Does this sound familiar? You look at your 401k and say “man… shoot I’m never going to be able to retire!” If so, then maybe you want to take more control over your finances. Maybe with a few helpful hints you can kick start your way to better financial control and start investing in yourself.
Investing in Yourself
Some years ago I looked at my 401k and said to myself. Man… I can do better than this? It felt like the growth that I was seeing in my 401k was virtually nothing. I felt like I was really giving them money to spend for their profit vs. money to invest for me. So I called the company handling my 401k. The automated service asked if I wanted to make any changes to my allocations. I made some changes based on the growth of each fund and changed the percentages allocated to each fund. The funds that saw higher growth, I allocated more money Those that did not, received less money. I only made changes once a quarter, but I made changes every quarter. That year I saw an additional 20% growth in my portfolio.
After learning more about this and making the changes to my allocations myself, I saw that it was not because the company handling the 401k was wrong. It was the strategy being used. It was a safe one. One designed to provide a less risky investment experience, but low return. I think of the 401k as a fire and forget vehicle of investment. People typically start one up and have the money withdrawn from their paycheck and then… forget about it. With this, most people will see increases over a long period of time. But what if you could tolerate more risk? What is your risk tolerance? The same survey I used when I started investing, is still the same today. Motley Fool makes one available here.
Motley Fool Stock Advisor: Join for just $99 a year!Even with the returns I was able to get with my 401k, I still did not feel like I was getting enough of a return for the money I was contributing and wanted to do something else. I wanted something more… But what this showed me was if I could improve my returns with my 401k, what can I do on my own?
With a bonus I got from my job and some extra savings. I tried going to the bank and getting a money market account, but for $1500, I literally earned about $2. I still remember the bank official taking my money with a smile knowing that I wasn’t going to earn anything with my money. There was no talk about better products to invest my money. No conversation about what I was likely to see in my investment. I was so upset about my returns I told them so at the bank, but what were they to do? They accomplished their mission. Their returns on my money were a lot higher than what they were giving me.
After that, I tried an online broker. I took that same money plus the $2 dollars I earned from the money market and put it in an online brokerage called ING Sharebuilder. Sharebuilder no longer exists, but I liked it because it was easy to understand. The trade fees were lower than the other online brokerages. It was also very easy to navigate. I’d already had some Ideas on what stocks I wanted based on the small amount of research I knew to do back then. So I sat myself down one evening in January of 2012 and purchased Bank of America(BAC), Ford(F) and Sprint(S).
I chose BAC because I asked myself, is this bank really going to go out of business? Based on the news at the time that was not an easy question to answer, but my answer was no. So with the stock at a little over $5.00, I thought that I could make a little bit and hoped it would go up. I chose F because it is a company that has been around a while and respected. I chose S because I had a Sprint phone. While thinking about stock to buy, I had always heard that you should look at the brands you use as a starting point.
Over the next few years my knowledge grew, my confidence grew and my returns grew. Now out of those 3 companies I only own BAC. I trade around it buying and selling and collecting dividends. My portfolio is a little bigger than those 3 initial stocks and I also have separate accounts managed by a Financial Adviser(FA).
So here are a few things I learned when I started my first foray into online investing.
The Tips
Inch by inch anything is a cinch. First thing you should know is that you don’t need a lot of money to start. This is a very important thing to understand. You are going to grow it over time. Although there are no quick answers to better financial control. You can start with what you have and grow it over the long term. Although I started out with $1500 you can start with whatever you have. Inaction means a missed opportunity. The important thing is to start.
Choose an online brokerage – Finding an online brokerage is as easy as going online and choosing one of the many online brokerages out there. Many have no minimums to start and sport perks like first stock free or the ability to buy fractional shares. Some provide extra funds depending on how much you start with. When looking for an online brokerage you want to look at all of the benefits and fees(If any) and compare to see which one is best for you. You also want to choose a brokerage that has an easy to digest interface, that is easy to understand.
Choose your stocks. Most financial advisers will steer you towards low cost mutual funds. They are less risky because mutual funds track a large group of stocks instead of just one. Individual stocks see larger swings in their price making them more risky. Now, there is nothing wrong with investing in mutual funds. Especially, if you do not have the time and patience to research and manage your trades. However, with mutual funds you run into the problem I had. Some stocks in the fund will do well, some in the fund will not do well. For me, I wanted to take more risk. I wanted to be able to better control where my money was going towards and maximize profits.
So, If you want to invest in individual stocks, I think a good way to choose stocks when you are just beginning is to look at the products you use. What are you always buying? Where do you have the most brand loyalty? What products do you know the most about? These brands are probably going to be companies that have been around a while and have a good reputation in the market. Many of those companies will not be high growth, but may be good stable investments.
Increase your knowledge. There are many ways you can increase your knowledge about money and investing. Watch a business news station (CNBC, FOX Business, Bloomberg). Read news about the stock you’ve bought. Be informed about where the companies are going. How are they performing? When just starting out, a good rule of thumb is to spend 2 – 3 hours a week on each stock you have bought. This will help keep you up to date. Over time you will build an understanding of the company and the industry it belongs to. Read books on investing. Seek out a Financial Adviser who can help you create a plan for your money and financial future.
The more time it has to grow the better. If you look at the market over time you will see that there is one major constant. The market moves upward. There may be bumps in the road, but the market moves ever onward and upward. Take some comfort in this. An easy way to take advantage of this especially if you want a more hands off approach is to look at Exchange Traded Funds(ETF’s). These funds are like small mutual funds that are traded like stocks. You can buy one share at a time if you want.
Conclusion
In conclusion, I wanted to write something that was easy to follow. Something that was quick and to the point about investing in stock. It is true that with investing there will always be risk. Past performance is not an indicator of future performance and my performance may not be your performance.
Still, I think the most valuable thing that I learned through this process is that I was really investing in myself. I was the one that decided to step out and see what I could do. I was the one who put up my money to try to create a better situation for myself. I’m also still working on it, but I think I have reached a point in my life and my knowledge where I can reach back and share what little I have learned so far. Maybe there is someone else out there who thinks they can do better but doesn’t know were to start. Hopefully, this will start you off on your path to a better financial future.
Basic Tips:
- Inch by inch anything is a cinch – Inactivity can mean a missed opportunity. Just get started. Grow your investment over time.
- Choose an Online Brokerage – No minimums to start, no trade fees and lots of choices all help to make getting started really easy.
- Choose your stocks – Look at the products you use for stock picks. What are your favorite products and what companies own them?
- Increase your knowledge – Trading stock is not fire and forget. It takes maintenance and knowledge. Look to spend 2 -3 hours per week researching the stock and the industry the stock belongs to in order to stay up to date.
- The more time it has to grow, the better – The day to day of watching the stock market can make things seem hectic, but when you take a step back and looking at it over time you will see that the market goes up. Time tends to be your friend in investing. Choose good stocks and over time you can see an increase in your knowledge, confidence and investment.
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