This Guide on How to Invest is Your Key to Investing Right
In a poll of new investors, over half reported making more than 25% on their investments in the last year and two in ten had made a 50% return or more. If your money isn’t working for you, you are LOSING money! In this video, I’ll give you a complete guide for how to invest your money along with the four best investments for new investors and reveal the three biggest mistakes that lose your money! We’re talking how to invest, today on Let’s Talk Money!
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Nation, Warren Buffett put it best with, “If you don’t find a way to make money while you sleep, you will work until you DIE!”
A little harsh maybe but the Oracle of Omaha is just trying a little tough love…though it’s hard to imagine this guy being tough on anyone.
But the truth is, there has never been a better time to start investing and making your money work for you. In that poll in our private Facebook group, more than 200 new investors, people just starting investing in the last year, shared their investment returns and I was blown away by the results.
More than 87%, nearly nine-in-ten new investors had made money. More though, the returns were extremely high. Three-in-ten had made between 25% to 50% on their money and almost two-in-ten investors had made a return of more than 50% or even doubled their money!
So in this video, I wanted to take us back to the basics. Make sure you have that core foundation to get started investing! We’ll start with the types of investments and average returns you can expect on each. Then I’ll drill down to show you how to start investing in stocks and share the best investments for beginners! Stick around because towards the end of the video, I’m also going to reveal the three biggest investing mistakes beginners make that LOSE MONEY!
The video is part of a four-part series in partnership with The Motley Fool to help you get started investing. I’ll be putting all four videos into a special playlist on the channel called ‘Ultimate Guide to Start Investing.’
As a bonus, I’m going to help get you started with a free report, The Top 5 Stocks in My Own Portfolio! These are the five biggest stock positions I’m holding, stocks to benefit from the biggest trends over the next decade.
It’s an exclusive report only available through the link I’ll leave in the video description. I won’t be sharing these in a video so click through and get your free report.
Now I know you want to get to the good stuff in how stocks work and the best investments for your portfolio but let’s set the stage first with the types of investments you can buy.
We’ll look at the returns on four asset classes and how to use each to invest your money. First, stocks are an ownership of a company and all the future cash flows the stock pays out. It’s higher risk because if there are no cash flows, you might not get a return at all but it’s also the single best investment you can make.
Bonds on the other hand are a loan to the company. The company sets a fixed interest rate and pays out that interest twice a year on the bond. At the end of the loan, the company pays back the money so you’re collecting that regular interest then get the value of that loan back at the end. It’s less risk than a stock because company’s have to repay their loans before stockholders get anything, but it’s also going to be less return.
Real estate is where I started my professional career and it’s not just spending all your money on infomercial get-rich schemes. Anyone can invest in property through real estate investment trusts, companies that own and operate real estate and pay out the cash flow to investors. These REITs trade just like stocks so it’s easy to buy or sell and get that exposure to property.
Last here before looking at investment returns is gold, those shiny little nuggets that have been giving people the fever for millennia. Gold is a store of value and a safety investment in times of uncertainty. It might not be a great source of returns but does have its years.
Here’s a chart of the returns for each investment type each year back to 1985 and actually it breaks some of these into groups within each like large-company and small-company stocks, U.S. bonds and international. And now just looking quickly at the chart doesn’t tell you any more than you get looking at a Jackson Pollock painting, but there’s actually a really important idea here.
Each of these investment types has had good years and bad. Stocks of large U.S. companies have averaged 8.7% annually over the last 35 years but have ranged from a gain of 34% to a loss of 37% in individual years. Stocks of companies in emerging markets plunged 52% in 2008 only to boom 71% the following year. REITs, those real estate companies, have produced a 7.3% annual return and U.S. bonds have averaged 4% over the years and gold has posted a 2.3% annual return.
So a good investing plan isn’t necessarily just going after the investment with the highest return one year or even the one with the highest long-term return. Stocks have produced that 8.7% annualized return but those big crashes send investors into a panic, selling at the worst possible time and locking in those losses. When we get to those best investments for beginners, I’ll show you how to use this for the motivation to keep investing and not freak out in a crash.
We’re going to shift now into how to invest in stocks here but I want to get your input on this, so let me know in the comments below if you want to hear about any of these other types of investments in future videos.
Before we get into the best investments for beginners and those three mistakes to avoid, I want to share some resources here for learning about stocks.
Books like The Intelligent Investor by Benjamin Graham and One Up on Wall Street by Peter Lynch are great places to start though I know a lot of investors, they want bite-size chunks to learning rather than reading an entire book.
Some of my favorite channels here on YouTube are also great resources to learn about investing including Stock Moe which is a great channel for investing in growth stocks. Moe covers all the fast moving stocks like NIO, Tesla and the ARK funds. I like how he shares his investment portfolio and gives you daily updates on the stocks he’s watching. Moe has the heart of a teacher and it shows in how fast his channel is growing.
Another great channel is Jimmy’s at Learn to Invest and this one is much more the fundamental analysis of stocks, building a portfolio and understanding how to create that investing plan. Jimmy does a great job of showing you exactly what he’s looking at in the numbers of each company with charts and tables.
And here Griffin Milks does a great job with dividend investing as well as general investor knowledge and is a great resource for Canadian investors. Griffin has a great conversational style to explain everything from investor mindset to other topics like personal finance and making money.
One of the resources I use for stocks is The Motley Fool’s Stock Advisor, a monthly recommendations newsletter that has outperformed the market for more than 18 years with the average stock recommendation up nearly 600% in that time.
Now that report on my five biggest stock positions I’ll link to below is absolutely free and no obligations but if you’re looking for resources to learn about stocks, it’s hard to go wrong with The Motley Fool.
Before I share those three new investor mistakes, I want to reveal the four best investments for beginners, four stocks and funds to consider for your first portfolio.
And the idea here, how I picked these as the best investments, is going to be around two reasons. First is just to build a well-rounded portfolio that won’t crap out when any one stock or theme crashes but also, and this is a strategy you’re not going to hear from other channels because it’s not part of the conventional wisdom, but we want enough growth and cash flow investments to keep you motivated to invest.
What I’m talking about here is having some high-risk, high return stocks that can really grow your portfolio fast as well as some consistent dividend payers for cash flow. That way, whenever you look at your portfolio, you’re consistently going to be getting that encouragement to keep investing because you’ll see the portfolio value increase or you’ll see that you received a dividend in your account.
So the best investments for beginners are the ones that keep you investing and I’ve got two stocks and two funds that will do exactly that.
For dividends, we’ll start with STAG Industrial, ticker STAG, a real estate company with 450 industrial properties in 38 states and 91 rentable square feet that pays a monthly dividend with a 4% yield.
The rise of ecommerce and online shopping has destroyed the retail property market but all those online orders need to be stored somewhere and that’s meant a boom in warehouse demand. In fact, 43% of the STAG’s property portfolio is involved in ecommerce activity.
Next here we’ve got one of the most popular monthly dividend funds, the Global X Nasdaq Covered Call ETF, ticker QYLD. The QYLD holds the tech stocks in the Nasdaq 100 index and then sells call options against them to generate and amazing 11.3% dividend yield. It’s paid monthly distributions regularly for more than six years and has produced a 32% return over the last year.
The fund invests in large, stable tech companies like Apple, Microsoft and Amazon for the upside potential and uses the option strategy for cash flow.
Holding that fund and dividend stock mean you’re never more than a few weeks away from seeing a dividend check pop into your account, making sure you’ve always got something to look forward to when you check in on your investments.
For our growth stock and fund, we’ll start with one of my favorite long-term growth stories and Fastly Inc, ticker FSLY. Fastly operates a cloud platform for content delivery which is just a fancy way of saying it helps get websites and the internet to you faster. It also provides streaming and video services which puts it right in the middle of the biggest trends and a $35 billion market opportunity from its two segments.
I first recommended Fastly in November 2019 and you can see the stock bounces around a lot but even on the recent selloff, it’s up 222% in the last year. It’s found support around $65 a share and I like it at least back up to the peak at $125 a share and even further on that long-term growth story.
For our growth fund, it’s hard to argue with the performance in the ARK Innovation Fund, ticker ARKK, the flagship fund of Cathie Wood and her team at ARK Invest.
The fund invests in 30 to 50 of the leading companies in disruptive technology, companies changing our lives in fintech, AI and the genomic revolution. Just looking at the top 10 holdings and you see, the fund gives you instant exposure into the hottest growth stocks including Tesla, Square and Zoom.
Now I’m not going to guarantee you that prices for the fund or for Fastly will go up but these are strong growth picks with exposure into the fastest growing themes. These two investments are going to give you a reason to check in on your investments, to see how much your portfolio has grown and I’ll leave links to other great investment ideas in the description below the video, so make sure you check that out.
Now you’ve got the basics and those four best investments to get you started but Nation, sometimes not losing money is just as important as making money on your investments and beginner investors are NOTORIOUS about losing money. Here are the three biggest investing mistakes to avoid and protect your hard-earned portfolio!
First is chasing a stock to the bottom. This is where a stock you own starts dropping and you keep buying. Now there’s an idea called dollar-cost averaging where if you buy more shares at the new lower price, then your average cost for the stock will be lower. Say you buy five shares at $20 for a total of $100. Then the share price falls 25% to $15 each. If you buy another five shares, your total investment is $175 and you have 10 shares for an average price of $17.50 each. Now you only need the stock to come back up 16% to break even and start making a profit.
Now there’s nothing wrong with dollar-cost averaging. In fact, I do it on the way up as well as down on my stocks…just buying a little more every few months whether the share price is higher or lower. I’m building a position over time in my favorite stocks.
The problem here is when you keep following the stock down, putting more and more of your money in it. In that example, what if the stock falls again to $12 a share then $10 and $7, and each time you buy more shares.
Pretty soon, you could have twenty- or thirty-percent of your portfolio in this one stock and a huge loss. It’s keeping you up at night and you’re praying to every god under the sun for a rebound.
And the stock may not recover. Even if the company avoids bankruptcy and totally wiping investors out, it might be dead money for decades. Shares of Blackberry have lost 92% since the 2008 peak and never recovered versus the broader market that has produced a 200% return over the period.
So it’s ok to buy more of a stock you really like but limit your investment in any single company to no more than 10% of your portfolio. That’s going to give you the chance to dollar-cost average lower but won’t risk wiping out your entire portfolio on a single bad stock.
Next here, and this is one made by experienced investors as well as beginners, but selling winning stocks too early and holding onto the losers! This is actually one of the big tricks your mind plays on you called loss aversion. Instinctively, we fear losing so much that we avoid selling our losing stocks because selling a stock means you lock in that loss.
So investors are quick to book profits on their winning stocks, selling after a twenty- or thirty-percent gain, but then ride those losers all the way to the bottom and even buying more. Essentially they reduce risk in winning investments and increase their risk in losers.
In fact, it should be just the opposite. Don’t be afraid to dump a losing stock, especially if it means you can use that money to double-down on your best investments. Reduce your risk in losers, maybe after they’ve fallen 10% and add more to your winners all the way up!
Another huge beginner investing mistake, and this has been the worst over the last year is having all your money in one hot investment. Nation, I get it. You see these runaway investments like bitcoin and Tesla here up four- and 600% over the last year or GameStop up a massive 3,000%. You look at these and want to be rich!
It’s ok to go after these kind of high risk, high return investments but you need a portfolio of other stocks so you make sure you’re in the one that IS going to make you rich as well as a few others that will produce those stress-free returns. Having all your money in just one or a few lottery-ticket investments is setting yourself up for disappointment, frustration and to lose money!
Follow the basics on how to invest your money that we’ve started in the video, follow the rest of the videos in the series and you will make money and will reach your goals.
Don’t forget to get your free report and see the top 5 stocks in my portfolio or click on the video to the right for 7 monthly dividend stocks to pay your rent, seven stocks to make $2,000 a month. Join the Let’s Talk Money community by tapping that subscribe button and clicking the bell notification.