A NOTE FROM THE AUTHOR: You could be spending your time reading Investopedia definitions, but why do that when you have a guide below to covering all the terms you need to know. My own journey with the stock market was filled with trying to figure out how things worked, definitions, and where/how to invest.
The Definitions
The finance industry is filled with terms that gatekeep from the public. To truly understand the stock market, you’re going to need a basic understand of some of the investing terms. This chart on VisualCapitalist does a great job at explaining the basic terms that you will see throughout your investing career. A few key definitions below:
Buy/Sell - Buying shares of a company or selling them off
Bull/Bear - These animals correspond to how the market is performing. Bulls charge upward and bears swipe downwards.
ETFs - An exchange traded fund (ETF) is a type of security that involves a collection of securities—such as stocks—that often tracks an underlying index, although they can invest in any number of industry sectors or use various strategies
Mutual Funds - A mutual fund is an open-end professionally managed investment fund that pools money from many investors to purchase securities.
Index Funds - An index fund is a mutual fund or exchange-traded fund designed to follow certain preset rules so that the fund can track a specified basket of underlying investments.
Portfolio - Your collection of investments. Every finance bro wants to showcase his portfolio!
I could go on and on about these definitions, but I implore you do check out the link above to start making sense of these terms.
How to Invest
The biggest thing to keep in mind is how your diversifying your portfolio. What that means is that, typically, you wouldn’t want all your eggs in one basket. Why would you put all your money on one bet? To maximize your returns over time, make sure that you’re placing your money in different sectors with different companies. It’s up to you to where you decide you’d like place your funds. All portfolio breakdowns are the percentages you’re placing in the securities you’re buying.
To help you make this more relevant, I personally like investing in technology because I believe that’s where American companies can see the most profit within our lifetime. I don’t stray away from retail, marijuana, and energy securities though. Make sure you’re safe with your investments and invest in companies that see growth year-over-year while seeking the next big thing.
Buy low. Sell high. This is the golden rule when it comes to investing. There have been times when I get swept away by public sentiment on the next big thing and buying high. I realized that I paid way too much for a security and being the stubborn individual that I am, bag hold until I see returns. Never get caught up in what everyone’s talking about too late!
Another question I get asked is how much to put in when you’re first starting out. The answer is as much as you feel comfortable with. Remember that you see more returns with the more money you put in. Putting in $100 could make you $1, but investing $1,000 could make you $100. The goal here is to keep investing and don’t stop.
Where to Invest
This is where we get back to basics. Imagine you’re going out tonight and you have different wallets to showoff to your friends. Each wallet comes with its own pros and cons. This is the analogy I use when speaking on where to invest.
The basic strategy is this. You should be reaching your financial potential in this order:
1.) Meet your company’s match for their 401K
2.) Maximize your yearly contribution ($6K) in a Roth IRA. Note: the Roth is best for younger investors due to tax regulations.
3.) Invest extra money in a “fun” account. This is your personal Robinhood account essentially.
Optional: If you’re bored after all these steps and want to keep investing, look to open a Health Savings Account (HSA) with your company. This is a wallet that holds your medical funds for the year and rolls over year-over-year and can also serve as a retirement account.
There’s different financial services you can invest with, but Robinhood is the best place to start. Note: make sure to do your research. Read the subreddits, browse the forums. Every service comes with pros/cons.
Robinhood’s interface makes everything simple to understand and can be a good place to start. Remember that this is a personal investing account and doesn’t come with tax advantages like a 401K or Roth. This account is designed to be a fun investing time, while the government gets a decent cut of your profits depending on when you sell.
For my Roth IRA, I invest with M1 finance. Fidelity and Vanguard don’t have the best experience in my opinion and I wanted more power and insight on my Roth investments. M1 comes with a delayed trading window but I’m willing to sacrifice that in order to have a simplistic Roth IRA.
If you’re interested in investing with Robinhood, be sure to use my referral link near the top of this post. You’ll receive a free stock when starting out. Also, don’t be alarmed when Robinhood asks for your social security number. Financial apps are tied to the IRS and track your profits. This might scare people away (like me at first) but investing is better than doing nothing.
Have a great week :)
-Jordan