How to Start Investing Full Beginners Guide in 2022

so last night i was chatting with a friend over text message and she actually watches a lot of my videos but she still asked me the question hey humphrey how do i get started with investing and that's when i kind of had this moment where i'm like i have a lot of videos on the differences between types of investments how to invest different types of amounts of money but i don't have a video on how to actually get started so i made this video to distill all that information into one single video and in this video you're going to learn all the exact steps on how to get started with investing i'll walk you through the basics and by the end of this video it's my hope that you'll be able to start to take action and actually get started [Music] real quick i just want to thank you guys for 80 000 subscribers we hit that rather quickly so i appreciate everyone being here if you're new to the channel my name is humphrey and i make videos here on youtube on personal finance and investing if you like simple videos like these make sure to drop a like on this video it actually helps get it pushed out to more and more people so that they can also be educated as well okay let's begin one of the first things that you need to do before you start investing is to actually have your bases covered these are going to be sensible things that you should do before you start investing because if you don't do these things you might be taking on more risk than you should while investing and those two things are to have your debt paid off and actually establish an emergency fund of about three to six months of living expenses so when it comes to debt we want to avoid high interest rate debt before we start investing so if you do have a credit card with let's say a debt balance and the interest rate is 15 or higher i would classify that as high interest i would actually work on getting your interest sorted first before you start investing high interest rate debt will actually eat away into your investment gains so if you do have a large balance of debt on your credit card instead of trying to get 10 in the market what you could do is just pay down that debt let's say it's 15 your money is better spent paying off that debt now if you're having a hard time actually paying off that debt within a reasonable amount of time let's say a year for example then what you might actually have is an income problem and not an investing problem so if you're in that situation you want to take on more side hustles more side jobs basically increase your income as much as you can so that you can pay off that debt so that you can then start investing another question i get is someone with student loans and the interest rates on these student loans are usually pretty low let's say three or four percent so in that case should you invest well i would actually say that's a judgment call on your part in my opinion it's always best to have your debt fully paid off but some people think that they can get a higher return in the market and use those returns to pay off their debt so when it comes to that situation i would say that's more of a judgment call depending on your risk tolerance the next prudent thing that you should have is the emergency fund and that's typically about three to six months of living expenses saved up in a savings account this is simple if you lose your job or you get into an accident this is your fund that's going to cover those emergencies and it's best to have this before you start investing once you have those basics out of the way it's important to ask yourself some questions about what your investing style is going to be like for example there are active investors and there are passive investors now they're pretty different but passive investors typically focus on long-term success so they're investing in things like etfs and index funds that'll help them get rich really slowly and they also might be risk averse active investors on the other hand are someone who wants to make a living off of the stock market or maybe trading options or basically just make it their job to invest you don't have to have the answer right away you can be a passive investor or an active investor and that can be a kind of a fluid definition you might actually find yourself being really active early on in your life and then passive later on in your life i will say this though is that most people i run into don't deem themselves as active investors because that actually takes a lot of work and might not be suitable for most of the average investor so what happens if you're in the middle well you could be somewhat of a passive investor but also pick your spots with individual stocks and individual holdings and that would actually be a mix of passive and active and we'll talk about that in a little bit if you don't know what type of investor you are it's kind of just comes down to asking yourself okay what does your gut tell you how what are you leaning towards personally for me i'm more of a passive guy i like to just kind of see my investments growing on the side but i also like to pick my spots so i would actually consider myself a little bit of a both like i'm a mix of passive and active investing most of my investments are held in pretty safe funds but now and then i do want to take a concentrated position in a growth stock such as apple tesla etc we'll get a little bit more in depth with the types of investments that you can choose depending on if you're a passive or active investor but before we even do that we actually need a place to actually start investing in and that's typically a brokerage when it comes to brokerages there are traditional types of brokerages that are known as full service brokerages and then there are discount brokerages and then there are things called robo advisors so when it comes to traditional types of institutions these are more of your full service brokerages these are actually like fidelity schwab merrill lynch city financial and morgan stanley they're full service in that they actually provide you with more than just investing in stocks but that comes at a higher fee so they might help you with retirement planning estate planning or they might actually provide you with a financial advisor the discount brokerages on the other hand they usually come in an app format so robinhood is an example of one of them weibull public sofi td ameritrade m1 finance etc these are all apps that are designed to give you access to investing that are cheaper in fees compared to full service brokerages but at the same time that means you're in control of your own destiny and you kind of have to make your mind up yourself when it comes to what types of investments you want to make now with both the full service and the discount brokerages you can be a passive or active investor in either of them but there is one type of brokerage that is mostly just for passive people only and that's actually a robo-advisor they're a new type of brokerage especially in the last 10 years but these are your wealthfronts betterments and acorns of the world a robo-advisor is kind of like a hybrid between a full-service brokerage and a discount brokerage they actually give you a financial advisor but it's not a person it's actually a robot that's been trained based on algorithms to allocate and basically balance your portfolio for you oftentimes these are really great choices for passive investors because the robot just takes care of everything for you but on the flip side there's no active trading going on in a roboadvisor at all if you're watching this and you're a millennial or a gen z most of us are probably going to go with a discount brokerage or a robo advisor because it's simply just easier to use also i would say if you're really young it's rare that you would need a financial advisor for let's say estate planning or retirement planning but let's say your family already belongs to one of these full-service brokerages and wants to set you up with their own schwab or their own fidelity account for example with a financial advisor that's something you may want to consider and go with now within a brokerage you can actually invest in a retirement account or a taxable account retirement accounts are generally as its name implies set up for retirement so they'll have more restrictions on when you can withdraw the money but they'll also have benefits because you're putting that money away for a very very long time the benefits usually include tax benefits so when you're investing in a retirement account you usually get a tax deduction upfront or maybe tax-free earnings later on a taxable account on the other hand doesn't have any tax benefits but at the same time it doesn't have any restrictions on when you can withdraw in these accounts if you have let's say 10 different stocks in a taxable account if you ever do sell one of your stock positions for a gain so you realize that gain that means you'll actually owe taxes on that gain if you want to learn more about retirement accounts make sure to check out my videos on retirement accounts 401ks and iras and i actually plan to make updates of all those videos in the future so make sure you're subscribed to me for that all right so now that you have a financial foundation you've kind of decided if you're going to be an active or passive investor and now you kind of know the broad landscape of what brokerages look like well what do i actually invest in humphrey so let's talk about some investments and if you're a passive investor there are going to be some investments such as index funds and etfs that are better suited for well being passive so etf stands for exchange traded fund and by buying this investment fund once you're essentially buying a small percentage of everything that it owns think of it like a basket of stocks by buying this one basket you own a small percentage of all the stocks in its basket they're a simple low-cost and effective way to diversify your investment across many different companies by just buying one fund so warren buffett actually suggests investing in this method which is index funds because typically index funds return about 10 for the last 90 years so they're pretty consistent in that regard and you don't have to be an expert in investing to buy them so that's one of the best passive strategies you simply invest consistently over time let's say once a month investing a hundred dollars a month in one of these ticker symbols like s p y or v o o which are s p 500 etfs since these tickers track the s p 500 essentially what that means is by buying this one ticker simple within your brokerage for example you'll own a small piece of every single company in the s p 500 so let's say you're 25 years old right now and you consistently invest 150 into the s p 500 every single month so basically 1800 a year in about 40 years when you want to retire that investment is going to grow to over 500 000 just by stocking it away into something like spy or vo that's one of the cool things about investing is that as long as you're putting your money into the market over a long period of time and you're doing so in a diversified way you're going to beat out inflation and at least your money is going to grow with you now another diversified method that's rather passive is to pick a portfolio of dividend-paying stocks dividend stocks are usually stable companies that pay back a percentage of their profits back to their shareholders just for owning the stock i do have a video on how to start a dividend portfolio if you'd like to check that out and i'll link it i don't know up here somewhere and also in the description below in my opinion the more diversified an investment is the less you have to manage it so i think it's better suited for a passive investor an example of an investment that an active investor would invest in is something like an individual stock an individual stock is more risky because it just has more inherent risk because let's say you put your entire portfolio of 100 000 into one stock but that stock goes to zero well there you go you just lost all your money now compare that to if you had all your money in a diversified investment such as an s p 500 etf let's say one of those companies in the s p 500 actually went bankrupt while you still have 499 other companies to basically bolster your portfolio up active investors may also trade options which are essentially leveraged ways of buying stock i'm not going to get into options trading in this video but just know that they're essentially very leveraged very exposed and it's a very risky way to buy certain positions in individual stocks those are some examples of passive and active investments but what if you want to be a little bit of both if you want to be both a passive and an active investor one of the strategies that i like to use is something called 8515 that means 85 percent of your holdings are passive and 15 of your holdings are active so let's say you have a portfolio worth a hundred thousand dollars that means eighty five thousand dollars of that portfolio is going to be in passive investments like index funds and etfs and the fifteen percent will be for more speculative or fun place with that fifteen percent you wanna pick individual stocks that you think could actually grow quite a bit and this is kind of what i was talking about earlier that you can have a passive investing strategy but be able to pick your spots whenever you can that way you're still getting a little bit of upside especially if you're 15 of your portfolio does well and you still have the safety of the rest of the 85 remaining percent and as you get more experience you can kind of shift these percentages around so maybe you want to be 90 passive 10 active or 80 passive and 20 active whatever it may be as long as it suits your risk level that's all that matters now if you're unsure of what your risk profile is there are a lot of risk tolerance questionnaires that you can answer online they're essentially 10 to 20 different questions that you answer about your investing style and at the end of it it basically spits out a result and says hey this is your risk tolerance level one of my favorites is from vanguard which i'll link in the description below it's like a fun investing style personality test so if you've ever taken one of those personality tests like those myers-briggs ones it's essentially like that just for your investing style i will say this though is that a good investor is always trying to figure out the best risk to reward ratio for their own risk tolerance and that's how i like to think about things now there are a lot of investment strategies out there but i want to actually leave you with just one beginner investment type of strategy that you can actually leave this video with this investment strategy is tailored towards the passive investor and it's actually known as what's called the three fund portfolio a three fund portfolio offers simplicity because well it's only three funds it offers diversification since they're all index funds each index funds has very very low fees which is one of the biggest advantages of these index funds is that because of their low fees they don't eat away into your gains lastly i think they have a really great risk to reward ratio i actually made a separate video all about a simple investing portfolio which is a three fun portfolio that i have on youtube as well if you'd like to check that out okay with this video i hope that you now know how to exactly get started with investing step by step while it may not have all the answers i'm hoping that all the information presented in today's video is enough knowledge to actually get your feet wet with investing if you got any value of this video make sure to like the video so that more people can see it and subscribe to my channel because i drop a lot of personal finance content every single week on youtube if you'd like two free stocks when you deposit a hundred dollars with weibull which is a discount brokerage by the way use the link in my description below for that and thank you to all my patreon supporters i appreciate you guys still supporting me all this way and i will see you guys in the next video hopefully in a few days here goodbye

Channel: Humphrey Yang

Views: 46,888

Keywords: how to get started with investing, how to invest, stock market, get started with stock market, how to invest money, how to invest in stocks, online brokers, s&p 500, s&p 500 explained, index funds, how to invest in index funds, 401k, financial terms explained, investing explained, how to invest money in stock market, how to invest in 2020, investing in the stock market, stock market investing, stock market for beginners, index funds for beginners, how to invest in 2021

Id: YqD8lemebdI

Length: 13min 28sec (808 seconds)

Published: Fri Feb 05 2021