C’mon you know me, have I ever lied to you? This is the home-run, slam-dunk, open bar, venti-almond-milk-light-ice-matcha-green tea latte of stocks! I’m only telling my closest friends because if this gets out, everyone will jump on the bandwagon. Don’t you wish you would have been the one to draft Tom Brady in the 6th round? This is your chance to get that one in a million! So, what will it be - blue pill or red pill?
In a previous article, we touched on the basics of investing: risk tolerance and investment instruments – stocks, bonds, and investment funds. I’m sure you were hyper-diligent, so I’m not going to waste your time going over what these...oh you weren’t? Yes, I know Tik-Tok is having problems. No, I don’t think that means you had to stop reading the article halfway through to absorb as much of this ‘fake Vine’ before it goes away. Yes, I guess that is a funny voice-over for that puppy. Haha, okay I’ll watch the Garth Maul or Darth Brooks one too. While I’m doing this, here’s a recap:
Risk Tolerance - Your willingness to accept losses or gains based on your investment objectives and budget. Only invest money you are willing to lose.
Stocks - Piece of ownership in a company. Volatile. Better for people looking for more risk and possibility of a higher return.
Bonds - Loans to large companies or institutions. Stable because they are backed by the same large groups. Earns more than letting money sit in your checking account.
Investment Funds - Strategically structured groups of stocks, bonds, and other types of investments designed by be the best of both worlds - safe and profitable.
With that out of the way, what next step would you take if you really did want to invest in this poor salesperson‘s panacea to all of your problems? The old answer would be a ‘stock brokerage’ where you have a minimum amount you need to invest and would often pay a transaction fee on every order of stock you placed. In recent years that answer may have shifted. Let’s dive further into what’s the best way to buy a stock and if you only have a small budget to work from, how do you make the most of it?
The Disappearing Deposit Act
Banks make their money through the amount you deposit with them. Say you have $5,000 in your checking account. Most people assume the bank has your $5,000 in nicely wrapped stacks of cash sitting in a dragon-guarded vault waiting for you to buy your next Chipotle burrito. In reality, the second you deposit your money the bank, they are using it to invest in stocks, bonds, and other types of investments. Most commonly, they are able to do this as they have in-house brokerages that are staffed with certified individuals with the ability to use this money to ’broker’ investments between buyers and sellers. Other smaller banks typically go through large private brokerages like Fidelity, Charles Schwab, or TD Ameritrade which charge the bank annual fees or for each transaction. Wealthy individuals can also open accounts with these private brokerages which typically have fund minimums to make sure that the brokerage can operate using their standard investment strategies which may involve trading more expensive stocks, or for the fact that they want a more financially sound client base. Where do you, or the typical Adulting community contributor, fit in? Our demographic could go with one these private brokerages that your parents swear by, or we can be creative and explore some of the new alternatives that have developed over the past few years. By avoiding excessive fees or lofty barriers to invest like a minimum fund amount we can invest our money at an earlier age than any generation before us! ...*Robinhood has entered the chat*
Steal From the Rich and Give to Your Pocket
Three types of trading platforms have exploded over the past few years because they are easier to understand and are more conducive towards the smaller amount that 20-30 year olds are able to put in the market - Mobile, Micro, and Fee-Free.
Many large brokerages have stumbled into the modern age and have developed intuitive online trading platforms - such as Vanguard, Charles Schwab, or E-trade (think of those old talking baby commercials). Others that were born in this era such as Robinhood and Stash are masters of it. The relatively immediate success of these trading platforms forced the hands of older brokerages to do the same. If you are looking to manage your money on the go and get up-to-date information, any of these or the platforms mentioned later in this article would be solid choices.
Micro or fractional platforms such as Stash or Acorns are ways to invest smaller amounts of money - pennies even - but still manage to follow trends of large stocks like Amazon or Tesla which typicaly require over $1,000 just to purchase a single share. Acorns for example pairs with your credit card and rounds up any transaction, investing that money in a series of managed stocks that you choose. Acorns does charges a monthly fee of $1-3 per month, but that pales in comparison to the typical minimum of around $75-100 per year of other firms.
Robinhood, SoFi Invest, and M1 Finance are the first large-scale, online, fee-free trading platforms. Some other platforms like E-Trade and Charles Schwarb offer 60-days of free trading and afterwards have fairly standard fees. Outwardly, it’s as simple as do your research, connect to your bank, and start trading. Behind the scenes is a complex network of trades that we will elaborate on at a different time. For someone’s typical long term investment needs, Robinhood and M1 are viable and easy-to-use. They also allow you to trade more than just stocks, and have stock/bond ETFs, cryptocurrencies, and more complex trading tools called options. As a rule of thumb, although these platforms offer more complex alternatives to buying solely stocks, I would avoid purchasing anything you don’t understand upfront.
You Can’t Trade All Day if You Don’t Start in the Morning
Overall, there are many modern platforms that have tried to make trading less of nightmare, and more of a hobby: Robinhood, Interactive Brokers, SoFi Invest, Stash, Acorns, or M1 Finance. Unfortunately, the availability of these convenient apps have caused an increase in more risky trading patterns. Day trading - the act of buying and selling the same stock in the same day, or maybe even the same minute - has become more common and given the perception that buying and selling stocks is similar to gambling. Although this method can be profitable for experts, it puts a lot of your money at risk. It is important to always remember your risk tolerance and what amount of money you are comfortable losing, as you explore these different easy-to-use, mobile investment methods.
Investment Legal Disclaimer
None of the information on this website should be viewed as financial advice or recommendations. If you are lacking confidence in your ability to start investing, I suggest you speak with a state Registered Investment Advisor (RIA) to help you determine what your investment goals may be and how to reach them.
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