Couch Potato Portfolio may have started with a 50/50 split at one point, but may look very different now. Rebalancing controls risk.
Passive portfolios appeal to me. The more involved I become with my day-to-day investment decisions, the more mistakes I make. I could save myself a lot of grief by putting my money into a lazy portfolio and then forgetting about it.
Are you a passive investor? If so, what does your portfolio look like? How do you decide which funds to buy? How often do you check how well your funds are performing? Any advice for those of us who are considering this strategy?
So, you find the lazy way to invest very appealing: You like the simplicity and the long-term results. But you don’t want to bother with building your own lazy portfolio of index funds and adjusting it as you get older (same as creating your own target-date fund). At this point in your life, you just want a set-it-and-forget-it solution, at least until you feel more comfortable building your own investment portfolio. Target-date funds seem perfect for the job, but which one is right for you? Let’s walk through choosing a target date fund.
Related >> Investing 101: An Introduction to Index Funds and Passive Investing
Choosing the Fund Family
The first step is to choose the fund family (Fidelity, Vanguard, etc.). This decision cannot be overlooked since each company manages its funds differently; a 2040 target-date fund from T. Rowe Price will be different from a 2040 target-date fund at Fidelity. Each company has its own philosophy and methodology. Let’s compare the three biggest players in this market: Fidelity Freedom Funds, T Rowe Price Retirement Funds, and Vanguard Target Retirement Funds.
Related >> a href=”https://www.getrichslowly.org/the-lazy-way-to-investment-success/”>The Passive Way to Investment Success
The first criteria you can use to compare the fund families is cost, specifically the expense ratio (the total annual cost for things like advertising and managing the fund). As an example, let’s look at the 2040 funds:
Fund Family
Expense Ratio
Fidelity
0.79%
T Rowe Price
0.79%
Vanguard
0.20%
Amazingly, Vanguard’s expenses are roughly a quarter of the other two. This is largely due to the use of actively-managed mutual funds by Fidelity and T Rowe Price; Vanguard only uses low-cost index funds in their target-date funds. If you think 0.59% a year is a pretty small difference, remember that the rough rule-of-thumb for withdrawing money in retirement is only 4% a year. That “small” difference in expense ratios is almost 15% of your potential retirement income!
Another important criteria to consider is the asset allocation used by the target-date fund — how much is invested in stocks, and how much is invested in bonds and other instruments. In particular, you want to look at how that allocation is expected to change as you get older. Investing geeks like me call that the “glide path.”
Choosing Your Target Date
Once you select the fund family, you need to decide on the specific fund to buy. Target-date funds are labeled by retirement year, generally assumed to be when you turn 65. So the 2040 fund is designed for the “typical” person who’s currently 35 and is expected to retire in 2040.
Obviously, no one is forcing you to buy the fund that corresponds to the year you turn 65. There are at least two very good reasons to adjust your target date:
If you plan on retiring much earlier or later than 65, you should consider adjusting your target date. Let’s say you’re 35 and want to retire at 55. Should you buy the target-date fund for 2030, since that’s when you’d retire? Not necessarily. Although the 2030 fund fits your retirement plans, it also assumes people retire around age 65, so your life expectancy is probably much longer than the target audience for the fund. A good compromise might be the 2035 fund, which respects both your early retirement plans and your longer life expectancy relative to others you retire with.
Even if you expect to retire at 65, the amount of risk you want to take is probably not “typical”. An easy way to reduce risk is by selecting a fund with a target date that is five to ten years before when you turn 65. (So, if you plan to retire near 2040, you might choose a 2030 target-date fund.) This lowers the level of risk by holding less in stocks while still considering your investment horizon. And if you want more risk, you can select a target date that is five to ten years past when you turn 65. (If you plan to retire around 2030, you could increase risk by choosing a 2040 target-date fund.)
Even though they’ve received some bad press lately due to their poor performance during the recent stock market crash, target-date funds are still useful investments for many people. They’re certainly better than other strategies commonly used by beginning investors: equal-weighting all funds within a 401(k) plan, picking stocks, or just leaving everything in a money market fund.
If you already use target-date funds, which funds do you own and how did you choose?
The other day, a dear friend of mine in her mid-20s told me she was saving up to buy a house in her 30s.
Her plan for amassing a down payment was to simply make a big withdrawal from her 401(k) when the time was right.
When I reminded her that the combined taxes and penalties could be as much as 30% (meaning she’d lose $15,000 out of a $50,000 withdrawal), she frowned.
“Well, I can’t just put the money in a savings account. Interest rates suck these days – the highest I’ve seen is 1%, and that doesn’t even cover inflation!”
She had a point. So why not invest the money, I asked?
“Well, I don’t know much about stocks, I don’t have the patience for real estate, and crypto scares me.”
That’s when I told her she was the perfect candidate for a lazy portfolio.
“A what? Look, buster…”
Once I backpedaled and explained the concept, she understood that I wasn’t calling her a bum, but rather, keying her into a lesser-known but highly effective investment strategy.
In this piece, I’m going to clue you in, too!
What’s Ahead:
What is a “lazy portfolio”?
A lazy portfolio is a bundle of stock market investments that requires little to no active maintenance by you. They’re most commonly made up of between one and five index funds, which are like big bundles of stocks, bonds, and other investments that you can buy just like shares of a regular stock (more on those later).
Aside from the occasional deposit or gentle asset reallocation, lazy portfolios don’t require any work.
You can buy $5,000 or $10,000 worth of index funds today and literally do nothing but watch them for 10 years. Doing this means you’ll have a successful lazy portfolio that will, hopefully, generate good rates of return.
But wait – don’t you have to be constantly buying and selling stocks to make money in the stock market?
Not at all – in fact, it’s better if you don’t. Unlike with day trading, you don’t mess with your lazy portfolio – through thick and thin, you let it sit and generate compound interest for years.
You can think of a lazy portfolio like a baby 401(k) that you design yourself and withdraw from much earlier.
Here’s why being “lazy” is a good thing
I love the movie The Wolf of Wall Street and the investing madhouse r/WallStreetBets, but both entities continue to perpetuate a common myth about the stock market: that you need to day trade to make money.
Nothing could be further from the truth.
In truth, multiple academic studies have found that the overwhelming majority of retail investors end up losing money.
“Don’t be misled with false claims of easy profits from day trading,” Burton Malkiel, Princeton professor and Chief Investment Officer of Wealthfront, told CNBC.
The harsh reality of investing in the stock market is that unless you’re a highly trained wealth manager with decades of experience and a team of analysts, you’re probably going to lose money day trading (and even they tend to struggle to pick winning stocks).
That’s why it’s better not to day trade, and be lazy instead. Rather than researching, buying, and selling stocks every day for the next 10 years, you’ll be better off buying index funds in the next 30 minutes and going about your day (or decade).
What are lazy portfolios made up of?
Lazy portfolios are most commonly made up of a small mix of index funds. Here’s a breakdown of what those are and why they’re so effective for passive investing.
Index funds: the building block of lazy portfolios
Index funds are a form of ETF, or exchange-traded fund, which are like big bundles of stock and other investable assets. When you buy shares of an ETF, you’re effectively buying up shares of dozens or hundreds of companies at once.
Each ETF must be individually approved by the SEC and have an appealing “theme” to it. For example, there are blockchain ETFs; ETFs that track the oil industry; and even quirky, unique ETFs that contain shares of companies trying to appeal to Millennials.
So, while stocks let you invest in a company, ETFs let you invest in an entire industry, concept, or strategy.
Now, what makes index funds as unique as ETFs is that they’re designed to reflect the performance of an entire market index, such as the S&P 500 or the U.S. bond market. To illustrate, here are two of the most popular index funds for building lazy portfolios:
The Vanguard Total Bond Market Index Fund (BND), which reflects the performance of the total U.S. bond market.
The Vanguard Total Stock Market ETF (VTI), which, big surprise, reflects the performance of the overall stock market.
So by buying shares of VTI and BND, you’re essentially investing in “the stock market” and “the bond market.” I know – the idea of investing in the whole stock market all at once sounds meta and maybe a little ridiculous, but bear with me.
Index funds are extremely popular for one simple reason
If you’re new to the stock market, you should know that pretty much every investor dabbles in index funds. Everyone from Warren Buffet to your grandparents has a stake in them – in fact, here’s how Mr. Buffet himself feels about index funds:
“In my view, for most people, the best thing to do is owning the S&P 500 index fund,” he told CNBC.
Index funds are popular among amateurs and pros alike for one simple reason: they reliably produce around 3% to 10% APY year after year. Index funds that track the S&P 500 are particularly high-performing, which is why many actively-managed mutual funds will say they “beat the S&P 500” as a benchmark for success.
Between 3% and 10% APY may not sound like a ton of interest but lemme tell ya, it’s plenty. Compound interest is a powerful ally, after all. Take a look at MU30’s Compound Interest calculator below to get a sense for yourself:
So to illustrate, let’s take a look at what happens if you opened a “one-fund lazy portfolio” today by buying $10,000 shares of the Vanguard S&P 500 ETF (VOO).
How much money would your lazy portfolio be worth in 10 years?
The answer is about $40,000. As I said, it literally pays to be lazy!
Now, most investors choose to put multiple index funds in their lazy portfolios for added diversity, but even one-fund lazy portfolios like 100% VOO are common and highly effective (clearly).
Why index funds are better than mutual funds or robo-advisors for building lazy portfolios
To start, mutual funds and robo-advisors are both excellent tools for smart investing. I’m not knocking them, but there’s a reason many investors don’t use them for lazy portfolios.
For the uninitiated, mutual funds are like ETFs, but they’re actively managed – there’s a team of professionals constantly mixing up the assets in the fund in an attempt to maximize returns for investors.
Similarly, robo-advisors are AI programs that take your money and build a portfolio for you, which, depending on your risk parameters, may contain a mix of ETFs, mutual funds, stocks, bonds, and more.
But lazy portfolio builders tend not to use either resource for one simple reason: fees.
Both mutual funds and robo-advisors will charge you a fee of between 0.25% and 2% to cover their costs of managing the fund – and since lazy portfolios are fire-and-forget, many passive investors would rather pick the index funds themselves and just avoid the fees.
To be clear, index funds and ETFs in general charge fees as well, but they’re typically less than a fifth of what a mutual fund charges (usually under 0.40%).
How to Build The Right Portfoilio – 3 popular lazy portfolios to consider
There’s a saying in the personal fitness community that there are 100,000 personal trainers with 100,000 “perfect” workout regimens.
The same applies to lazy portfolios in the investing world – there are (at least) 100,000 institutional investors with 100,000+ ideas on how to build the right lazy portfolio. After all, there’s a lot of flexibility in designing lazy portfolios – they may only contain a few index funds at most, but there are over 1,700 index funds to choose from!
Before you get overwhelmed, here are three solid examples to consider:
1. The basics: Rick Ferri’s Lazy Three Fund Portfolio
Author and CFA Rick Ferri literally wrote the book on index funds and publishes simple, yet effective, lazy portfolios for amateur investors to use. Here’s his bread-and-butter, the Lazy Three Fund Portfolio:
40% Vanguard Total Bond Market Index Fund (BND).
40% Vanguard Total Stock Market Index Fund (VTI).
20% Vanguard Total International Stock Index Fund (VXUS).
2. For a little more diversity: David Weliver’s Fidelity Portfolio
For a little added diversity, MU30’s very own David Weliver designed an everything-but-the-kitchen-sink portfolio touching four different markets:
20% iShares Core S&P Total US Stock Market (ITOT).
20% iShares S&P Small Cap 600 Value (IJS).
40% iShares Core MSCI Total International Stock (IXUS).
20% iShares Core US Aggregate Bond (AGG).
3. If it ain’t broke: Warren Buffet’s 90/10 Portfolio
For maximum gains and minimum effort (you know, the very essence of a lazy portfolio) you really can’t go wrong copying the best. Warren Buffet’s 90/10 portfolio is one of the highest-performing, yet simplest, lazy portfolios in existence.
But perhaps the best part of the 90/10 portfolio is that Buffet specifically designed it to stick it to fund managers who charge high management fees.
According to author and investor Rob Berger, Buffet claimed this fund…
“will be superior to those attained by most investors – whether pension funds, institutions, or individuals – who employ high-fee managers.”
And the portfolio has outperformed those actively managed funds, year after year. If you need any final endorsements, Buffet advised his trustees to place his and his wife’s money into this portfolio after his death.
90% Vanguard S&P 500 ETF (VOO).
10% Vanguard Short-Term Treasury Index Fund ETF (VGSH).
What platform should I use to build a lazy portfolio?
You can build and monitor a lazy portfolio on pretty much any trading platform that lets you buy ETFs, but some are better suited for hosting lazy portfolios than others.
Here are just two options:
M1
Unlike most popular trading apps, M1 is tailor-made for passive investing. It’s easy to buy a few ETFs, build a lazy portfolio, and monitor it over time without the temptation of selling or day trading. If you choose to lean on robo-advisor support, it’s also available.
But the best part about M1 is the community. There are thousands of passive investors on the M1 subreddit ready to lend their strategies and support.
Webull
Many investors like to keep their active and passive investing portfolios on separate apps so they don’t accidentally or impulsively sell their index fund holdings – but if you’re confident you can juggle both on one platform, check out Webull.
Unlike its rivals, Webull offers an advanced trading dashboard and detailed analytics for free. Plus, you’ll get complimentary shares just for joining, making it a great landing pad for short- and long-term investors.
Summary
Lazy portfolios are made up of a handful of index funds that you buy once and let sit and mature for at least 10 years. The healthy and consistent annual performance of index funds like Vanguard S&P 500 ETF (VOO) makes lazy portfolios a 100% viable investing strategy, one used by amateur and institutional investors alike.
If you’re looking for a way to invest money so you can buy a house or pay off your student loans in 10 years, don’t overthink it: get lazy.
Whether you want to save for retirement or buy stock in your favorite company, you’re going to need a brokerage account before you can get started. Brokerage accounts are different from regular bank accounts because they give you access to securities like stocks and bonds. Not to mention some brokerage accounts come with special tax advantages.
This article will cover the best brokerage accounts you can choose from. For those who are new to investing it will also cover the basics of what brokerage accounts are and how they work.
What’s Ahead:
Overview: Best brokerage accounts for beginners
TD Ameritrade: Best overall for new investors
What sets TD Ameritrade apart is its extensive library of free educational resources that new investors can use to learn about investing.
thinkorswim is TD Ameritrade’s trading software that allows you to make trades anywhere. New investors can use paper trading to simulate investing without risking any money, while experienced investors can use the same software to test new strategies or learn new skills.
Pros
Educational library and training tools. TD Ameritrade’s suite of free resources and simulation software makes it one of the best platforms for new investors.
Customer support. TD Ameritrade is known for its world-class customer support, which is available 24/7 on most communications platforms, including Twitter.
Cons
Fewer no-cost mutual funds. TD Ameritrade only offers around 1,600 no-cost mutual fund options. This is less than some of its competitors.
No crypto trading. TD Ameritrade does not currently support cryptocurrency trades.
Visit TD Ameritrade to learn more or read our TD Ameritrade review.
Robinhood: Best mobile trading app
Robinhood was a disrupter when it launched its mobile trading app in 2015. Its mission is to provide everyone with access to wealth-building investing activities and it does this by offering users commission-free trades.
Robinhood’s app is designed for digitally-native investors. With just a few swipes, you can buy stocks and begin building your own portfolio.
Advanced traders can join Robinhood Gold, which allows you to trade on margin. Proceed with caution: Margin trading is a risky business.
Pros
No-fee trades. Buy and sell stocks, ETFs, and crypto without paying trading fees.
User-friendly app. The app is easy to use, allowing you to make trades right from your phone.
No minimum to get started. You can open a Robinhood account and start with as little as $1.
Cons
Trade suspensions. Robinhood got into some hot water after it suspended trading during the GameStop short squeeze of 2021. They’ve run into trouble with regulators over a few other issues too.
Limited options. Robinhood doesn’t give you the full suite of investment options you might find at other firms. While you can buy stocks, ETFs, and crypto on the platform, you can’t buy mutual funds or bonds.
Visit Robinhood.com to learn more or read our Robinhood review.
Advertiser Disclosure – This advertisement contains information and materials provided by Robinhood Financial LLC and its affiliates (“Robinhood”) and MoneyUnder30, a third party not affiliated with Robinhood. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Securities offered through Robinhood Financial LLC and Robinhood Securities LLC, which are members of FINRA and SIPC. MoneyUnder30 is not a member of FINRA or SIPC.”
E*TRADE: Best for active traders
E*TRADE is a financial services company that is part of Morgan Stanley. It offers $0 commission trades and an advanced trading platform that makes it perfect for active traders.
The platform gives you access to a wide variety of investment options including stocks, bonds, ETFs, and mutual funds. More than 4,700 mutual funds are available with no transaction fees.
Active traders have access to a suite of data tools including the Power E*TRADE app. This software offers traders access to real-time data feeds and the ability to build custom graphs.
Pros
Advanced analytics. Power E*TRADE is an advanced app with great charting tools.
$0 commissions. E*TRADE eliminated its $6.95 trade commission back in 2019. It is now one of the most cost-effective brokerage options available.
Wide selection of investments. Investors can choose from a wide variety of investment options including stocks and bonds.
Cons
No crypto trading. E*TRADE does not support cryptocurrency at this time.
Transfer fees. If you want to move money out of E*TRADE to another brokerage, be prepared to pay $25 for a partial transfer and $75 for a full transfer.
Visit E*TRADE to learn more or read our E*TRADE review.
Webull: Best for casual traders
If you’re looking for an easy-to-use, no-frills trading platform, Webull could be a good fit for you.
Webull provides a very readable dashboard of the top stocks and best-performing industries. Its mobile trading app gives you access to a range of investment options — including crypto — with no trading fees.
New investors who fund an account on the platform can even get free stocks just for joining. Terms apply.
Pros
Lots of investment options. Webull gives investors access to 44+ different cryptocurrencies, as well as fractional shares.
No educational resources. Inexperienced investors with a lot to learn probably shouldn’t turn to Webull.
No interest on uninvested cash. Some other brokerage firms partner with banks to offer interest for uninvested cash. But any cash at Webull that isn’t invested will sit idle in your account.
Visit Webull to learn more or read our Webull review.
Fidelity: Best all-in-one brokerage
Fidelity is one of the most well-known financial services companies out there. In addition to offering taxable brokerage accounts, Fidelity also has a number of tax-advantaged options, like health savings accounts (HSA).
One of Fidelity’s key selling points is its zero-expense-ratio index funds. An index fund typically tracks a specific index in the stock market, like the S&P 500. It gives you the opportunity to invest in a basket of top-performing companies without having to pick individual stocks. While most index fund managers typically charge a small fee, Fidelity is the first company to offer index funds with no fees.
Fidelity’s variety of account options also makes it a good one-stop-shop for investors. You can have a taxable brokerage account at Fidelity, along with your retirement accounts, an HSA, and a 529 College Savings Plan. Fidelity also offers a suite of educational resources to help new investors build a comprehensive portfolio to meet their personal financial goals.
Pros
Zero-expense ratio index funds. These are highly cost-effective, low-fee funds to maximize the return on your investments.
Retirement planning. Fidelity offers a library of educational resources that are great for someone looking to start saving for retirement.
Cons
No crypto. Fidelity does not support crypto at this time.
High broker fees. Fidelity doesn’t charge a commission on self-initiated trades but it does charge fees to tap into its network of financial advisors.
Visit Fidelity to learn more or read our Fidelity review.
Charles Schwab: Best customer service
Charles Schwab is another well-known financial services company that offers both taxable and tax-advantaged brokerage accounts. Schwab invests in research to build in-house expertise that anyone can use, no matter how much money they have. If you have questions or want to learn more, an expert is only a phone call away.
Charles Schwab also offers its own index funds tracking a variety of indices, including the S&P 500, large-cap stocks, the bond market, and REITs. With low expense ratios, Schwab’s index funds are a cost-efficient passive investing option.
Pros
World-class research. Schwab customer service reps are experts who can help you learn more about investing and the products Schwab offers.
Cost-effective index investing. The suite of Schwab’s low-cost index funds makes it a great option for passive investors.
Cons
No crypto. Schwab doesn’t offer direct crypto investing, but it does give you access to crypto-related products like Grayscale Bitcoin Trust.
Foreign stock fees. Schwab offers low-cost options for U.S.-traded companies, but not for foreign companies.
Visit Charles Schwab to learn more.
Vanguard: Best for passive investing
Vanguard is one the leading brokerage firms out there thanks to its famous founder, Jack Bogle. Fans of Vanguard — known as Bogleheads — follow Jack’s simple investing philosophy of letting compound interest grow over time, making Vanguard one of the best platforms for passive investors.
Vanguard is a pioneer of low-cost index funds. Investors use index funds to save money without having to develop technical expertise or make active trades. The “set it and forget it” mindset works well with Vanguard, where investors can benefit from compounding interest without paying expensive management fees.
Pros
Low-cost index funds. Vanguard offers some of the most cost-effective and best-performing index funds.
Cheap mutual funds. In addition to index funds, Vanguard’s Admiral Shares mutual funds are some of the cheapest mutual funds available. The minimum required to invest in their mutual funds is $3,000.
Cons
Not user friendly. Vanguard’s platform is a bit old school and might not be the best option for active traders.
Basic. It’s another no-frills option, so you won’t get access to advanced analytical tools or research with Vanguard.
Visit Vanguard to learn more or read our Vanguard review.
Ally Invest: Best account options
Ally Invest is the trading platform affiliated with Ally Bank. It offers no-cost trades that appeal to both new and experienced investors.
Ally Invest offers a variety of account options depending on how involved you want to be. You can choose to open a self-directed account, invest in a robo-advisor portfolio, or work with Ally’s wealth management team. This gives you the flexibility to invest on your own or to capitalize on Ally Invest’s in-house expertise.
Pros
Options for all types of investors. You can manage your own investments if you want, but Ally Invest gives you options so you don’t have to.
Integration with Ally Bank members. Ally Invest allows you to move money easily between all your accounts if you already bank with Ally.
Cons
No crypto. Ally Invest offers a variety of securities but does not support crypto at this time.
No in-person branches. Ally is fully digital, so if you’re looking for in-person support this brokerage firm might not be the best for you.
Visit Ally Invest to learn more or read our Ally Invest review.
How I chose these brokerage accounts
I chose these brokerage accounts based on three core factors:
Securities available to investors
User experience
Fees
My logic: If a platform is hard to use and has a lot of fees you’re probably not going to benefit from it. Plus, a brokerage firm with limited offerings can make it hard to build a well-diversified portfolio. A good beginner brokerage account should have low fees, a variety of investment options to choose from, and a good user experience.
What is a brokerage account?
A brokerage account is an investment account where you can buy and sell securities. These are things like stocks, bonds, ETFs, mutual funds, and sometimes even crypto.
Most brokerage firms allow you to open an account online. Many even have apps where you can get started right from your phone.
You also don’t need a lot of money to get started either. Once you fund your brokerage account, you can begin trading stocks. An important thing to note: The brokerage firm doesn’t buy securities for you. After you fund your account it is up to you to begin investing. If you don’t, your cash will just sit there collecting dust.
Types of brokerage accounts
The brokerage account you’re probably most familiar with is your retirement account. Whether you have an employer-sponsored 401(k) or your own IRA, retirement accounts are actually brokerage accounts.
Read more: A beginner’s guide to saving for retirement
Aside from retirement accounts, there are a couple of other types of accounts you’ll want to be aware of.
A self-directed brokerage account is one where you make your own stock picks. Robinhood is a good example of this type of account. Unlike your retirement account, there are no tax benefits with self-directed brokerage accounts.
If the idea of picking your own stocks is overwhelming, you can opt to work with a financial advisor. These are individuals who act as brokers and are paid on commission to make trades on behalf of their clients. Sometimes they are paid a percentage of the total assets they manage. Other times they are paid on a per-trade basis.
When you work with a financial advisor you’re essentially paying for their expertise. They pick stocks and build a portfolio based on their knowledge of the market. The more active your advisor is, however, the more it will cost you.
Read more: Do you need a financial advisor?
An alternative to using a human financial advisor is to work with a robo-advisor. These are proprietary algorithms that use technology to manage your portfolio. They basically automate the entire investing process.
One of the benefits of using a robo-advisor is that it allows you to invest in a pre-picked portfolio while leveraging investing strategies like tax-loss harvesting. You essentially get a lot of the expertise a human advisor would give you at a fraction of the cost.
These different types of accounts each come with their own costs and benefits. You’ll need to first identify your overall investing goal before figuring out which type of account will work best for you.
How do brokerage accounts work?
Brokerage accounts work like bank accounts with extra benefits. Like a bank account, you can deposit money into them. But instead of letting the money just sit there and collect interest, a brokerage account allows you to buy assets, like stocks or bonds.
Whatever assets you purchase through your brokerage account are yours to keep. At any time you can sell them (although there are some tax implications when you do this) to turn them back into cash. Some assets earn dividends that generate passive income.
You can have as many brokerage accounts as you want and there is no limit to how much money you can invest (except for tax-advantaged accounts). There are no fees to open a brokerage account, although there may be fees to make trades or to work with a financial advisor.
What is a brokerage fee?
Brokerage fees are commissions a broker charges to make trades. Sometimes you are charged a flat fee while other times you are charged a percentage of the assets your broker holds for you.
Where you’ll find the most fees is if you work with a full-service broker. These individuals are paid a fee for the trades they make on behalf of clients. You’re not actually paying them just to make trades though. You’re also paying for the research they do to build your portfolio and the expertise they bring to help you manage your investments.
FAQs
How many brokerage accounts can I have?
You can have as many brokerage accounts as you would like. In fact, you’ll probably want to have several different accounts depending on your goals.
A retirement account, for example, is going to be different than an account where you buy and sell stocks frequently. Retirement accounts are tax-advantaged and because of that, they have contribution limits. If you use an employer-sponsored retirement plan, you might not even get a say in who brokers your account.
A taxable, self-directed account where you buy and sell individual stocks is different than a retirement account. For a self-directed account, you might prefer to use a brokerage firm with an easy-to-use app to make daily trades.
Are brokerage accounts FDIC insured?
No, brokerage accounts are not FDIC insured. But that’s not exactly a bad thing.
The FDIC — or Federal Deposit Insurance Corporation — protects deposit bank accounts (aka your checking and savings account). They don’t protect money invested in the stock market or other investment instruments.
Those investments are protected by a different agency called the Securities Investor Protection Corporation (SIPC). The SIPC will intervene if a broker goes bust. In that event the SIPC will either transfer your portfolio to another firm, or they will work outright to rebuild it, buying new assets to make up for any that are lost.
Like the FDIC, SIPC does come with some stipulations. For one, a brokerage has to be a member that qualifies for SIPC coverage. And that coverage is limited to up to $500,000 per customer.
How are brokerage accounts taxed?
Brokerage accounts are taxed differently depending on the type of account you have and how long you hold assets for.
Retirement accounts are usually tax-advantaged. In the case of a traditional 401(k), this means that you won’t pay taxes on your account contributions, but you will pay taxes later when you withdraw money in retirement. However, in the case of a Roth IRA, you will pay taxes on your account contributions, but won’t pay taxes on the withdrawals in retirement.
Read more: IRA vs. 401(k)
Self-directed brokerage accounts don’t come with any tax benefits. You invest money that has already been taxed and you pay taxes on your investments when you sell.
Selling an asset triggers a taxable event. If you’ve held it for less than a year it is considered a short-term capital gain. This is taxed at your current income bracket.
If you hold an asset for a year or more, however, it will be counted as long-term capital gains. You’ll pay between 0% and 20% depending on your tax bracket. Long-term capital gains taxes are usually lower than income taxes, which is why it’s advised to hold onto a stock for at least a year before selling it.
Summary
A brokerage account gives you the ability to put your money to work. Most firms offer access to securities like stocks and bonds, while others give you access to cost-effective index funds. These are ways you can grow your money beyond collecting interest in a savings account.
You can have as many brokerage accounts as you would like, and those accounts can vary depending on your goals. If you’re not sure where to get started, set a financial goal — like saving for retirement — and find a brokerage firm that gives you the best bang for your buck with respect to that particular goal.
I love to learn. That’s part of what makes me who I am. And so I spend large chunks of time pursuing passions like astronomy and Spanish…and investing. Sometimes I’m asked if I have a method for picking up new skills and new knowledge. “Not really,” I say. “I just try to keep an open mind and to absorb as much information as possible.”
As you’ve probably noticed around here, I try to never say “THIS IS THE WAY THINGS ARE!”. Sure, at any give time I have a set of beliefs — I currently believe index funds are the best investment for me (and many others), for example — but I’m never so locked into any given belief that I’m unwilling to change my mind.
So, I continue to explore opposing viewpoints. I listen to new ideas. And, every once in a while, one of these new ideas will stick, will change the way I think. That’s the way I learn.
Passive investing — with an open mind For me, one of the best ways to learn about money is by listening to others who have been successful. I’ve found it profitable to seek out mentors, for instance. Plus, I like to gather with groups of like-minded folks to share ideas. So, once or twice a year, I attend the meeting of a local investment group — the Diehards.
I’ve written about the Diehards a couple of times before (2008, 2010). This is a report on the most recent meeting.
Note: For those of you who aren’t familiar, Diehards (also called Bogleheads) are fans of indexed mutual funds — funds that track the movement of stock market indexes — as popularized by John Bogle, the founder and retired CEO of The Vanguard Group. These Diehards discuss investing in the Bogleheads investment forum. From my experience, they’re friendly, smart, and knowledgeable people.
As followers of John Bogle, you might expect most of these folks to be passive investors, but that’s just not the case. Many of these folks are actually active investors (though everyone seems to make decisions informed by the principles of passive investing). This group has a wide variety of approaches to investing based on their own goals, risk tolerance, and opinions about the economy. But each person comes to these meetings ready to learn more about investing, and to share their stories.
Keeping a level head Most members of the group are retired. I’m not. I feel like this gives me an advantage. I’m able to pick the brains of people who are twenty or thirty years older than I am. For instance, every meeting I learn something new from Bruce about preferred stock.
Bruce teaches in the financial planning program at a local university. He’s a vocal advocate of preferred stocks, which are a sort of hybrid between bonds and common stocks. “I don’t need capital appreciation,” he says. “I want capital preservation. And income.” It’s all Greek to me, but it’s also intriguing. Now I want to learn more about preferreds. (To find out more about preferred stocks, check out Quantum Online — I’m going to!)
At this meeting, I sat next to a woman named Kris (just like my wife). At the last meeting I attended, she stressed the importance of always being a saver. At this meeting, Kris said she no longer worries about market downturns. “I’ve been investing since 1968,” she said. “I’ve been through this three or four times now, depending on how you count. I don’t like when the market drops, but I also know that if I wait five years, then things will be fine.”
Loren, too, tries to keep an even keel when it comes to investing. “I don’t try to make my rebalancing too accurate,” he said. “I’ve never been sure what the right balance is in the first place!”
Andy says that he does his best to follow the investment mantra “buy low, sell high”. “When something’s down, I buy it,” he told us. “It’s hard — it goes against human nature — but I do it. I try to stay broadly diversified.”
This led the discussion back to Harry Browne’s permanent portfolio. There are many ways to approach safe, steady investing, but Brown has some specific recommendations for his own Permanent Portfolio:
25% in U.S. stocks, to provide a strong return during times of prosperity.
25% in long-term U.S. Treasury bonds, which do well during prosperity and during deflation.
25% in cash in order to hedge against periods of “tight money” or recession.
25% in precious metals (gold, specifically) in order to provide protection during periods of inflation.
Because this asset allocation is diversified, the entire portfolio performs well under most circumstances. One of our members practices this investment philosophy, and has done well with it. He actually hopes to write a book providing a modern update of the technique.
Near the end of the meeting, Bruce pointed out that a recent article in the Journal of Financial Planning once again showed the terrible, terrible drag of expenses on the returns of the average investor. (You can read the article here.)
Strength in numbers It’s certainly possible to learn about investing from books and blogs and magazines. But I think meeting and exchanging ideas with other people adds a new dimension to the subject. That’s why I think meetings like this are invaluable. They’re a chance to exchange ideas with fellow investors, and to profit from their success and mistakes.
I highly recommend finding a similar group in your area. There’s no need to be intimidated. It’s fine to show up and just listen if you feel like you don’t have anything to contribute. I feel lost a lot of the time, but the more often I do things like this, the less lost I become.
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Investing in stocks can seem like a daunting task.
There are so many things to consider when it comes to investing, and the stock market is constantly moving.
Stock market investing is a popular option to increase net worth and make money.
Many people are looking for ways to invest their money, with the number of individual investors increasing rapidly in recent years.
This guide covers many important factors for how to invest in stocks for beginners.
Starting out as a newbie trader can be scary and overwhelming… don’t worry, all seasoned traders had to start at the beginning too!
Let’s take away that quell those thoughts and focus on why you want to learn to invest in stocks.
This guide will give you everything you need to know about how to invest in stocks as a beginner investor!
What Are Stocks?
In the most basic form, stocks are a form of investment. When you own a stock, you have a piece of ownership in the company’s equity.
The stock market is a real-time financial market in which investors buy and sell stocks and other securites. The stock market is made up of many companies and individuals who are actively investing in stocks.
Stocks are an excellent way for companies and individuals to invest in a company and receive a share of the company’s profits.
Many of the growth stocks (FAANG stocks) are those who investors want their stock price to increase over time. Thus, increasing their overall portfolio’s net worth.
FAANG Stocks is an acronym for: Meta (formerly known as Facebook), Amazon, Apple, Netflix, and Alphabet (formerly known as Google).
Some companies like Chevron (CVX) pay out a dividend each quarter to their investors.
There are thousands of stocks available to trade.
What Can You Invest In The Stock Market?
There are many investment opportunities in the financial market, so it is important to be informed about what you can invest in. Below are some of the places where you can invest your money:
Stocks
Bonds
Mutual funds
ETFs
Commodities
Futures
Options
Now, we are going to look at the most common.
Individual stocks
Individual stocks are a type of investment that you can make yourself.
You can choose how many shares of a certain company you want to purchase.
For example, you like Tesla for how they are innovative in the electric car space. You can choose to invest 20 shares of their stock.
As a long-term investor, you want to hold a portfolio of 10-25 stocks. Find a list of beginning stocks to build your portfolio.
Individual stocks can be bought or sold as a way to dip your toe into the stock-trading waters.
As a short-term investor, you are looking to make money as the stock price increases or decreases.
Mutual Funds
Mutual funds are managed portfolios of stocks.
As a result, mutual funds typically have load fees equal to 1% to 3% of the value of the fund.
One of the most popular mutual funds is VTSAX because of its expense ratio is .04%
Mutual funds are a clear choice for most investors because of the simplicity to invest in the market. This can be a good investment for both novice and experienced investors, as they offer decent returns with lower risk.
They tend to rise more slowly than individual stocks and have less potential for high returns. Mutual funds are a great way to diversify your portfolio and gain exposure to a variety of different securities.
All mutual funds must disclose their fees and performance information so that you can make an informed decision about whether or not to invest.
Exchange traded funds (ETFs)
Exchange traded funds (ETFs) are a type of exchange-traded investment product that must register with the SEC and allows investors to pool money and invest in stocks, bonds, or assets that are traded on the US stock exchange.
They are inherently diversified, which reduces your risk.
This is a good option for beginner investors because they offer a large selection of stocks in one go.
ETFs have a lower minimum to start investing, which is a draw for many investors starting out with little funds. Plus there are many different types of ETFs to choose from.
ETFs are similar to mutual funds, but trade more similarly to individual stocks. With ETFs and Index Funds, you can purchase them yourself and may have lower fees.
Why Stock Prices Fluctuate
Stock prices fluctuate because the financial markets are a complex system. There are many factors that can affect the price of a stock,
There are a number of factors that can influence stock prices, including:
Economic indicators like GDP growth, inflation, and unemployment rates
Company earnings reports
The overall health of the economy
Political and social instability
Changes in interest rates
War or natural disasters
Supply and demand,
Actions of the company’s management
Short squeezings like what happened with GME or AMC
The volatility in the stock market is the #1 reason most people stay out of investments. However, on average, the stock market has moved up 8-10% a year.
What is the best thing to invest in as a beginner?
The best thing to invest in as a beginner is your time.
You need to learn how the stock market works. Just like you would get a certification or degree, you should highly consider an investing course.
Learn and devote as much time as you can to investing in stocks.
How To Invest In Stocks For Beginners?
Investing in the stock market can be a great way to make money! If you’re looking for ways to make money or grow net worth, investing in a stock is a smart choice.
With online access and trading being easier now than ever, it can be easier than ever to start buying stocks.
Let’s dig into how to invest in stocks like a pro.
FYI…You should do your own research before investing.
Step #1: Figure out your goals
Figure out your goals to help with setting an investing strategy.
What are you trying to achieve with stock market investing? Is it supplemental income? A certain level of wealth for retirement? Are you looking for short-term or long-term gains?
Once you know what you’re aiming for, it will be easier to find the right stocks and make wise investment decisions.
Your reason to invest in stocks will be different than everyone around you.
Some people want to supplement their weekly income.
Others want to invest in companies for the long term.
My goal is to make weekly income from the stock market. That is my investment strategy for non-retirement accounts.
You need to spend time understanding WHY you want to buy stocks.
Knowing this answer will help you define what type of trader you will be.
Step #2. Decide how you want to invest in the stock market
When you decide to invest in the stock market, you need to choose what you want to invest in.
You can invest in stocks, which are shares of ownership in a company, or you can invest in bonds, which are loans that a company makes. There are also other options like mutual funds and exchange-traded funds (ETFs), which are collections of stocks or bonds.
Also, you can expand this to what types of investments will you have in various retirement or brokerage accounts. For example, you may invest in mutual funds with your 401k, ETFs with your Roth IRA, and stick with individual stocks for your taxable account.
This is a personal decision.
Many people when they are first starting to trade stocks choose to limit purchasing stocks with a limited percentage of their overall portfolio.
Step #3. Are you invest in stocks for the short term or long term?
The buy and hold investor is more comfortable with taking a long-term approach, while the short-term speculator is more focused on the day-to-day price fluctuations.
Once again, this is a personal preference.
One of the most common themes of many investing gurus is, “Remember that stock prices can go down as well as up, so it’s important to stay invested for the long term.”
However, this full-time trader wants to make money on those highs and lows.
Knowing your overall investment horizon will help you decide how much time you plan to hold onto your investments to reach your financial goal.
Also, you can choose different time horizons for different accounts.
Step #4: Determine your investing approach
Passive and active investing are two main approaches to stock market investing.
Passive investing does not involve significant trading and is associated with index funds.
Passive investing is a way to DIY your investments for maximum efficiency over time.
Thus, you would contribute to your investment account on the xx day of the month with $xx amount of money.
This happens with consistency regardless of where the market stands on that day.
You are less warry of where the stock market will go and focused on overtime it will continue to go up.
Active investing takes the opposite approach, hoping to maximize gains by buying and selling more frequently and at specific times.
Active investing is when an investor is actively acquiring, selling, or holding bought stocks.
This could be with day trading or swing trading.
You may hold stocks for less than a day, a few days, or a couple of weeks.
The purpose of having active investing is to make profits.
In the stock market, investors make efforts to increase their net worth over time or to make income off the market.
Step #5: Define your investment strategy
When it comes to investing in the stock market, there are a few key factors you need to take into account: your time horizon, financial goals, risk tolerance, and tax bracket.
Do you want to be an active trader or stick with passive investing? What kind of investor am I?
There is no right or wrong answer as this is a personal preference.
Ultimately, you want returns to be greater than the overall S&P 500 index for the year.
Once you’ve figured these out, you can start focusing on specific investment strategies that will work best for you.
Be aware of any fees or related costs when investing. Fees can take a bite out of your investments, so compare costs and fees.
Step #6: Determine the amount of money willing to lose on stocks.
Trading stocks online is inherently risky.
You want to consider what your “risk tolerance” is. Simply put, how much are you willing to lose in stocks before you want to quit?
The biggest reason most people quit trading stocks is that they do not know their risk tolerance and fail with risk management.
You will lose on trading stocks. The goal is to lose a small amount on some of the trades and gain a greater amount of more of your trades.
How much risk you can reasonably take on given your financial situation?
What are your feelings about risk?
What happens when your favorite stock drops 25%?
Understanding your risk tolerance and how much you are willing to lose will help you keep your losses small.
Start with a small amount of money when investing in stocks. Also, make sure you have enough money saved up so you can handle any losses that may occur.
How to Start Investing in Stocks
There are a variety of ways to start investing in stocks. Some methods include getting a small account balance and then buying shares, creating an investing club with friends, or researching the companies you want to invest in.
Now, that you have determined how and why you want to invest in stocks. Let’s dig into the nitty gritty of how to manage a stock portfolio.
On the other hand, if you don’t invest enough, you could miss out on potential profits. Try starting with an amount you’re comfortable losing if the stock market does go down.
1. Open an investment account
There are a few things you need to do in order to start investing in the stock market.
The first is to open an investment account with a broker or an online brokerage firm.
There are different types of accounts you can open:
Taxable accounts like an individual or joint brokerage
Retirement accounts like IRA or Roth IRA
These are the most basic investment accounts, here is a list of types of investment accounts.
If you plan to hold EFTs or mutual funds, Vanguard is a great place to start.
If you plan to be an active trader, I would look at TD Ameritrade or Fidelity. Be wary of Robinhood or WeBull.
2. Saturate yourself in Stock Market Knowledge
On the simplest level, it can be incredibly easy to begin your investing career with little-to-no knowledge, research, and expertise.
If you have even a remote understanding of stocks, then learn what you need from an easy-to-find YouTube video, followed by watching some of your favorite TV shows to learn more about the market and its secrets.
With that said, you need to be digesting the basics from start to end of getting your first investment started.
As the title reveals, investing can seem intimidating and complicated. Thus, stock market knowledge is invaluable.
3. Consider an Investing Course
A typical investing course would teach how to invest in stocks (and possibly other investments).
As a beginner trader, it is unlikely you will know the full extent of how the stock market works. There are many intricacies you must learn and understand.
Beginners should learn about stock investing basics, such as diversification and investment criteria.
Many investing courses offer a platform on how to make money by trading stocks.
Personally, I highly recommend buying this investing course.
If you choose not to follow my advice, that is fine. Come back when you have lost more money in the stock market than the price of the courses.
I CAN NOT STRESS ENOUGH… how important it is to have a solid foundation and practice in a simulated account before you use your real money.
4. Research the companies you want to invest in
When you’re ready to start investing in stocks, it is important that you do your due diligence and research the companies you want to invest in.
Look for trends and for companies that are in positions to benefit you.
Consider stocks across a wide range of industries, from technology to health care. It’s also important to remember that stock prices can go up or down, so always consider this before making any investment decisions.
5. Choose your stocks, ETFs, or mutual funds
Next, you have to decide what fits your investing strategy. Are you looking to buy:
Stocks
ETFs
Mutual Funds
Regardless of which type of investment you make, you must look for companies that have attractive valuations and growth prospects. In the case of index funds or ETFs, which fund has the companies you find attractive.
Most importantly, you should also take into account the company’s financial health and its prospects for future growth.
Make sure you understand the risks associated with holding a particular stock, including possible price fluctuations and loss of value.
7. Take the Trade
This is the hardest step for most people is to take their first trade.
Thus, why learning to trade stocks is great to learn a simulated account using fake money. Then, move to a LIVE account using your real money.
At some point, in your investing in stocks journey, you must press the buy button.
For many the investment platform may be overwhelming to use, so check out your brokerage’s YouTube videos to help you out.
8: Manage your portfolio
Managing your portfolio is important to keep your investments in good shape.
If you are a long-term investor, diversify your portfolio by investing in different types of investment vehicles and industries.
If you prefer to swing trade or day trade, then you want to make sure you always have cash on hand and are rotating your portfolio to take profit.
Investing can be difficult for beginners who often lack knowledge about the stock market.
It is important to remember to keep investing money and rebalance your portfolio on a regular basis. This will help ensure that you stay on top of your investments and achieve the desired result.
9. Selling Stocks
For most investors, it is harder to sell their stocks than to purchase them. There are a variety of factors for that. But, you must sell your stocks at some time to realize your gain.
Don’t panic if the market crashes or corrects – these events usually don’t last very long and history has shown that the market will eventually rebound. Most people tend to panic sell when stocks are low and FOMO buy when the market is at highs.
When you are ready to sell, aim to achieve a percentage return on your investment.
This will require some focus on your time horizon and the stocks you want to invest in.
Also, you need to consider any taxes that may be owed on the sale of stock.
If you’re new to stock investing, consider using index funds instead of individual stocks to gain broad market exposure.
10. Journal & Analyze your Trades
Journaling is a way of recording the important decisions you make during trading to help yourself remember what happened in your trades. It can be used as a tool for reflection, learning from mistakes, and reviewing your strategy.
Analyzing your trades means looking back on your trading history with the goal of improving it.
This is the most overlooked step of the investing process.
When it comes to buying and selling stocks, journalling what is happening in the market is an important part of being a successful investor.
Stock Market Investing Tips for Beginners
Ask any seasoned trader, and they will have a list of investing tips for beginners.
They have made plenty of trading mistakes they do not want to see newbies do the same thing.
When starting to invest in the stock market, beginner investors often seek out consistent and reliable investments.
This allows them to slowly learn about the stock market and take calculated risks while also earning a return on their investment. Over time, as they gain experience, they can expand their portfolio to include riskier but potentially more rewarding stocks.
1. Invest in Companies That You Understand
An investor should know the company they are investing in and have an idea of what type of return they expect.
When you are starting out, it is best to invest in stocks of companies that are easy to understand and have a proven track record.
Do NOT invest in stocks based on the advice of friends, what you read in the news, or on a whim – these can be risky moves. Be wary of the popular stocks you can find on the Reddit Personal Finance threads.
2. Don’t Time the Market
In the world of investing, there is one rule that no investors should ever break: do not time the market.
By following this rule, you will always be on top of your investments and will be able to reap the rewards.
There are times to buy stocks and sell stocks. This is something you will learn when investing in a high-quality investing course.
As an average investor, trying to time the market will leave you frustrated by your minimal returns or great losses.
3. Avoid Penny Stocks
Penny stocks are the lowest-priced securities on the market, and they don’t offer any significant upside potential to their investors. While you may hit a home run return on some, many penny stocks tend to trend sideways.
The risk is not worth the return.
If you plan to invest in stocks, avoid penny stocks and focus on healthy companies.
4. Consider Buying Fractional Shares
Fractional share investing lets investors buy less than a full share at one time. Many times, you may not be able to afford the price of a full share.
For example, buying a share of Amazon (AMZN) may cost you upwards of $2800 or more. Thus, you can invest a smaller amount with a fractional share.
You would have to check if your brokerage company allows the purchase of fractional shares.
5. Stay the Course
In order to be successful, a trader must stay the course and maintain their focus. By staying focused, they will have less chance of making mistakes that may lead to big losses or overtrading.
When you’re starting out in the stock market, it’s important to be disciplined with your buying. Don’t try to time the market, because you’re likely to fail. Instead, buy shares over time and stay the course.
That way, you’ll be more likely to see a profit in the long run.
6. Avoid Emotional Trading
In order to be successful in the stock market, you have to maintain a level head.
Responding emotionally will only lead to bad decision making. Instead, stay the course and trust your research and analysis.
Know your weaknesses as well as your strengths.
7. Do Your Research
When you’re ready to start investing in the stock market, it is important to do your research so you can make informed decisions.
There are a lot of stocks to choose from, and it can be tempting to invest in them all.
But remember, you don’t want to spread yourself too thin. Invest in stocks that you believe in and that have a good chance of making you money.
8. Build Wealth
Stock market investing is one of the best ways to grow your money over time.
For long-term investing, you buy stocks in companies and hold them for a period of time, typically years. Over time, as the company grows and makes more money, so does your stock. This is one of the most common ways to build wealth over time.
The other way with short-term investing is to consistently take profit and grow your account over time.
Stock investing FAQs
Here is a list of the most common questions and answers on stock investing.
Q: What is the difference between investing and trading?
Trading is buying or selling financial products with the goal of making a profit. This is normally a day trader or swing trader.
Investing, on the other hand, refers to the process of putting money into an investment with the hope that it will grow. Someone who is focused on the long-term.
Q: Do you have to live in the U.S. to open a stock brokerage account?
No, you do not have to live in the U.S. to open a stock brokerage account. You must find a brokerage company in your area of residence abroad.
Q: How much money do I need to start investing?
The very common question of, “How much should you invest in stocks first time?”
It is recommended to start investing with $500 or more. However, you can start with Acorns with as little as $5.
Check out this investor’s story by starting with a small account of $500 and growing it over $35k in less than 6 months.
It is best to grow your account with your growth or profit.
Q: Do I have to pay taxes on the money I earn from stocks?
Yes, you will be required to pay taxes on the money you earn from stocks.
Q: What are the best stocks for beginners to invest in?
The best stocks for beginners to invest in are those that have a history of staying consistently on an uptrend. These companies’ stock prices have typically risen over the course of the year.
Find a list of beginning stocks to build your portfolio.
Q: How do beginners buy stocks?
Above, we outlined this in detail. In order to buy stocks, there are a few different steps that you should follow in order to maximize your chances of success.
The first step is making sure you have an account. Once you have an account, the next step is to decide which stocks you want to invest in. Then, you must buy your stock. Finally, you must decide when you want to sell your stock for a realized gain or loss.
Q: How many stocks should you own?
The best answer is it depends on your investing strategy.
As a short-term investor, you can only manage a smaller number of trades.
As a long-term investor, you need a more well-rounded portfolio. of15-25 stocks.
More likely than not, the short answer is “as many as you can afford.”
Q: What is the best thing to invest in as a beginner?
The best thing to invest in as a beginner is an index fund.
Indexes are great because they diversify across many different types of investments and don’t require much effort on the part of the investor to maintain. Index funds are also less risky than other investments, especially in the beginning stages of an individual’s investing career.
Q: How do we make money?
Traders make money in many ways. They can trade stocks, bonds, futures, and options on equities. They can go long when the market goes up and short when the market goes down.
Traders also use trading systems that are usually automated to manage the trades they make to maximize profit.
Trading is a risky investment and it’s not uncommon for traders to lose money. In order to keep losses small, many traders use the trading strategy based on minimizing risk in order to get the desired return.
Learn how fast you can make money in stocks.
Q: Why is Youtube Option Trading So Popular?
Video on how to trade options is very popular on Youtube. This is because of the high volume of interest on this topic.
For many people, learning options is an advanced strategy that takes more time and knowledge to learn.
This is my favorite youtube option trading channel as well as an overall investing strategy.
Additionally, traders are able to get a much higher return on motion trading versus going long or short on stocks.
Q: What is volume in stocks?
Volume is a measure of the number of shares traded in a given period, usually trading days.
This is an important metric if you plan to exit your trade to know there are enough buyers to buy your stock.
Q: How to invest in penny stocks for beginners?
Penny stocks are shares of a company that typically trade for less than $5 per share, which is also known as penny stock trading.
Investing in penny stocks can be a lot of fun and the highest risk, and there are many ways to get involved. For anyone who is new to the world of investing in penny stocks, it can be intimidating to know where to start.
However, there are a few things that you should keep in mind before diving into the world of penny stocks. One of these is researching what types of companies you want to invest in. Many of these penny stocks are not healthy companies and burning through cash.
It is important to always be careful when investing in penny stocks. Keep in mind that the risk of losing money is high and you should invest only what you are willing to lose.
Q: How to invest in stocks for beginners robinhood?
Robinhood is a stock brokerage company that allows users to invest in stocks without paying any fees. It also provides real-time quotes and charts. To invest, the user must have an account with Robinhood that holds at least $0.
Most major brokerage companies have zero commission fees on trading stocks as well.
Beware, Robinhood is known for stopping to trade various stocks during times of volatility whereas other’s brokers do not.
Q: What is a good price to buy at?
This is a hotly debated question as every investor sees the market from their view.
More often than not, people wonder the best time to buy stocks.
As such, you can read is now a good time to buy stocks?
Ready for Stock Market Investing?
If you are new to investing in stocks, there are a few things you take into consideration before diving into the market.
For starters, it is important to understand how stock markets work. You should also know the difference between a stock and an investment.
Investing in stocks can be a bit complicated, but this guide walked you through the basics of how to invest.
Before you invest in stocks, it is important that you understand your investment strategy. That way, you can make informed decisions about where to put your money and how much risk you are willing to take on.
Most people shy away from learning how to actively trade stocks because of the movies about Wall Street they have watched.
You will get a deeper understanding of investing in stocks the longer you educate yourself on the concept.
Overall, it is wise to diversify your portfolio and don’t put all your eggs in one basket.
So, what is your next move to start investing?
One of the best ways to improve your personal finance situation is to increase your income.
Here are the best investing courses to guide your path. With time and effort, you can start enjoying the lifestyle you want.
Learn how to supplement your daily, weekly, or monthly income with trading so that you can live your best life! This is a lifestyle trading style you need to learn.
Honestly, this course is a must for anyone who invests. You will lose more in the market than you will spend this quality education – guaranteed.
Read my Invest with Teri Review.
Photo Credit:
studentloanplannercourse.com
Learn how to reach a six figure net worth in 5 to 10 years, even if you have a massive amount of student loans.
This beginning investment course will help you pay off debt and start your path to six figures.
After taking a second job as a driver for Amazon to make ends meet, this former teacher pivoted to be a successful stock trader.
Leaving behind the stress of teaching, now he sets his own schedule and makes more money than he ever imagined. He grew his account from $500 to $38000 in 8 months.
Check out this interview.
Know someone else that needs this, too? Then, please share!!
Whenever you invest, you are taking on a certain amount of risk. There is always the chance that you could lose money. There is no way to completely get rid of investment risk. However, there are things you can do to improve the chances of seeing more gains than losses, and mistakes to avoid.
Here are 5 investing mistakes that could destroy your portfolio:
1. Heavy Reliance on Company Stock
If you invest in a tax-advantaged retirement plan offered by your company, there is a chance that you are heavily invested in company stock. You may not have read over your options carefully when signing up, or you might have accepted some stock as payment or a bonus. While some company stock isn’t a bad thing, you should be careful not to rely too heavily on a portfolio with a lot of company stock. What happens with the company goes down? Your retirement account could be severely damaged.
2. Not Enough Diversity
It’s also important to ensure that you have enough diversity in your portfolio. Anytime you rely too heavily on one type of investment, you add extra risk to your portfolio. Too much diversity can dilute the effectiveness of your portfolio. But you you should consider diversity across sectors and asset classes, as well as geographic location. Consider your own investing goals and choose a mix that is appropriate for you.
3. Not Understanding Your Risk Tolerance
You should know yourself and your investing needs. You should be aware of your risk tolerance. This is how much risk you can bear, in terms of your financial situation and your emotional ability to handle the realities of the market. You have to understand your risk tolerance in order to make better decisions about your investments. Know what you can afford to lose, and recognize when your emotions are getting in the way of better decisions.
4. Refusing to Change Your Position
Sometimes, it’s time to make changes to your portfolio. When you have a more passive investing strategy, along the lines of buy and hold or investing for retirement, this might take the form of re-balancing at regular intervals. In more active strategies, you might need to cut your losses and sell a loser. Or, you might have a winner that keeps climbing and climbing in a short period of time. It might be wise to take profits while you still have that chance, rather than trying to run up bigger profits. It’s important to re-assess the contents of your portfolio regularly, and consider making changes as appropriate.
5. Investing in Something You Don’t Understand
Warren Buffett famously suggested that you should understand what you’re investing in. Before you add something to your portfolio, you should understand how it works. Stocks, bonds, funds, commodities, real estate, currencies and other investments are traded in different ways, and are affected by different economic conditions and market perceptions. One of the reasons we ended up with such a disaster in 2008 was due to complex financial instruments that few people understood when they were investing in them. Learn about what you are investing in, know where to research investments, and how it might affect your portfolio.
Tom Drake is the head writer at MapleMoney, covering everything from universal topics like budgeting and investing to Canadian topics like RRSPs and the the TFSA.
In January, I accompanied Kim to an appointment with Paul, her investment adviser from Edward Jones. Paul’s brother was my best friend in grade school and junior high, and we have many mutual friends. I sat and listened while Kim and Paul talked about her investments and how she ought to invest for retirement. I didn’t participate much, though, because this is Kim’s money, and I didn’t feel like it was right for me to take an active role.
I did ask some questions about index funds, though. Kim’s money is entirely in individual stocks (like Apple) and expensive load-bearing funds such as VFCAX (Federated Clover Value Fund), which has an expense ratio of 1.19 percent and a sales load of 5.5 percent.
Paul argued against index funds, saying:
Mutual-fund managers earn back the sales load (and high expense ratio) in time so that, long term, actively managed mutual funds outperform index funds. (Note: Studies show that, in general, this is not true.)
Part of the reason people pay him to manage their investment accounts is because he protects them from making foolish emotional decisions about the market and he alerts them to possible opportunities.
Afterward, I asked Kim what she thought of the meeting. She got the gist of things, but found a lot of it confusing. No surprise. I know this stuff and still found some of the presentation confusing.
“What do you think I should do?” she asked.
“Well, I still think you should be in index funds,” I said, but I didn’t push it. Again, we’ve been dating almost two years, but it’s not like we’re married. I didn’t feel comfortable making this decision for her.
Over the next few weeks, I wrote the investment chapter for my ebook. And then I rewrote the chapter. And then I rewrote it again. (This ebook will finally see the light of day at the end of April, by the way.)
As I wrote, I realized that I truly believe index funds are the right way for most people to invest. And it’s not just me. Warren Buffett believes this, as do many other well-known investors. The evidence is overwhelming. The smartest way for the average person to invest is to put all of their money in broad-based, low-cost index funds and never touch it. End of story.
Meet the New Adviser — Same as the Old Adviser
Between January and March, Kim switched jobs. Her new employer also contributes to retirement, but uses a different investment adviser. Last week, we met with the new guy, Evan. This time, I asked Kim how she viewed my role before the meeting. “I want you to speak up,” she said. “I want you to act like you’re my husband.” Well then, OK.
The meeting with Evan started very much like the meeting with Paul. Evan talked about how much Kim needs to save to meet her retirement goals (answer: a lot!). He also talked about where she should put the money. He agreed with me that it’s probably best not to shift around Kim’s existing investments (although I can’t help thinking we’re falling victim to a sunk-cost fallacy by not moving to index funds). He recommended that all of her new money should go into shiny new mutual funds that his company sells — funds that carry loads of 5.75 percent.
Note: These mutual funds are from American Funds, and I’m very familiar with them. When I was married, Kris put a lot of her savings into the American Funds family.)
“How are you compensated?” I asked.
“Great question,” Evan said. “I’m paid out of the sales charge, out of the front-end load of the mutual funds. A part of that goes to me, a part of that goes to my company, and a part of that goes to the mutual fund company itself.”
After a few minutes of discussing these new funds, I decided to speak up.
“Look,” I said. “I write about money. I’m not an investment guru and I don’t have any specific training, but I’ve read and written a lot about investing over the past few years. Everything I’ve read says that the only reliable indicator of future mutual fund performance comes from a fund’s fees. The lower they are, the better the fund is likely to perform in the future.”
“That may be so,” Evan said, “but that’s only part of the story. With proper management, a traditional fund can outperform an index fund. Besides, index funds only work if you’re able to control your emotions. Studies show that most investors earn returns far below those of the market because they make poor choices under the influence of emotion.”
“Sure,” I said. “The Dalbar study shows that every year.” I cite this study over and over again in the articles and books I write. “But investor behavior is only one part of the problem. The other part is costs.”
Evan protested. I didn’t blame him. His livelihood is tied up in this. Besides, I think he truly believes in his funds.
“If Kim were to buy index funds through Vanguard or Fidelity, how would you be compensated?” I asked.
“I’d take 1 percent,” Evan said.
“One percent up front?” I asked. “Or 1 percent per year?”
“One percent per year,” he said. With the roughly 0.25 percent expense ratio for a typical index fund, that would give her a cost of 1.25 percent annually. That beats the expense ratios from the funds Evan was proposing, especially when you factor in the 5.75 percent sales load.
Following My Own Advice
At the end of the meeting, Kim smiled and shook Evan’s hand. “Thanks for your help,” she said. “We’ll go home and figure this out.”
We walked next door to have a glass of wine while gazing out at the stormy Willamette River. “What do you think I should do?” she asked.
“Do you want to know what I would do if this were my money?” I asked.
“Yes,” she said.
“First, I’d contribute as much to retirement as needed to get the match from your boss. I’d have that put into an index fund, and I’d pay Evan his 1 percent per year. I don’t like it, but that’s your best option to get the match from work.”
“For everything else, though, I’d invest on my own. I wouldn’t do it through Evan. I’d open an account at Vanguard or Fidelity and schedule monthly contributions. He says you need to be putting away $920 per month for the next 20 years in order to have the equivalent of $50,000 per year at retirement. Do that. To be honest, I’d rather you didn’t pay me rent or utilities. I don’t need that money. I’d rather see you put it directly into an investment account every month. It’ll still feel like you’re paying me rent, but it’ll be going to your future instead. Does that make sense?”
Kim nodded. “It does,” she said, “but I still don’t like it.” (We’re still hammering out the financial side of our relationship. She wants to pay her half of things — which I appreciate — but I don’t want to take her money. When she pays me for rent or utilities or anything else, I tuck the money into a “secret” savings account at Capital One 360. That makes both of us happy.)
Unconventional Success
After our meeting with Evan, I began to have bouts of self doubt. It’s one thing to make decisions with my own money; it’s another to make them for somebody else.
To boost my confidence, I turned to books. I re-read the rationale behind investing in index funds. In particular, I turned to David Swensen’s Unconventional Success. During our meeting, Evan had pointed to the Yale University endowment as an example of investing success. Swensen is the mastermind behind that endowment. He’s also a passionate supporter of passive investing.
Unconventional Success contains nearly 400 pages laying out the arguments for index funds as “a fundamental approach to personal investment.” It explores asset allocation, market timing, and security selection before ultimately concluding that “overwhelming evidence proves the failure of the for-profit mutual-fund industry.”
Note: You can read a much shorter version of Swensen’s arguments in his 2011 New York Times editorial about the mutual fund merry-go-round.
Refreshing myself about the evidence in favor of index funds allowed me feel much better about our second meeting with Evan. On Monday night, we returned to his office to explain our decision. In short, we wanted to put all of Kim’s future funds into the following asset allocation using Vanguard index funds:
45% into VTSMX, the Vanguard Total Stock Market index fund
25% into VGTSX, the Vanguard Total International Stock index fund
20% into VBMFX, the Vanguard Total Bond Market index fund
10% into VGSIX, the Vanguard REIT index fund (a REIT is like a mutual fund for real estate)
“That’s great,” Evan told us. “We can do that. But there’s just one problem. Our investment platform requires a $25,000 minimum in order to make this happen. Otherwise, it’s not worth our time.”
At first, I thought this was a barrier. Kim doesn’t have $25,000 in new money to invest. But then I hit upon a couple of solutions.
First, we could move our shared “dream fund” from the Capital One 360 savings account where it currently resides. Instead, we could place it in index funds. Sure, this would introduce greater risk, but I’m OK with that. By the time we’re ready to tap this fund, the stock market should be higher than it is today — and it should outperform savings accounts in the meantime.
Second, we could liquidate Kim’s existing mutual funds and move the money to Vanguard funds instead. That’s probably the smartest move anyhow. We had planned to leave her existing accounts at Edwards Jones, but this makes more sense.
In the end, Kim came up with a fun plan. Here’s what we’re going to do:
We’ll move all of her investment accounts from Edward Jones to the new company.
We’ll sell half of her existing funds in order to meet the minimum requirements to begin putting money into a Vanguard retirement account. (And because index funds are the better choice.)
We’ll keep half of her existing funds as they are and allow her new adviser to manage them as he sees fit. Let’s see if he can actually beat a portfolio of index funds.
Meanwhile, she’ll funnel $460 per month into her employer-sponsored retirement account.
Finally, she’ll open a personal Roth IRA account at Vanguard. Into this, she’ll contribute $460 per month. This will give her a chance to see what it’s like to manage an investment account on her own.
This process illustrated some of the problems the typical investor faces. First, she receives self-serving advice from advisers (even when they don’t intend to be self-serving). Second, even when she knows the right thing to do, it can be tough to stick to her guns in the face of trained expertise. Third, there can be barriers to making smart choices, barriers like high minimums and additional fees.
In the end, it’s important to make your own informed investment decisions. Remember: Nobody cares more about your money than you do. If you don’t take the time to educate yourself, you can’t expect anyone else to make the right decisions for you.
A short while ago I wrote reviews of two services that recently launched, both of which intrigued me. One is a free online savings account called Digit, and the other is a free automated investing adviser called Axos Invest.
Both companies are different from anything else out there.
Digit’s claim to fame is that they will automatically save money for you after analyzing your spending and account balance trends. Once Digit figures out how much it can save without you noticing, or overdrawing your account, it just does it. It saves small amounts to your Digit savings account throughout the month. At the end of the month, you’ve got a nice lump sum saved in your account. (Digit review here)
Axos Invest is gaining traction because of its unique business model as well. They’re a robo-adviser, an automated investment advisory along the lines of Betterment or Wealthfront, but they’re different in that they don’t charge any management fees as most other companies do. They invest your money in ETF index funds with no trading fees and no management fees whatsoever. They plan to make their money off of premium add-on products like tax-loss harvesting in the future. (Axos Invest review here)
I liked the ideas behind these services and signed up for both of them to give them a trial run. While I was at it I decided to turn this into a bit of an experiment. I plan to see just how much money I can automatically save and then invest with them through the end of the year. I thought it would be interesting to show just how much you can automatically save and invest (at no cost), without even thinking about it. Saving and investing doesn’t have to be hard, or expensive!
Digit Savings Account
According to Ethan Bloch, the founder of Digit, the company was started to help people, “maximize their money, while at the same time driving the amount of time and effort it takes to do so as close to 0 minutes per year as possible”
So how does Digit work? You sign up for an account, and link your checking account. Digit will then analyze your income and expenses, find patterns and then find small amounts that it can set aside for you – without any pain for you.
So once you sign up and turn on auto-savings, every 2 or 3 days Digit will transfer some money from your checking to your savings, usually somewhere between $5-$50. Digit won’t overdraft your account, and they have a “no overdraft guarantee that states they’ll pay any overdraft fees if they accidentally overdraft your account.
Open Your Digit Savings Account
Axos Invest Investing Account
Axos Invest launched with the goal of being the world’s first completely free financial advisor. Their founders had a mission “to ensure everyone can achieve their financial goals, which starts with investing as early as possible. This is why there is no minimum to start and we do not charge fees.”
Axos Invest’s founders understood that one of the drags on the typical person’s portfolios is the fees that they’re paying to invest, as well as the friction point of having to invest thousands of dollars to start. They changed that with no minimums to invest, and no fees charged for investing. Axos Invest will be releasing some premium add-on products for their users, which they will charge for, but a basic investing account will not cost anything beyond the mutual fund expense ratios associated with your investments.
What do you invest in with Axos Invest? Axos Invest will invest your funds based on Modern Portfolio Theory (MPT). Your investments will be diversified, low cost, and recognize the value of long term passive investing by investing in ETF index funds.
Open Your Axos Invest Investing Account
The Digit + Axos Invest Experiment (D+AI Experiment)
For the experiment I plan on using the two accounts I have just opened with Digit and Axos Invest in order to show just how easy it is to invest.
From now until the end of the year I plan on allowing Digit to automatically save money from my checking account and put it into my Digit savings.
When the amount in the account gets to around $75 or more, I’ll transfer it back to the checking and transfer the same amount over to my Axos Invest Roth IRA to invest in their automated investing service. I figure by doing it this way, I’ll engage in a bit of dollar-cost averaging, instead of waiting until the balance is higher and investing once or twice. Since Axos Invest has no minimums and you can buy fractional shares, why not?
When the end of the year rolls around I’ll do a review and look at how much money I’ve been able to save and invest using these two sites.
The Experiment In Progress
Once I had setup my Digit and Axos Invest accounts I started putting the experiment into action in early February. I turned on the automated saving feature of the Digit savings account, and waited for the small savings amounts to start showing up. After about 3-4 days, my first few deposits into Digit appeared. There were deposits for $5, $6.50, $8.45, $2.35 all within the first 7 days. I have also referred friends to Digit, and $5 referral bonuses started showing up as well.
Day after day the referrals and savings deposits started piling up and before I knew it, I had $186 in the account. At this point I decided to withdraw and make my first investment over at Axos Invest.
Amounts Withdrawn And Invested So Far
I’m only about a month into my little experiment, and so far I’ve withdrawn my Digit savings balance and invested it in my Axos Invest Roth IRA twice. The amounts were:
$186.00
$74.72
Here’s a screenshot from my Digit account showing my latest withdrawal for the purpose of investing.
After withdrawing the money I then transfer it from my checking account over to Axos Invest. Here’s a screenshot of my latest deposit with Axos Invest.
Once this deposit goes through I’ll have a little less than $260.72 invested at Axos Invest since the market has gone down slightly since I started. You can see the $184.84 total invested for my first $186 deposit below.
Here’s the portfolio’s asset allocation in my Axos Invest account currently. Probably a tad more aggressive than in my other retirement accounts, but that’s OK.
The funds that Axos Invest uses and their expenses are shown below (and are subject to change)
Vanguard Total Stock Market ETF (VTI): 0.05%
Vanguard FTSE Developed Markets ETF (VEA): 0.09%
Vanguard FTSE Emerging Markets ETF (VWO): 0.15%
Vanguard Intmdte Tm Govt Bd ETF (VGIT): 0.12%
Vanguard Short-Term Government Bond Index ETF (VGSH): 0.12%
iShares Investment Grade Corporate Bond ETF (LQD): 0.15%
State Street Global Advisors Barclays Short Term High Yield Bond Index ETF (SJNK): 0.40%
iShares Barclays TIPS Bond Fund (ETF) (TIP): 0.20%
Vanguard REIT Index Fund (VNQ): 0.10%
Depending on how the market does, we’ll see what kind of returns my account sees. No matter how it goes, I’m already ahead of the game as I don’t have to pay any account management or trading fees. Can’t beat that.
Join In The Digit & Axos Invest Experiment
If you’re intrigued by Digit and Axos Invest like I was, and want to join in the “D+WB Experiment”, I invite you to join in.
Open an account with both services (both accounts are free), set Digit to start automatically saving and get started. Let’s see how much we can save and invest this year – without lifting a finger!
About 6 months ago I discovered two cool new services that had recently launched, both of which were a part of the recent trend towards automated saving and investment account options.
The first one was an free online savings account from Digit, an account that helps take the busy work out of saving. It analyzes your checking account daily and at regular intervals it saves small amounts of money from your checking and puts it into your Digit savings account – without your intervention. It allows you to save money, a little bit at a time, without even realizing it.
The second account is a free automated investment adviser from the folks at Axos Invest. When you have an investment account from Axos Invest, their system will allow you to regularly invest in a taxable or tax-advantaged retirement account, and it will automatically invest your funds in a portfolio of low-cost ETF index funds. It’s a great new long term investing site, along the lines of Betterment or Wealthfront, but without any account management costs.
Digit and Axos Invest are both big on the idea of automating things in order to make them more efficient, more cost-effective and better for your bottom line. I liked the idea behind both sites, and after signing up I decided to take them on a trial run and to run an experiment.
Just how much could I save automatically for the year using Digit’s tools? How much would I be able to invest at no cost using Axos Invest? How much intervention would I need to have – and just how much could I save over time? First, let’s take a brief look at these two accounts.
Digit Savings Account
According to Ethan Bloch, the founder of Digit, the company was started to help people, “maximize their money, while at the same time driving the amount of time and effort it takes to do so as close to 0 minutes per year as possible”
So how does Digit work? You sign up for an account, and link your checking account. Digit will then analyze your income and expenses, find patterns and then find small amounts that it can set aside for you – without any pain for you.
So once you sign up and turn on auto-savings, every 2 or 3 days Digit will transfer some money from your checking to your savings, usually somewhere between $5-$50. Digit won’t overdraft your account, and they have a “no overdraft guarantee that states they’ll pay any overdraft fees if they accidentally overdraft your account.
Open Your Digit Savings Account
Axos Invest Investing Account
Axos Invest launched with the goal of being the world’s first completely free financial advisor. Their founders had a mission “to ensure everyone can achieve their financial goals, which starts with investing as early as possible. This is why there is no minimum to start and we do not charge fees.”
Axos Invest’s founders understood that one of the drags on the typical person’s portfolios is the fees that they’re paying to invest, as well as the friction point of having to invest thousands of dollars to start. They changed that with no minimums to invest, and no fees charged for investing. Axos Invest will be releasing some premium add-on products for their users, which they will charge for, but a basic investing account will not cost anything beyond the mutual fund expense ratios associated with your investments.
What do you invest in with Axos Invest? Axos Invest will invest your funds based on Modern Portfolio Theory (MPT). Your investments will be diversified, low cost and recognize the value of long term passive investing by investing in ETF index funds.
Open Your Axos Invest Investing Account
The Digit + Axos Invest Experiment (D+AI Experiment)
So for my Digit and Axos Invest experiment, the goal was not only to try out these two free products, but also to show just how easy (and low cost) it can be to invest.
When I started in early February my goal was to allow Digit to automatically save money from my checking account and put it into my Digit savings. Whenever the amount in my Digit savings reached $75 I would transfer that money over to my Axos Invest account and invest it in their highly diversified set of ETF index funds.
Why was I doing it this way? I did it this way because Axos Invest has no minimums and you can buy fractional shares, so why not? I can transfer money in small chunks, and engage in a bit of dollar-cost averaging while I’m at it.
So how are things going now that we’re more than half the way through the year?
The Experiment In Progress
Once I had setup my Digit and Axos Invest accounts I put the plan in action and allowed my Digit account to start saving on my behalf. After a few days Digit had started saving small amounts in my account. There was $7.50 here, $15 there – as well as $5 deposits for referrals of friends and readers. Multiple transfers and deposits ended up adding up to larger amounts over a couple weeks time. The first time that I invested with Axos Invest I deposited $186 that had accrued in my Digit account.
From then on every time the amount reached around $75 or more, I would transfer the money to Axos Invest.
Amounts Withdrawn And Invested So Far
I’m now just over 5 1/2 months into my little experiment, and so far I’ve withdrawn my Digit savings balance and invested it in my Axos Invest Roth IRA 14 times. The amounts were:
$74.36
$79.76
$121.75
$82.03
$95.67
$81.27
$93.28
$109.47
$76.20
$99.08
$99.32
$90.88
$74.72
$186.00
Here’s a screenshot from my Digit account showing my latest withdrawal for the purpose of investing.
After withdrawing the money I then transfer it from my checking account over to Axos Invest. Here’s a screenshot of one of my latest deposits with Axos Invest. In the screenshot you can also see how deposits are then used to purchase fractional shares of the ETF index funds used in the account.
Once my latest deposit of $74.36 goes through I’ll have $1380.70 invested at Axos Invest.
Here’s my portfolio’s asset allocation in my Axos Invest account. It is a bit more aggressive than in my other retirement accounts.
The funds that Axos Invest currently uses, and their expenses, are shown below (and are subject to change)
Vanguard Total Stock Market ETF (VTI): 0.05%
Vanguard FTSE Developed Markets ETF (VEA): 0.09%
Vanguard FTSE Emerging Markets ETF (VWO): 0.15%
Vanguard Intmdte Tm Govt Bd ETF (VGIT): 0.12%
Vanguard Short-Term Government Bond Index ETF (VGSH): 0.12%
iShares Investment Grade Corporate Bond ETF (LQD): 0.15%
State Street Global Advisors Barclays Short Term High Yield Bond Index ETF (SJNK): 0.40%
iShares Barclays TIPS Bond Fund (ETF) (TIP): 0.20%
Vanguard REIT Index Fund (VNQ): 0.10%
We’ll see what kind of returns my account sees over the coming months/years, but I’m sure it will about match what the market does. Since I’m not paying any account management fees as well, I’ll be coming out ahead as compared to some other robo-adviser competitors.
How’s It Going So Far?
So how is the experiment going so far? I think it’s been pretty successful. I’ve saved $1380.70 over the 5 1/2 month period. If we round that up to 6 months it means an average saved of about $230.12/month.
Multiply the $230.12 by 12 months and it means that if I continue this experiment for an entire year, I could expect to see somewhere in the neighborhood of $2761.40 saved for the year.
While $2761.40 isn’t going to profoundly change someone’s life, it isn’t a small amount of money either.
If you look at that $2761.40 amount, it’s just over half of the annual $5500 contribution limit for a Roth IRA. So essentially, over half of my year’s worth of Roth IRA contributions are happening without any pain for me.
The money is coming out in small chunks, so small I don’t even notice. Over time those small chunks are adding up to larger dollar amounts that do make a difference to my long term strategy. All in all I think it’s a pretty powerful idea, making savings and investment happen automatically in the background, with only a small amount of intervention needed from you. The fact that both of these tools are also free is just icing on the cake.
Join In The Digit & Axos Invest Experiment
Interested in joining the “Digit and Axos Invest Experiment”? I invite you to join in! The only risk you’ll have by joining is that your retirement accounts will grow over time and that you’ll likely be paying fewer costs than your current retirement account provider.
Open accounts with both services, set Digit to save automatically, and get started. You’ll be glad you did. Let’s see how much you can invest – with minimal effort or intervention!