One-year plan to take you from investing for beginners to expert investor
Whether you’re a beginner investor or just want to make sure your strategy is right for your goals, I’ve got a 12-month plan for everything you need to invest.
In this video, I’ll show you six investments to add to your portfolio and exactly how much to deposit each month to reach your goals.
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Stock Market for Beginners' Videos
Nation, last Wednesday’s video starting our 12-month investing plan instantly became one of the most popular on the channel and we’re bringing it home with today’s video. Even if you haven’t seen the first part of our start investing plan yet, watch this one because it’s going to give you six more must-see investments and get you to that $1,000 portfolio.
This is all coming from that poll we did a few months back, revealing that one-in-five people in the community haven’t started investing yet and half have been investing for less than a year. I know personally how intimidating it can be to start investing, putting your money to work. I started in 1999, from my first duty station in the Marine Corps and I had no idea what I was doing!
Now with the internet, it’s almost like there is too much information so I’m putting this two video series together to show you exactly how to start investing. 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.
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 over 40 years.
How to Start Investing with Little Money
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.
As I did in that first video, I’m linking to videos below each section that will give you more detail on the topics we cover in our 12-month plan. Just click through each one when you’re ready for a complete course on how to invest in stocks.
Why Every Investor Needs Foreign Stocks
Investing into the second half of the year, we’re going to be looking at an investment that is too often neglected by investors, owning shares of foreign companies.
Now the old school thought on this was that you needed shares of companies based internationally to get that faster growth in emerging markets and just separate your wealth a little from depending on the U.S. economy.
That’s still important and you don’t get that just from investing in big U.S. companies with sales overseas. But there’s another reason you absolutely cannot avoid stocks of foreign companies and it could mean the difference between a portfolio that goes nowhere and one that jumps ahead over the next few decades.
As we speak, the U.S. dollar is being replaced as the reserve currency around the world. This chart shows the dollar share of global currency held in reserves, basically the safe money held by foreign governments. And other than a bump in strength around 2013, you can follow that line all the way down from 72% in 2000 to just under 62% today.
We don’t have to get deep into the economics of all this to see what’s going to happen. Those U.S. dollar reserves held by other countries, it’s not actually in hard cash but held in U.S. Treasury debt. Essentially, the fact that the dollar is the most stable and trusted currency in the world means foreign governments have been bankrolling massive U.S. borrowing for decades.
As this unwinds, as foreign governments put more of their reserves in gold and other currencies like the Chinese Yuan, we are going to see less demand for U.S. Treasuries. That’s going to push interest rates higher here in the United States, it’s going to mean less negotiating power in trade deals, it’s going to be a major economic revolution on a global stage.
As you see all this play out, not only will we see those higher interest rates that will limit U.S. economic growth but we’ll also see a weaker dollar against other currencies. That’s going to make those shares of foreign companies more valuable and just amplify the returns on that part of your portfolio.
Getting those international stocks is really easy and you can do this two different ways. One is to buy shares of individual companies that trade on the U.S. exchanges, so you’ve got companies like Alibaba, ticker BABA, which is like the Chinese Amazon or you’ve got Finland-based Nokia, ticker NOK.
If you don’t want to pick individual stocks, you can also buy funds that hold international stocks like the iShares China Large-Cap ETF, ticker FXI, or the Vanguard Total International Stock ETF, ticker VXUS, which holds shares of companies in every region.
How to Start Investing in Healthcare
A couple more months of depositing $90 here in August and this month, I want you to look at healthcare stocks.
Now after you get through this first year of investing, you can set your monthly deposits at whatever you can afford. Remember, we set those first deposits low at $50 just to ease you into saving and investing. Really, anything over about $80 a month will get you to that $1,000 portfolio every year.
If you can save more and not have to skimp every penny then by all means save as much as you can but you need a balance between saving for tomorrow and living for today. That’s really what I’m trying to do here with this simple 12-month plan, show you how to find an amount where you can save for the future without sacrificing your today.
Healthcare is becoming a larger piece of the economy and you need healthcare stocks not just as a part of your investing plan but also as insurance against the rising cost of your own healthcare.
Those healthcare costs are ballooning far above the rate of inflation on other prices. Politicians talk a good game about lowering drug costs and other healthcare costs but look at their record, have they really done anything to bring down that trend to higher prices?
The single best way to fight against that rise in healthcare costs is to own a piece of the profits! Own the companies that are collecting those higher healthcare costs!
Now this year there are going to be lots of headline risks around the election. Candidates on both sides are going to be talking up some ambitious plans for reigning in healthcare costs and it could hit shares on those headlines.
Again, look at the track record on both sides. Regulatory change has never been as bad as expected and I would be a big buyer on any dips in healthcare.
How to Start Investing Like Warren Buffett
In September we look at Warren Buffett’s favorite stock sector, bank stocks and other financial companies.
To understand why bank stocks could be good investments this year, you have to know a little about how they make money. Banks borrow from their depositors. Every time you deposit money into a savings or checking account, you’re actually loaning the bank money and getting paid an interest. The banks take this and loan it out for longer-term mortgages and other loans.
So if you look at the yield curve, that’s a graph of the current interest rates on loans of different time lengths, you see that this setup is usually very profitable for banks. Pay depositors maybe a percent annual rate and collect five or six percent from mortgage borrowers.
Now around the middle of last year, that yield curve actually inverted where rates on short-term loans of two years were higher than rates charged on 10-year loans.
Not only was this a bad signal for the economy but banks obviously can’t make money if there’s no difference between the rates they pay and what they collect.
And you saw the effect on the SPDR S&P Regional Banking ETF, ticker KRE, through much of last year. Bank stocks bounced around between highs on a fairly good economy to those worries on profitability and rates and pretty much went nowhere until the yield curve steepened again with higher long-term rates in October.
Now it looks like longer-term rates have recovered for good and the consensus is for further steepening in that yield curve through 2020. The Fed is probably not going to be cutting or raising rates and inflation looks to be picking up only slightly. The economy is doing ok and this should all mean that those long-term rates continue to tick up a little higher which should mean better profits for the banks.
When to Start Investing in Growth Stocks
October is our first month of depositing $95 and we’re putting it to work in some exciting stocks here, those of the fastest growing companies.
We talked about finding stocks in the January part of our plan in that first video and this is really the other side of that coin. Growth stocks are companies with faster sales and earnings growth, often the stock price is rising much faster than the market and the shares are relatively more expensive.
That’s a problem for a lot of investors, those higher price-to-earnings ratios. The example we used for value stocks was Netflix which trades for a price of over 100-times the earnings it makes versus Disney which trades for just 25-times its profits.
But a look at the stock chart for Netflix and Disney and it becomes painfully clear to the value investor that growth stocks need to be a part of your portfolio. Even though Netflix constantly trades at that ridiculous PE ratio, it’s managed to keep up that faster growth and the shares have surged almost six-fold over the last five years.
And towards the end of October is the perfect time to start thinking about these growth stocks because we’re heading into what are typically the best months for investors. Remember that chart of average monthly stock returns and we see that November through January are three of the best months.
So investors are coming back to stocks, the stock market is rising and that’s going to be a positive catalyst for these growth names. A lot of the returns on growth stocks are because of market sentiment, how optimistic are investors, how willing are they to pay these huge premiums like 100-times earnings for a stock? When you get that rising market sentiment like you generally see in November through January, that’s always going to be a good time to invest in growth stocks.
Using the Core-Satellite Strategy in Your Plan
For the November plan, I want to move to talking a little more about strategy and making investing easy with funds and the core-satellite approach.
Those of you in the nation have heard me talk about the core-satellite strategy before, it’s the strategy I use and it’s perfect for the investor that wants a little higher return but doesn’t have all day to analyze stocks.
The core-satellite strategy is where you put 60% to 75% of your money into broad funds or ETFs. We’re talking about funds that cover the asset classes like stocks, bonds and real estate. Maybe you invest in a fund of dividend stocks or one with international companies.
These funds are going to give you those market returns, diversify your portfolio for a smoother ride.
Then you take the rest, that 25% or so of your money, and invest in a small handful of individual stocks, maybe 7 to 12 stocks. By limiting your portfolio to less than a dozen stocks, you solve a lot of the problems that lose investors’ money.
You’re not constantly looking for new stock picks. That’s going to save you hours plus mean you’ll only be investing in the very best stocks you find. It makes it much more practical to keep up with your stocks, keeping up with the research and where the company is going. That’s something you can’t do if you’re investing in 20 or 30 companies.
Now how this fits with our larger 12-month plan is you can invest in a fund, an ETF, that covers some of the themes we’ve talked about like healthcare stocks, tech or growth stocks. Then you go through those themes and pick out maybe one or two individual stocks you really like. Maybe you pick one healthcare stock you really like or maybe one or two tech stocks at the most.
This is going to give you that diversified portfolio covering all the pieces of the economy so you get market returns but also the opportunity for higher returns on those individual stocks.
Should You Start Investing at the End of the Year?
I know a lot of you are hesitant or against investing in the sector but I want you to look at stocks of energy companies in December.
The energy stocks video was THE single most controversial video in our stock sectors series. I heard from a lot of you in the nation that either didn’t want to invest in the sector or felt that its days were numbered with the rise of electric vehicles.
I still think this is a sector you need to have in your portfolio. Energy is the only sector in 11 to trade below it’s long-term PE multiple, the only sector to trade at a discount when the rest of the market is 20- and 30-percent more expensive against that long-term average. The stocks in the group pay some of the best dividend yields, some upwards of seven- to ten-percent.
Global oil demand grew by over two million barrels a day over the last two years, that’s just the growth in demand. Globally, more than 100 million barrels of crude and these other energy products are used every single day.
Maybe someday we’ll all be driving around in our little electric buggies but it’s not going to be in the next five years. Even as that shift develops, demand growth of a million barrels a day doesn’t stop overnight. Do not avoid shares of energy stocks on the idea that alternative fuels are going to push out demand.