Stock Market for Beginners
I graduated college 12 years ago. Had I invested $1,000 in Apple stocks then, it would have grown to $22,684 by 2022. What about Tesla? Nearly $220,000. The best time to learn to invest is NOW.
Please note that this isn't professional investment advice.
“The best time to learn to invest is NOW.”
2010
I graduated college 12 years ago. If I had invested $1,000 in Apple stocks then, it would have grown to $22,684 by now (2022). What about Tesla? Nearly $220,000. Warren Buffet's advice for building wealth is this: "start early." Guess when he bought his first stocks: at age 11. The lesson is this: the best time to learn to invest is NOW; I wish I had known this earlier.
So who should learn to invest? You.
You: But I don't have any money to invest.
PK: Exactly why you should learn now.
You: Stocks are dangerous!
PK: Not if you know what you're doing.
You: I'll invest after I get a decent salary.
PK: Wrong. You should start NOW.
You might be thinking. "PK, you have a six-figure income as a software engineer. You even rejected Google's $360k offer for a better opportunity. Yet you still talk about making more!?" Whoa, whoa, wait! Hear me out.
If having a six-figure salary is enough, why do you think the vast majority of software engineers at FAANG invest in the stock market? Why are they so keen to make more if it's already abundant? Let me try to convince you with an anecdote. It's interesting, so at least hear me out.
The Panda Master
Back in 2018, when I first joined Microsoft, there was a Principal Software Engineer on my team. Let's call him Panda Master, as his profile picture at Microsoft, was Po from Kung Fu Panda. We had a team lunch outside, and he gave me a ride back to the office. During the ride, he asked me whether stopping by a grocery store was okay. I said, "Sure. I don't mind," thinking he must be running for an errand or something. Then he comes back with a handful of what looked like movie tickets. I was like, "what are those?" Panda Master answered, "Lotteries." I was like, "what, that many!?" I got curious, so I asked him back. "How often do you buy those?" He answered, "whenever I can. I save cash for this moment." This was a genuine surprise to me because he was a Principal Software Engineer at Microsoft who probably made more than $400k a year; he even worked at the company for over a decade! I thought those at that level don't buy lotteries. So I got curious. "If you win, are you going to opt for the lump sum or the annuity?" For those who don't know, you can collect either all the winnings after taxes or nearly the entire amount in installments over several decades. I thought he would choose annuity because he'd bring more home in the long run. But again, to my surprise, he chose the lump sum. This is what he said,
“What am I going to do with that money when I’m already too old to do anything? I’m only in my mid-40s, but I already can’t see as well as I used to. My joints hurt as we speak; can I travel the world when I’m older? My daughter’s applying to college, and just thinking about her tuition is frightening. I’d rather get the lump sum, enjoy life while I still can, and invest the rest hoping for the best.”
This stunned me because this is when I realized that salaried employees virtually think the same regardless of how much they make! We worry about the same things! When I received a six-figure offer from Microsoft, I believed I was finally free from any financial concerns; I won't have to worry about money anymore. But there I was, a naive junior engineer, discovering the harsh truth from a principal engineer whom I had aimed to be! I felt like I was looking at myself ten years in the future.
A six-figure salary doesn't mean much if housing costs millions and job security is under a constant threat. What are you going to do if you lose your job? You're risking your entire family if you rely on your employer as the only source of income. That's why we should learn to invest.
4 Reasons Why You Should Invest
Let me first elaborate on the four reasons why you should invest in the stock market.
Number one, it's the easiest place to invest. With an app like Webull, you can start investing in stocks for free! More on that later.
Number two, investing is how the banks make money!
Number three, you are an employee. If you've been following my channel, you probably did for tips on becoming a software engineer. After all, they have a high income. But I explained earlier that it's not as simple as that.
Number four, and this is the most critical point. By not investing, you're actually losing money! For example, you're probably saving money in a bank account, right? But how much interest do the banks pay you? According to smartasset.com, the average interest rate on US savings accounts is a mere 0.08%. I repeat, 0.08%. That means you don't even get a penny back for saving $1,000 in banks! On the contrary, how much has inflation gone up? A whopping 9.1% this year! That means you've already lost $90 and 20 cents of that $1,000 you saved as you sit and watch this video. Why? Because the inflation rate exceeds the interest earned on your bank account. Your spending power has decreased by 9.02%! While the cost of consumer goods kept rising, what have the banks done to keep it up? 🤷 Do you now see how you LOSE money by saving in banks?
In contrast, how's the stock market doing? Let's look at the S&P 500, the best indicator of the stock market's performance. To be transparent, it's actually doing worse than the banks the past year, having gone DOWN nearly 3%. Now, you might say, "See!? Stocks are dangerous! They're evil! A beginner like you will lose everything!" Hold on. How about in the last 5 years? It's gone up over 75%! That means had you invested $1,000 five years ago, it would have grown into about $1,860 now, thanks to the magic of compound interest! Compare that to the average bank's 0.08% interest rate; in 5 years, your $1,000 will have become a PETTY $1,004 and one cent. Over 5 years, would you make $4 and one cent by saving in banks or over $860 by investing in a relatively safe asset like the S&P 500, which has a historical average return of around 10.5% annually?
3 Tips for a Beginner Investor
Here are my three tips for a beginner investor.
Tip number one. As a beginner investor, you should first learn to invest Long-Term. Sure, the stock market has its ups and downs, but in the long run, it appreciates! And by a substantial amount compared to saving your money in banks!
Now that we know the stock market outperforms bank savings, which stock should you buy and hold?
Tip number two. As a beginner investor, start by purchasing VOO. It's the very representation of the S&P 500, the best stock market indicator. I'll walk you through how to buy VOO soon. But trust me. Start with VOO, then hold it. Don't sell it for at least a year. Patience is a virtue all investors must have. First, bring your skin into the game. Invest early, not to hit the jackpot, but to understand how the market works. Get a feel of how the stock market behaves. Early exposure to how it responds to various incidents is crucial. Learn to manage risks now; you'll have to at some point. It's better to learn the game when you don't have much to lose.
Tip number three: diversify. Remember Squid Game? "Don't put all your eggs in one basket." Don't concentrate all your money on a handful of stocks. We've heard many horror stories about the stock market. But that's because people probably threw all their money in a single stock or two. That’s not investing; it’s gambling. Learn to diversify. And that's precisely why I'm urging you to buy VOO for your first stock. VOO is a particular type of stock that distributes your money into a basket of the best 500 US stocks for you - hence the S&P 500! By investing in VOO alone, you're AUTOMATICALLY diversifying your portfolio into a little bit of everything! How great and convenient is that!?
Don't forget the three things. One, learn to invest long-term. Two, invest in VOO. Three, diversify.
As a beginner investor, now's not the time to play around with the stocks. Remember what I said in my earlier video. As a beginner, focus on techniques initially; creativity comes later. Get exposure to the stock market by buying VOO first. Hold it, and get familiar with the market. Invest in your future. You don't have to spend the entire $385 either. Apps like Webull allow you to buy fractional stocks meaning you can purchase $100 worth of VOO or 0.26 shares if you want to.
“Learn to manage risks now; you’ll have to at some point. It’s better to learn the game when you don’t have much to lose.”
How to Buy Your First Stock
That's the basics of investing in the stock market. Let's walk through how to actually invest. Before you get scared, let me assure you. You won't lose money by opening up a stock brokerage account alone. It's when you SPEND the money to PURCHASE a stock that the value begins to fluctuate. Think of it as opening up a new bank account called stock brokerage; you don't lose money by simply putting money in the bank, right?
So first, open up a stock brokerage account. You can do this with many brokerages, but for beginners, I recommend Webull. I've been using it personally for more than 2 years, and best of all, it's commission-free. There's a special promotion going on right now in two stages. One, if you simply SIGN UP and OPEN a Webull account, you get 2 FREE fractional stocks, each valued up to $300! Two, after opening up an account, if you deposit ANY amount, even a penny ($0.01), you'll receive 4 to 10 additional fractional stocks for free, each valued up to $3000. In total, it's a chance to get 12 free stocks valued at up to $30,600! This is a great deal because even if you don't spend anything, you'll have free stocks to learn with! And when you do open a Webull account, please, click on my link to do it. I'll be transparent here. You can get all these promotions without it, but I may earn a commission when you do. This is how I can make free content like this, despite the tremendous time and effort put into it. Also, you're not losing out on anything by using my link, anyways! So, even if you don't sign up now, please don't forget to use my link when you do so later. Let's make this a win-win for everyone.
Opening an account and transferring your money, even a penny, will take a few days to complete. I recommend moving $100 for this lesson.
Once that's complete, click on "Trade." This is where you can buy and sell stocks. Type in VOO here. You can see that it's currently priced at around $385. Click "Buy." Choose "Market" for the order type. Then click on the icon here until "Amount" shows up. This is how you can purchase a smaller amount in fractional shares instead of buying the whole share. Choose $100. Unlock by entering your pin. Place Order. Boom. Easy, right?
Once that's complete, download the Webull mobile app. You can trade on a laptop, but only the phone app allows you to buy fractional shares. Open the app, tap on the Webull logo at the bottom center, and tap on the "Trade" icon; this is where you can buy and sell stocks. Type in VOO here. You can see that it's currently priced at around $385. Make sure "Side" is set on "Buy," and choose "Market" as the order type. Then tap the area where it says "Amount in Share" once to change it to "Amount in USD.” This is how you can purchase a smaller amount in fractional shares instead of buying the whole share. Select $100. Tap "Buy" and confirm. Boom. You just bought your first stock! Easy, right?
Lastly, do this on a US business day between 9:30 and 4 PM eastern time. Else, you might not be able to buy in fractional quantity when the market is closed. If you've transferred enough money to buy the whole stock, feel free to do so. But only invest an amount that you're comfortable with.
Managing Your First Investment
Once you completed buying your first stock or VOO, what did I tell you to do? Hold and wait; don't do anything. Occasionally check your investment once or twice daily; observe how the price moves. Remember. Your first goal as a beginner investor is to learn how the stock market works. There will be ups and downs. But don't forget. VOO is a relatively safe asset with a proven record of appreciating over the years! Don't fret because its value decreased below your initial investment; it’s temporary. If you're scared, invest an amount you are comfortable with losing, like $100, $50, or even $10. The key takeaway is that the best time to learn to invest in the stock market is NOW. Don't put in a lot of money as a beginner. Start small and learn. Learn to build wealth. Remember, you're losing money if the inflation rate exceeds the interest earned on a bank account. Start investing. Beat inflation. Win! Take control of your life! Learn to be smarter with your money. All you need? Commitment.
Summary
That's it, guys. I hope you found my story on the Panda Master interesting and the insights on investing helpful. If you were the Panda Master, what would you choose? A lump sum or annuity? Let me know in the comments below. When you sign up for Webull, please support me by using my link in the description and comments. Again, it keeps me going to make a free video like this. Like and subscribe if you want to learn how to build wealth. Thanks for watching. I'll see you at the next one. Peace.
Note
In the video, I mention the stock ticker SPY instead of VOO. SPY and VOO are virtually equivalent as they track the same S&P 500 index. The primary difference is that VOO is cheaper (SPY has an expense ratio of 0.09% while VOO only costs 0.03%). You can think of it as borrowing the same amount for different interest rates from various banks.
Don't rely on your employer as the only source of income. Learn to diversify your income sources by investing in the stock market. The best time to learn to invest is NOW! Sign up with Webull and deposit at least a penny to get FREE stocks! 👉 Get Free Stocks NOW!
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