Here’s My Advice: Don’t.
Don’t invest in stocks. What in the… this is an investing blog, right? Yep. And I’m telling you to not invest in stocks. 90% of people shouldn’t invest in stocks. They should first, read How a Second Grader Beats Wall Street
(Kindle Version). I’m serious. Pick up a copy. It’s cheap. Read it before you ever start investing. It will likely save you years of stress and make you far wealthier at the same time.
Read it? Good. Now, find a Vanguard Target Retirement Fund, and put a set amount of your paycheck into each month. Do this for a lifetime. You will likely do better than 80% of all mutual funds (and those are run by pros!) because you keep your costs down and your taxes down at the same time. At most, maybe you can put some in a Vanguard stock index fund.
This is easy to say and hard to do. You have a massive financial industry telling you not to do this, that riches await you if you only do a little research and listen to them. Don’t. They are greedy bastards. And they’re wrong.
Like I said, this may not be welcome news. It really is this simple. If most people did this, we’d be a heck of a lot wealthier society rather than seeing the financial industry siphon 1%-2% of our assets every year.
You’re Still Here? Ok. Fine. Here’s How to Start Investing in Stocks.
I admit it. I invest in stocks. And likely, if you’re still here, you still want to do so.
You’re going to need to read and never stop reading. The market is usually smarter than you, but not always. Beginning of 2009? The market was pretty dumb. Great companies were being thrown out with the bad ones. This happens, but you have to wait and be ready for it. How? Save money, be prepared, and never stop reading.
The book that got me hooked on investing, was a Dummies book. Value Investing For Dummies(Kindle Version). It was fantastic. Didn’t simply talk about the theory of investing, it got to the nitty gritty of evaluating a company. It was the right introduction. How to value a business, not a stock. Discounted cash flows became a part of me after it. Follow this up with Morningstar’s The Five Rules for Successful Stock Investing. It does a great job of giving you a true overview of stock analysis.
These two books give you a good foundation, and you can branch out from there. But take your time. Read a lot before you ever start investing. I estimate I read a good twenty to thirty books over the course of a year before I started dipping my toe in. And even then I made all sorts of mistakes once I started. You’re going to make them. Make sure it’s with small amounts of cash.
Also, don’t read certain things. Anything about speculation, technical analysis, options (well, unless you’ve been doing this for a long time), and many other areas where you’re almost guaranteed to shoot yourself in the foot. Stick to buying companies, not making bets.
Read The Essays of Warren Buffett: Lessons for Corporate America, Second Edition. This is when it gets fun. The reason he’s so popular and has a cult following, is he’s a pretty good writer. You can learn a lot from his letters to shareholders, and it’s a rite of passage every stock investor should go through. Feel free to find him too schmaltzy and move along afterwards as well.
Oh, and one last thing. Only do this if you love it. It’s highly likely you’re better off with a Vanguard index fund. Really. I still question whether it was luck or skill that got me where I am today, and I always will question myself. I invest, because it forces me to learn so much, not because I think I’m an amazing investor. I’m always ok with the mistakes I make because they teach me. Investing is an activity that gives me joy and helps me never stop learning.
That’s the real reason to start investing.
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