How to Start Investing in 2020 [From 0 to $1,000 Fast]
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A complete one-year plan to start investing fast!
If you’re just starting investing, I’ve got a simple strategy you can use to grow your portfolio to a thousand dollars in one year.
In this video, I’ll give you a 12-month plan to start investing from how much to deposit each month to learning how to find the best investments.
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How Many People are Not Investing Yet?
Nation, we did a poll a few months back in the community tab on the channel and I was floored by the answers. I asked how long you’ve been investing in stocks because I wanted to get a feel for where everyone is at in terms of experience and what videos you need to be successful.
Over two hundred and fifty of the 1,400 to take that poll, about one-in-five said they hadn’t started investing yet and half of our growing community has been investing for a year or less.
I love touching base like that with everyone in the nation and this video is coming right out of those results! In this video, I’m going to take you from zero to a $1,000 portfolio, show you how to get started and give you everything you need to meet your financial dreams.
We’ll look at a month-by-month plan for different types of investments. I’ll show you how much to deposit to grow that portfolio but without having to skimp and save every penny.
By the time you’re done, at the end of the year, you’ll have a thousand dollar portfolio and just look at this graphic for what that can mean. If you never invested anything else, that $1,000 can grow to over twenty-times your money in 40 years.
But creating that habit of saving and investing like I’m going to show you how to do and it’s going to be so easy to keep adding a thousand a year. Do that and you’ll have over $280,000 for your retirement…turning less than $85 a month into almost $300,000!
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How Should You Invest?
Let’s get started because I’m excited to share this strategy and show what it can mean for everyone in the nation that wants to get started investing.
If you’re not investing yet and you’re worried about finding the money to get started, I put together a monthly plan for how much to invest. You see here, we’re starting low at just $50 in that first month. So maybe go out to eat one less time or whatever you need to do, I want you to make that commitment and get $50 into an investment account.
After that first month, we’re going to increase it very gradually so you’re not stretching to pay the bills or enjoy your money. We’re slowly creating that habit of finding a little more to invest up until we get to just under a hundred dollars a month.
That’s all you need to grow your portfolio to a thousand dollars in one year. In fact, you only need to invest about an average of $80 a month and compound interest is going to take care of the rest.
We’re starting slower here because I want you to get into the habit of investing and not skimping to find the money. That’s one of the biggest problems, especially for new investors is that they get so excited to start investing that they dump every spare penny into their account.
What happens though is that an unexpected bill comes up or they forgot to budget for a vacation or something and they end up having to take money out of their investments.
I don’t want you to do that! I want you to start small, work up to what you can invest and keep your money growing for you!
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One-Year Plan to Start Investing
Now I want to give you a month-by-month plan for investing your money. And I think I might actually make this two videos because it’s going to be a lot to cover.
We’ll walk through each month, adding a new investment. I’ll show you why each should be in your portfolio, how to find the best investments and where to look. I’ll also be including links to videos covering each investment so you can learn more about each topic.
Investing in Value Stocks
So January is a pretty easy month, just depositing $50 but this is a huge opportunity, not just in what we’re going to be looking at for investments but in getting you started investing.
One of the most well-known market trends, the January Effect, is where the market and especially a lot of the lagging stocks from the previous year tend to rise during the month.
Besides just the optimism for a new year, new investors coming into the market, all these factors pushing stocks higher, a lot of investors look for those last-year’s losers to play the turnaround theme.
So while you’re looking for the first stocks to put in your portfolio in January, I’d recommend looking for value stocks. That’s shares of companies that are trading below their fair value, maybe the return lagged the market last year for some reason.
For that, we’re going to look for stocks that meet three criteria; first is for a valuation metric like the price-to-earnings or price-to-sales that’s lower than competitors. We also want to find stocks with sales that are increasing over the last couple of years and a lower debt-to-equity ratio than peers.
With these criteria, you’re not only finding stocks that trade more cheaply than others but that have a solid business trajectory. A lot of value stocks are cheap for a reason like sales or earnings are on a downward slide. By screening for companies with improving sales and a lower debt-to-equity ratio, which means they’ll have more financial flexibility than peers, then you’re going to find those value stocks with rebound potential!
Watch this video to learn more about finding value stocks.
I do also want to note though that you want to be using a commission-free investing site if you’re using the plan. You’re going to be buying stocks each month and with smaller amounts so you don’t want any of that going to fees.
I’d recommend M1 Finance, one of the platforms I use, not only for that commission-free investing but also for the easy portfolio investing tool. Basically with M1, you can put all the stocks you want to buy in your portfolio, then turn on this auto-invest tool and the site is going to automatically spread any new deposits across all your investments.
Put your investments on auto-pilot and never pay a fee to buy or sell stocks with M1 Finance – learn more here.
Start Investing in Dividend Stocks
For February, you’re going to take that $55 and start adding some dividend stocks.
Now everyone out there in the nation knows I’m a huge fan of dividends. We set up our 2019 Stock Market Challenge with ten dividend stocks and ended up beating the market with almost a 30% return on the year.
Dividend stocks just beat the market. From being able to reinvest that cash flow to a return that’s always positive no matter where prices go, you have got to have dividend stocks in your portfolio.
One of the strategies I talk about is investing in what’s called the Dividend Aristocrats. These are companies in the S&P 500, so the largest companies in the United States, that have increased their dividend payout for at least 25 consecutive years.
This is the easiest way to invest in dividends and a pretty darn good strategy. You don’t have to look through company financial statements, there’s no analysis to do. You know these are solid companies on that spectacular ability to increase the cash they pay to shareholders every single year!
And the easiest way to invest in the Aristocrats is through the ProShares S&P 500 Dividend Aristocrats Fund, ticker NOBL. Right now it’s got shares of 57 companies that meet that dividend criteria, spread across different sectors of the economy and some solid companies like Target, AT&T and Procter & Gamble.
Watch this video for my three favorite dividend investing strategies!
How to Start Investing in Real Estate Stocks
In March, we increase the deposit again to $65 and start looking at another investment favorite of mine, real estate.
There is just something about owning a real piece of land, a physical building that produces cash flow every month! No other asset has produced as much legacy wealth.
But that direct ownership isn’t for everyone. You’re constantly managing properties and it can cost tens of thousands just for a down payment.
So we’re going to be looking at the next best thing, maybe even a better way to invest in real estate, through real estate investment trusts.
A REIT is a special type of company that owns real estate and gets a tax break for passing the majority of profits on to investors.
So REITs are not only a super-efficient way of managing property because you don’t get that corporate tax drag but it’s also an easy way for regular investors to diversify their portfolio. Whether you’ve got residential rental properties or are saving up for that first investment, REITs give you the opportunity to invest in different property types and in every region of the U.S.
And if you want to talk returns, even through the worst real estate crash in U.S. history, REITs have way outperformed stocks. Here I took data from the National Association of REITs equity REIT index, the blue line, versus the S&P 500 index in red. Over 30 years to 2017, the total return on REITs is 10% a year versus a return just over 7% annualized for stocks.
For this real estate portion of your portfolio, you can buy individual REITs or just go with the Vanguard REIT fund, ticker VNQ, which holds shares of 184 individual REITs in different property types and has produced a 13% annual return over the last decade.
If you’re going to invest in individual REITs, make sure you get at least two or three companies specializing in different property types, so maybe you look for a company that holds office property, one in the hotel & leisure space and maybe one in healthcare properties. This will give you some diversification and smooth out those real estate returns.
A new way I've been investing in real estate recently is through Fundrise, a real estate crowdfunding platform. The platform holds properties in different portfolios designed for cash flow, capital appreciation or a mix and then let's investors buy shares in the funds.
Fundrise is a new type of real estate investing, a portfolio of cash-flow properties managed by professionals for stress-free investing. The platform is offering new investors a 90-day risk-free trial. Try it out and if you're not totally satisfied, you get your entire investment refunded!
Learn more and try Fundrise for 90-days risk-free!
How to Start Investing in Tech Stocks
April we bump the deposit up to $80 and look another popular segment of the market, tech stocks.
By now, you’ve got a few months saving and investing in and the idea is that you can increase your deposit without having to skimp. By gradually increasing the amount you deposit each month, I want you to find where you’re comfortable at, how much you can save without sacrificing too much.
And what better time to increase your deposit that a month looking at tech stocks? The tech group is an investor favorite and for pretty damn good reason. Tech stocks, shown here by the Select Sector Fund, ticker XLK in green, have easily beaten the rest of the market over the past decade. Tech stocks have produced an annual return of 15% over the ten years versus that 10% annual return on the S&P 500 market index.
Now those returns and the kind of growth you see in tech companies can mean some very expensive stocks. For example, as I research for this video, shares of Netflix trade for a price of 100-times the company’s profits over the last year. That’s four-times as expensive as shares of Disney trading for 25-times earnings.
So when I look for tech stocks, I like to look for what’s called Growth at a Reasonable Price or GARP for short. Here instead of just looking at the price-to-earnings ratio which is that measure of how expensive a stock is, I would look at the price-to-earnings-to-growth or the PEG ratio. This takes that price-to-earnings ratio and divides by the earnings growth rate to get an idea of how much investors are paying for that faster growth.
There are other things you want to consider when picking tech stocks like a competitive advantage through patent-protected assets but this one screen, investing in stocks with a low PEG ratio, has been shown in a study by Morgan Stanley to outperform the S&P 500.
Watch this video to see the five best tech stocks to buy this year!
How to Start Investing in Bonds
You keep your same $80 deposit level in May and start two months of looking to invest in safety stocks and bonds for your portfolio.
The reason safety stocks are important is because May tends to be the start of the negative summer season for stocks. On stock market data from 1950 to 2012, the only four months to average negative returns for investors are between May through September.
In fact, there’s even a maxim, sell in May and go away. Some investors and traders will sell much of their stock portfolio in May and just not worry about it during the summer.
Now I’m actually not suggesting you sell out of your stocks in May but I do think you need to shift to the kinds of stocks that will protect your money if the stock market wobbles during those summer months.
I’ll detail those safety stocks in the June plan below but now I want to add a few bond funds to the portfolio.
Bonds are debt borrowed by companies with the interest paid twice a year and then the entire loan paid at the end of the investment, usually from five to 30 years. Because they’re a debt, bond investors get paid before stock investors so these are the ultimate in safety and can provide some good cash flow as well.
Now instead of trying to pick individual company bonds which can cost in fees and trading, we’re going to take a simpler approach and just look to invest in bond funds. These hold hundreds and even thousands of individual bonds, passing the interest on to investors, but trade just like stocks.
For example, a good option is the Vanguard Long-term Bond Index ETF, ticker BLV. This fund holds over 2,300 individual bonds, mostly in U.S. government Treasuries but also in highly-rated companies. The fund pays a 3.3% dividend yield and has returns almost 7.5% a year since 2007.
Other good bond funds include the iShares Core U.S. Aggregate, ticker AGG, and the Vanguard Total Bond Fund, ticker BND, but really here, you probably only need one maybe two bond funds at the most.
Watch this video for the three steps to easy bond investing!
Investing in Safety Stocks
In June, you’ll deposit another $85 into your account and stick with that theme of safety.
Here we’re looking at the stock sectors that do well even when the rest of the market wobbles. For example, when the rest of the market fell 50% to March 2009, stocks in the consumer staples sector, shown here by the Select Sector SPDR Fund, ticker XLP, in green, they only fell 24% over the same period.
The stocks in these safety sectors of the economy like consumer staples and utilities, they provide that protection because their sales aren’t going to rise and fall as much in a recession. People need food and electricity whether the economy is doing well or not so these companies can do well in any market.
Just like a lot of the stocks and themes in the video, you can invest broadly in safety stocks with a fund like that Consumer Staples ETF, ticker XLP, or the Utilities Fund, the XLU. Or you can pick individual companies in these sectors.
If you’re picking individual stocks, make sure you’re comparing things like price-to-earnings and dividends against similar companies to get that fair measurement. You’re not comparing these measures or ratios for utility companies against tech stocks because the business models are different. Always make sure you’re comparing similar companies when deciding which stock to buy.
Check out this video for the top utility stocks for safety and dividends!
Remember to watch for part two of the video for the July through December plan. I'll publish it immediately after this video next Friday.
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