How to Invest for Beginners | Tips for your 20’s

Auto-captioned from the film, lightly cleaned. Elena's words, not edited prose.

Hi. Hello. How's it going? It's Helena and welcome back to my channel. And today we're talking about money, specifically investing. I love talking about investing and it sounds kind of scary at first, but I'm here to show you it's much easier than you actually expect. I actually filmed a video like this on my channel about 3 and a half years ago. I was 23 going on 24 and I just turned 27. And so over the years, I feel like I've learned quite a lot. I've tested out this method now for quite some time.

I've done a lot of investing, and I kind of want to get into the nitty-gritty and really break it down step by step and show you guys how to invest. We're going to talk about what is investing, why you need to invest, how to invest, when to invest, and I'm literally going to take you along with me and do a live example of me literally investing so you know how to be able to do it for yourself. Let's start off with what is investing. According to Investopedia, investing is a process of buying assets that increase in value over time and provide returns like income, payments, or capital gains, which we'll get into.

So, it's basically making your money work for you, which we love. Okay, so let's say you've been too nervous to invest. I get it. It's a little scary to get started and you've just been sticking all your money maybe under your mattress or more realistically in a bank somewhere in a checking or a savings account. But by doing this, and by doing this for a while, you actually lose money because of inflation. We've all probably heard about inflation in the news. Like I feel like a prices went up a bunch this year.

And inflation is basically a decrease in purchasing power of your dollar. And the US Federal Reserve actually aims for a 2% inflation rate every single year because it actually leads to a healthy economy. But that's not great for your dollar. If your dollar is just sitting in a bank account, the value of that dollar is going down because the price of everything is going up, but your dollar is staying the same if you're not investing it. But investing can help that dollar grow alongside inflation. and ideally at even a much higher rate.

Okay, maybe now I've scared you straight about the fact that your money just sitting in a bank account is actually losing value over time and you're technically losing money and you don't know what to do about it. So, let's break it down. So, let's talk about what investing actually is. And I just want to preface, there's no such thing as a dumb question when it comes to finances. I feel like so many of us were never taught properly and then we get to a certain age and we're like, shouldn't we know this by now?

But we don't. So, let's break it down nice and simple. So, an investment is an asset that is acquired with the hope of generating income or appreciation over time. So, basically putting more money back into your pocket. And you've probably heard of a lot of different of these investments, stocks, bonds, mutual funds, index funds. You might be wondering what the hell does this all mean? And today, we're going to talk about the most important ones to focus on when you're getting started. A stock basically represents having part ownership in a company.

So, let's say I went out and bought Tesla stock. That means I would technically have a small percentage ownership of Tesla and it's usually quite small but technically you're owning a little bit of it. And so the way you make money through stocks is basically through two different ways. Either dividends or capital gains. And dividends is basically regular profit sharing payments made between a company and an investor. So let's say you own Microsoft stock and Microsoft has done well. So they decide they're going to pay dividends to their shareholders. Basically means you would get dividends depending on how much you have invested in the company.

And usually it's not a lot. Maybe it's5, $10, $20 here, unless you somehow own a ton of stock in a really big company. The other is capital gains, which basically just means when your asset increases in value over time. So for this example, let's say you own Microsoft stock and those share prices have gone up over time. Let's say you hold on to that Microsoft stock for 10 years. Ideally, 10 years later, you'll be able to sell for more money than the original amount you invested in. And that's what a capital gain is.

But how do you decide which stock or company to invest in? That's when it starts to get a bit overwhelming. And the general rule of thumb is that it is really risky to just put all your money into one stock. Even if you're a professional and you're devoting all your time to learning the stock market, studying different sectors, and paying attention to what is going on in the economy, chances are you won't get it right a lot of the time and you won't come out on top. So, this is where funds come in.

I feel like the general rule of advice that I've heard for so many years now for those beginning to invest is to invest in index funds. And let's break down what that means. So a fund is like a big old bouquet of stocks. And instead of just buying one single stock or one single flower, you can buy the whole damn bouquet with a bunch of different stocks in it, which essentially diversifies your portfolio and lowers the risk. And so to understand the index fund specifically, we actually need to rewind a little bit back and talk about mutual funds, which came before index funds.

So, a mutual fund is a actively managed fund, which means there's some investment manager basically going in and you pay him a certain percentage or expense ratio to choose the stocks that go into that fund. So, somebody on Wall Street goes in and chooses the stocks that they think are the best fit and invest in those for you. And while this sounds nice, there's a few different downsides to this. One is that the fees are generally higher than index funds. So they usually charge a big old management fee like 1 to 2% also called an expense ratio which may not sound like a lot but if you're investing a lot of money over time that percentage adds up and the other's downside is that research shows generally lowc cost index funds have generally outperformed managers in the long term.

So then comes along this great thing called index funds and to understand this let's break down the word quite literally into two parts. So we talked about what fund is. It's basically a huge bouquet or basket, whatever you want to call it, of a bunch of different stocks. And then an index tracks a market index like the S&P 500 or the NASDAQ or Dow Jones or all these fancy words you probably heard of. Like the S&P 500 is an index which tracks the 500 largest companies listed on the US stock exchange.

So you put those two together, index and fund, and an index fund essentially mirrors a specific index. So what's amazing is that you just basically purchase one index fund and through that you're then let's say with the S&P 500 index invested in 500 companies all at once. So it's really really easy to invest in and also again it diversifies your portfolio. So you have way less risk because if one company isn't doing great and that stock drops a ton you have another 499 to help offset that loss. And another perk is they generally have a really low expense ratio like literally 0.05% 05% because it's being managed by like an algorithm or a formula essentially instead of by an individual.

And good old Warren Buffett, one of the richest men in the world and one of the top investors of basically all time, is constantly recommending index funds as one of the best way for your everyday investor to invest their money. So, let's say you have $1,000 and you decide to invest it in an index fund that tracks the S&P 500. That basically means, like I said, that $1,000 is split over across all 500 companies. So, looking at the current S&P 500, 6% goes towards Microsoft. 6% goes towards Apple. And then there's some smaller different companies like, oh, Starbucks is on here, number 77.

That would get 27% of $1,000. Oh, hey, Bath & Body Works is number 462 at 03%. And while you can't promise anything with investing, of course, if you look at the index fund from its very beginning inception, it's generally always trended upwards and it usually has about an 8 to 10% return. So, let's look at the S&P 500 over the last 35 plus years. As you can see, it's always kind of trended in this upwards trajectory. And there have been some big dips like in 2008 with the financial crisis then.

But if you would held on to your money, you can see that over time it had bounced back from where it was and even grew further. And so, the only way to lose money with investing is essentially to get rid of your stocks and sell at a lower point than the money that you put in. So, most investing is about the long run. It's about putting money in and not thinking about it and letting it sit and ride the waves of the stock market for a long time. We're talking many, many years.

So, with index funds, it's kind of like passive investing and then ideally passive money- making. If you're a normal person, you don't have the time and knowledge to try to beat the market. This is a very hands-off approach and a way to generate these returns over time. So, going back to our guy Warren Buffett, in 2008, he actually made a $1 million bet with hedge fund managers that a simple S&P500 index fund would outperform a hand-picked basket of hedge funds. And lo and behold, 10 years later, he was right. So, again, a few things to keep in mind with this and with starting to invest is that investing is not about getting rich quick or making a fast dollar.

It's about the long run and it's about setting your future self up for success and putting money in and letting it ride the waves of the stock market because if you're checking every day, you might go a little crazy. In my case, I basically put all my money into index funds. I just set it and I forget it. And I'm not checking daily. Honestly, I maybe only check every like five or 6 months because otherwise I would probably go a little crazy cuz there are times where it dips and you're like, "Holy I'm losing all this money." But again, if I check back in 6 months, chances are it's probably risen back and has eventually made me more money.

And obviously, this is not me telling you what to do with your money or giving you specific financial advice. I'm just telling you what is approach that I've seen many people do. You need to always do your own research and make a well-informed decision for yourself. Okay, so this all sounds great. When should I start? You may be asking. Great question. So, the best time to start investing was yesterday because the longer you're in the stock market, the more chance you have for your stocks to grow through compounding interest, which Albert Einstein actually called the eighth wonder of the world.

It's never going to feel like the right time to invest cuz you know, it's fun to spend your money and not have to save and invest it, but this is you looking out for future you. I am so glad Paselena saved money and put in the time to invest in her future. And now I'm starting to reap some of the benefits and I will for decades to come. But of course with investing, only invest what you can afford to lose and you're not going to need for several years because the chance of getting those positive returns improves the longer you give your investments time to grow.

So only put in money that you are really saving for the future 3 5 10 20 years. So, even though index funds have always netted about 8 to 10%, investing, of course, always carries risks. And with that being said, there actually are a few steps you should do before investing. The first is to have an emergency savings fund, this is so important. You don't know what life is going to throw your way. And it is super important to have around 3 to 6 months of your salary saved up and tucked away in a safe place because you never know.

You could get sick, you could lose your job, your plumbing could break. You need to have money to be able to address these things and you don't want it tied up in investments in case you need it immediately. The second being pay off your high interest rate debt. Certain credit cards interest rates can be around 15 to 30% which is crazy. So if you're not paying off that high interest rate debt, it doesn't matter if you're making 10% returns in the stock market because you're acrewing all that back in high interest rate debt.

It would basically be canceling out any gains you have. So address that first. Okay. And something worth mentioning is to check if you have a 401k through your job. This doesn't apply to everyone, but this is basically an employer sponsored retirement account that is tax advantaged. It's a super easy place to start investing and there's a really good chance you have an employer match, which means your employer might match your investments up to a certain percentage, which is basically free money, which we love. So then you want to look into different investment accounts that you can open on your own.

Okay, so now you're ready to invest. So, let's talk about how you actually do it. You can't exactly just open up Google and click on the little shopping toggle and type in index fund. So, what you basically need is a middleman. You need a broker by opening up a brokerage account. And there are a lot of super popular ones out there like Vanguard, Fidelity, Charles Schwab, etc. They all kind of are similar across the board as long as you're choosing one of the big ones. And I personally have been using Vanguard for many, many years.

So going back to our earlier analogy of the bouquets, this is essentially like the shopping cart that's going to hold all your bouquets and flowers aka your index funds and your stocks etc. And within this there are different types. There are retirement tax advantage accounts and there's your regular taxable brokerage account. So the benefits of investing within a retirement account are they have some really great tax advantages. So there's something called a Roth IRA you may have heard of which you can invest up to $6,500 a year and it's actually capped because the tax advantages are honestly so good.

So what happens is that you are paying taxes on the upfront when your money is going into this retirement account and then when you take out the money which you can take out at 59 and a half it's taxree. So all the money that's grown within that retirement account over time isn't taxed when you take it out. The downside is that you're essentially agreeing to lock up this money until retirement age. There are some cases where you can take it out but you usually have to pay a penalty fee. Generally, this is one of the best places a lot of people recommend to start investing, especially cuz it caps out 6,500.

But the other options, you can just have a classic brokerage account and pick your investments within there. Either way, these are like shopping carts, so you still have to once you open up the account, pick which different index funds you want to purchase. There's popular ones like VU, which is an ETF that tracks S&P 500, or like VT SAX, which tracks the USRP total stock market index. But these are just some of the popular ones that track some of the most well-known index funds and have low expense ratios. Okay, now's the fun part.

Let's actually do this together. I've got my phone here and we are going to purchase some index funds right here right now. I'm going to take you step by step. So, I've got Vanguard up in my phone. I have my account open. You just need to go ahead and open account. Once you have an account open, you're going to want to buy some index funds. But the first thing you usually need to do is deposit money into your account. And I already have $96 here, but let's put in a little bit more into my brokerage account here.

And let's transfer $1,000. We're going big. go big or go home. So, we're going to click on buy ETF in stocks. Then, you're going to want to click on which account. And like I said, I'm going to use my brokerage account. There's the Roth IRA there, which you can do as well. And there's my $1,096 I have available. I'm personally going to be investing in VU today with the money I got. And so, what those three letters are are basically a ticker symbol that stands for the different ETF we're investing in.

So, here you go. You can see the Vanguard S&P 500 index fund. Going to click on that. So, you can either invest through shares or dollars. And it also calculates dollars to shares. So, VU currently costs $429, which basically if I want to invest $1,000, it's going to be two shares. But I can just do it like this. And then we'll calculate two. Okay. So, we're going to buy two shares. Order type, market, limit, stop. So, there's different order types. It just basically changes the time that you're buying the share at.

And market just means you're buying it immediately. So, we're going to do market. Because I'm doing two shares, it actually is about $861. Preview order. Pre-order. Submit order. And there you go. I just invested. If you did it with me, now you're an investor. Good luck. One last thought before this video gets too too long is that let's say you have $10,000 you want to invest. Should you just dump it all in all at once into one index fund? No. Actually, there's something called dollar cost averaging, which essentially means systematically investing equal funds into a certain investment regardless of the price of that fund.

Instead of doing $10,000 out once, maybe I'm doing $2,000 every month. And depending on when you're investing, maybe that share or fund is a little bit higher or a little bit lower. By doing it systematically and spread out, it kind of helps even out those highs and lows. So again, the best time to start investing was yesterday. Set it and forget it. Think about the long term and try not to get too tied up in the roller coaster of the stock market. What matters for me is that in the long term, the stock market has always gone up and I'm doing this for my future self.

So you're welcome, future Elena. I've got you covered. So, I hope this was helpful and has inspired you to start your own investing journey. It's really not that hard and having financial knowledge and with that financial peace and independence is one of the biggest gifts you could give to yourself. And I'm so happy you took this first step to learn about investing and hopefully you'll learn to invest in your future and invest in yourself. If you like this video, it would mean a lot if you gave it a like and hit subscribe.

It really helps out my channel. And with that, I'll see you guys next time.