Wednesday, June 17 –
I started microinvesting when I was 19, which is 1 year later than I ought to have gotten started, as far as I’m concerned. At the time, I was in my second year of college literally reading a Penny Hoarders article to get more tips on how to be a cheaper cheapskate when I saw that one of the items in the listicle was “STASH: INVEST WITH JUST 5$.” If I signed up via the referral link, I would get $5 of free money! Lured in just because of the free money, I created a Stash account, and dumped $30 + my free $5 into the S&P500 index fund (which was all the extra money I had that month, thanks to my roommates who were of a similar mindset and were willing to sacrifice heat in the Illinois winter to save on utility payments. Don’t worry, we turned on the heat for guests.) I was so excited when I made 0.30 cents on it within a couple days- I had earned 1% profit!
VOCABULARY BREAKDOWN | INVESTING 101
Micro investing– buying fractions of shares. It is a myth that in order to invest, you must be rich. Micro investing is a great way to get started for someone new to investing, and there are several platforms that offer this option, such as through Acorns and Stash. Though I’ve never tried Acorns, I found Stash to be very sticky because of its attractive interface and 3-min read educational articles, which were exceedingly helpful for the complete novice I was at the time. However, both come with $1 per month management fees. For a comparison of these two platforms, see this NerdWallet article. If you do decide to sign up for STASH, and use my referral link: you and I will both receive a $20 credit for Stashing. That’s a free $20! This is ideal for beginners who want to spend 1 year or so using STASH for educational purposes and then closing their account (you won’t even lose anything!). More experienced people might consider these other platforms.
Index funds– a way to invest in many stocks at once without having to invest in each stock individually. The performance of this package of stocks approximates an “index.” For example, the S&P500 tracks the U.S. 500 largest companies from all sectors of the economy, and is thought to be a good indicator of the overall stock market performance. Another popular index is the NASDAQ, which includes upwards of 3,300 stocks. However, as most of these are in the technology sector, the NASDAQ more accurately reflects what’s happening in the tech sphere. The Dow Jones Industrial Average, which tracks the 30 of the largest companies across major economic sectors, including household names like McDonald’s and Walt Disney. For more reading, see this article by the Fool.
Exchange Traded Funds (ETFs)- similar to an index fund, the ETF is a bundle of stocks. One example would be the AI Powered Equity ETF, which is a bundle of stocks predicted by IBM’s Watson artificial intelligence system which predicts the stocks which have good long-term growth value. The differences between index funds and ETFs lie in trading times and minimum investment, which typically is not a concern for brokerage accounts offering fractional shares. For more reading about the differences between the two, see this NerdWallet article.
At the time I graduated university, I had Stashed a little more than $1000. I worked through all summers and during parts of the school year and would “save” any extra money not used to maintain my cost-of-living in my brokerage account (that’s not a good idea!) I am very thankful to my father, who took on the financial burden of my tuition. I started working almost immediately after I finished my degree, and it was then that I took the concept of savings more seriously; I built up a 3 month emergency fund in case I would need it in graduate school. I stored this emergency fund in a Discover account with around a 2.00% APY at the time, which was my savings account. I think living so frugally in undergrad (some of my older, cringier writing back when I was on Quora details exactly how I spent $10-15 on food per week) was a really good exercise, because to me, I feel like I’m living luxuriously on my graduate student stipend despite renting in LA and increasing my standard of living- I now spend between $30-50 a week on food! This was the case even before I started splitting rent with my sigfig, who finished his degree a little later than I did.
To give further context on my investing journey, I was able to save almost $3000 from my graduate student stipend between September and March, when we entered a bear market – a prolonged downturn in the market caused by widespread investor panic, as opposed to a bull market. I saw this as a gigantic buy opportunity, despite my family telling me to wait for a steeper drop, and unceremoniously dumped the money I saved into index funds and ETFs. I also filed my 2019 taxes, and later received a significant tax return given my student status, explained in an earlier blog post. Additionally, the Federal Reserve slashed interest rates, which actually motivated me to keep less money in my savings account and invest more. About a week and a half ago, I suspected another market downturn incoming (news of a second wave of COVID-19 began permeating the news) and opened a Robinhood account where I dropped in my unexpected tax return money. Robinhood comes with no management fees, but purchasing fractional shares is not yet an option. A added virtue of Robinhood is that you can easily keep up with the latest news on the stocks you’re tracking. You can also make “limit orders” – where you buy the share only once the price reaches a limit you set. This is actually really helpful for understanding how other investors might react. If you would like to create a Robinhood brokerage account, and use my referral link , we will both get a free stock.
I am now sitting at around a 20-25% profit on my baby, 2 year-old Stash Invest portfolio and 2% profit on my newly created Robinhood account, though only time will tell whether I retain these profits. To recap, here are some aspects of my personal finance strategy, some of which you do not usually read about in novice investing articles.
MY PERSONAL FINANCE STRATEGY
1. Microinvesting was how I got started – there was and is no way I can afford a $980 share of Tesla, but I can purchase a $20 worth of a fraction of a share of Tesla. However, microinvesting will yield micro-returns, which is why (now that I have the money) I am
2. Any time I had “extra” money- I put it into my brokerage account. I built up a 3-4 months’ worth of living expenses in my savings account just in case, but when interest rates dropped I reduced this to 2-3 months’ worth of savings so I could invest more. I will probably build this back up to 3-4 months. I keep close to the bare minimum in my checking account, which doesn’t receive any interest.
3. You need to hold your investments for at least 1 year without selling for it to be considered a long-term investment, which has significantly lower tax rates than a short-term investment.
4. Often, investing is about how you think other investors will react to news. After the successful SpaceX launch, Tesla stock went up 8% due to the positive association between Elon Musk and SpaceX. Fears generated news of a second wave of coronavirus sent stocks plummeting on June 11. Amazon AWS announced that it was partnering with SLACK, which increased SLACK stock prices. Usually, the volatility of the stock market is of interest for day traders and less so for someone with a buy-and-hold, consistent investment strategy. However, if you’re looking for a good entry point- buy in when people are fearful.
5. Index funds and ETFs are a good way to diversify your portfolio, minimize risk, and focus on long-term growth.
6. Have brokerage accounts AND a savings account with a sufficient emergency fund.
7. My favorite educational resources were: Stash invest educational articles, NerdWallet, Investopedia, and Graham Stephan’s YouTube channel.
******Lastly, I just wanted to say I am by no means an expert and this post is meant to be purely educational and serve as a resource for other novice investors. I also recognize that my tremendous fortune to be able to seize this time as an investment opportunity, and have donated to the LA Mayor’s fund for families and small businesses affected by the ongoing crisis.