How I Started Investing in Stocks and How You Can Too
- Dr. Shy
- Jul 17, 2024
- 17 min read
Schedule a 1-on-1 Stock Market Session with Dr. Shy at: www.ninthhouseconsulting.com
Disclaimer: I am not a financial advisor. I cannot give financial advice. Investing is risky. You are solely responsible for consulting a fiduciary financial advisor and doing your own research before making any financial or investment decision.
2. Study & Read
“The stock market is a wealth-building machine, a money printer.”
-Wall Street Trapper
Investing As My Means To An End
Those who know me know that I am deeply passionate about financial literacy and various aspects of finance, especially investing. As someone who comes from generations of poverty, I know firsthand the power of investing and how it can transform the financial trajectory of a person’s life and even their bloodline.
In addition to investing in real estate and cryptocurrency, I’ve been a stock investor for almost a decade. However, as I’ll later discuss, my start in stock investing was unintentional and serendipitous since I didn’t realize that I was investing into the stock market at that time. Nevertheless, over time, I eventually increased my stock market knowledge and investing skills and became an intentional, skilled stock investor. I am a first-generation, self-taught stock investor and have grown multiple six-figure portfolios. My stock investing expertise is in long-term, buy-and-hold strategies and technical (chart) analysis. I also trade stock options and have expertise in day trading, short-term swing trading, and long-term swing trading (Leaps).
The stock market has made me great money and lost me a good amount of money, too; I’ve gleaned wisdom, lessons, and skill from every experience in between. Overall, though, I’ve done well. My wins far outweigh my losses, and my returns far beat those from the S & P 500. Investing has been my golden ticket out of intergenerational struggle, and it has been a cornerstone in my pursuit of absolute financial freedom, the highest of the 5 levels of financial wealth that Tony Robbins outlines in his book Money: Master the Game. In fact, I am on track to retire from the workforce in the near future to focus solely on growing my businesses and investments and trading stock options full-time.
Investing Is Highly Personalized
People often ask me how they can get started in the stock market, so this blog post is dedicated to everyone with this same question. This post encapsulates my answer. The goal is that you take away and apply whichever parts that resonate with you while you simultaneously do your own research and due diligence. I also offer 1-on-1 sessions for people who want to consult me about stock investing and need guidance on how to start, how to develop a tailored investing strategy, and how to choose strong stocks to invest in. Investing is highly personalized. It is not a one-size-fits-all approach, which is why it is critical to develop a strategy that works for YOU and your financial situation, goals, preferences, lifestyle, time constraints, timelines, and risk tolerance. Simply copying and pasting someone else’s strategy likely won’t bring you success.
I realize that many people reading this post are new to investing or have not yet begun. Before I discuss how to make money in the stock market and the 4 steps to get started, the educator in me needs to take a step back and underscore some critical societal shifts that make stock investing more important now than ever before.
Investing Now Is More Important Than Ever Before
Working a job won’t make you wealthy; your job caps how much you could ever earn. Contrary to popular belief, saving money won’t make you wealthy either. Your savings are usually contingent upon your earned income, such as from work. Inflation eats away the value of your savings. And above all, your savings are not an appreciating asset that increases in value. This does not mean that saving money is bad; it isn’t. Having liquid reserves, such savings, is important to your financial health and can serve many purposes. Wealth-building isn’t one of them, though. Investing can make you wealthy, not saving.
There are 3 major wealth-building vehicles in the USA: real estate, business ownership, and stock investing. All of the nation’s wealthiest people grew and continue to sustain their wealth via one or more of these 3 vehicles. The U.S. stock market is at least 232 years old, which means that for about two and a half centuries, American investors have leveraged stock investing as a means to accumulating assets and passing down generational wealth.
But investing is arguably more important today than ever before in our lifetime. In light of the current and forthcoming economic, technological, and sociological changes in the USA, investing is absolutely necessary, lest you risk being trapped in the permanent underclass. But why, in this ever-changing world, is it more crucial than ever? Inflation gnaws at our dollars, and traditional savings struggle to keep pace. Investing enables you to beat inflation. It empowers you to take control, become an active participant in the market's dance, and secure the financial well-being you deserve.
If your dollars are not invested in growing assets such as stocks, you are losing money due to inflation lowering the value of your dollar.
In addition to inflation, the proliferation of A.I. (artificial intelligence) will replace the need for human labor in certain sectors and roles. Although A.I. is still in its genesis, it is reasonable to expect a shortage of jobs and massive job losses in the unknown future. In fact, Goldman Sachs predicts that A.I. will degrade or eliminate 300 million jobs globally. What would you do if you lost your job and can’t easily get another one due to a tough job market? Start developing a safety plan now, just in case. Having investments should be a part of that plan.
Another reason to invest is so that you have enough money to take care of yourself throughout your lifetime. As abled adults, we are responsible for taking care of ourselves, our whole lives, even as we age. The average life expectancy in the USA is about 76 years (but it is only about 71 years for Black Americans). How will you take care of yourself for nearly 7+ decades? Social security benefits likely won’t be available by the time you retire, especially in an amount that is enough to meet your basic needs. The Social Security Administration announced that in 2034—only 10 years from now—its trust funds will become depleted and retirees may only receive 77% of their full benefit starting then.
Investments should be a part of your self-care plan. This requires forethought, proper planning, and deliberate actions in your younger years, a.k.a. right now.
Furthermore, the age for retirement could increase. The Social Security Administration already increased the full retirement age from 65 to 67, and current presidential candidates are debating whether to raise the retirement age even further. What if you were able to fund your own retirement rather than depend on fickle governmental assistance? Better yet, what if you could retire at any age—whenever you want— instead of just 9 years before you die (4 years before you die if you’re Black)? Having investments can afford you the freedom to choose. I know several investors who retired in their 20s, 30s, and 40s. I am in my 30s and can retire from the workforce now if I so choose.
Amassing wealth through investments can buffer against the stress from working in toxic, sexist, and/or racist work environments. Work is a leading cause of stress, as numerous studies rank job stress among the top 3 stressors faced by Americans. The American Institute of Stress reports that 83% of US workers suffer from work-related stress, with 25% claiming it's their number one stressor. These realities may be compounded for Women and people of color who additionally experience various forms of discrimination. Toxic workplaces can harm one’s mental and physical health, personal relationships, finances, productivity, and professional ascent. Dissatisfaction and stress at work prompted the Great Resignation during the pandemic in 2020-2021. While this mass exodus has declined in the past 2 years, many workers remain dissatisfied and stressed. I’ve been hearing many stories of people “quiet quitting,” pursuing entrepreneurship, and planning to leave the workforce earlier than planned. Having investments can support you by giving you the option to work or not work, having a safety net if you need to quit your job or if your racist boss sabotages your job, and by providing additional financial means to cope with work stress (e.g., seek therapy) or fight against work-related grievances (e.g., hire a lawyer).
What Is Your “Why?”
Inflation, reduced jobs, non-guaranteed social security, a higher retirement age, and work-related stress are among a litany of reasons to invest in the stock market. In addition to these factors, you should take some time to introspect and find your individualized “why.” Do you want to retire in 5 years? Are you tired of working for toxic companies that devalue your contributions? Do you want to be able to afford your children's college tuition? Do you want to break the generational curse of poverty and pass resources down to your kids and grandkids? Do you want the freedom to travel whenever you please without permission from a boss? Find your why. That will be your driving force.
How Stock Investing Works & How To Make Money
Investing is not a get-rich-quick scheme, nor is it gambling or magic (if you’re interested in spiritual magick, though, sign up for my magick course here 😉). Investing requires skill, research, patience, psychological self-mastery, portfolio diversification, risk management, and sound strategies and execution. It is about strategically channeling your hard-earned cash into assets that grow over time. It is about making your money work for you instead of you working for money. Imagine planting a seed today, nurturing it with research, consistent action, and patience, and harvesting a bountiful financial future in 5, 10, or 20 years.
Stock investing, in particular, involves buying shares of ownership in publicly-traded companies with the expectation that the company's value and stock will increase over time, giving you the opportunity to sell the stocks at a higher price and make a profit. When you buy a share in a company, you’re buying a tiny piece of ownership into the company. Each share represents a fractional claim on the company's assets and profits. The more shares you own, the larger your ownership stake. As an owner, you have basic voting rights, allowing you to participate in shareholder meetings and vote on certain company decisions, though this can vary according to the number of shares you hold. If you love Air Jordan gym shoes, for example, and choose to buy shares of Nike (NKE), you not only own the Jordans in your closet, you also partly own the company that makes them, and you get to vote on important Nike decisions.
The primary way to profit from stock investing is through capital appreciation and dividends. Dividends are periodic payments made by some companies to their shareholders as a share of the company's profits. Dividends are not the focus of this post, though, so I will proceed by describing capital appreciation.
When a company thrives, its stock price typically rises, which generates profit for investors who sell their shares at a higher price than they bought them for. However, if a company performs poorly, its stock prices can fall, leading to potential losses. If you bought 1 share of Apple (AAPL) stock on January 2, 2024 for $183.89, that share increased to $220.38 on July 2, 2024. This means that the stock increased by $36.49, which is a profit of 20% (damn good for just 6 months!). If you bought 30 shares instead of just 1 share in January, your 20% profit would’ve earned you $1,094.70. You have the option to hold your shares so that they can continue to grow or you could sell them to take profit. This is the basic principle of capital appreciation in stock investing and how you make money.
Investing is not saving. What sets investing apart from saving is a powerful concept called compound interest, which accelerates your growth. Compound interest allows your returns to grow on top of one another. This means that you gain money on your initial investment and on the returns on your initial investment. For example, if you invest $10,000 in Google stock with a 20% annual return, after one year, you earn $2,000. In year 2, the 20% return is applied to the entire $12,000, so you earn $2,400 in year 2, bringing your yearend total to $14,400. Compound interest creates a snowball effect that helps your wealth grow exponentially. To illustrate, the graph below shows the difference in growth when you save $100 per month and receive 1% annual interest from the bank (most banks give way less!) versus invest $100 per month with a 6% annual return from the market.
Graph courtesy of Principal investment company.
Compound interest is the golden key to building wealth. Its best effects are seen over time.
There are many investing approaches and strategies that are too numerous to detail in this post. However, my stance is that long-term investing—buying strong stocks in strong companies and holding them for 10 or more years—is foundational to stock investing and wealth-building. This should be the primary focus of any stock investor. I carefully built my long-term stock portfolio with the intent to hold my stocks forever and to pass them down to the next generation. I only withdraw funds for important, large purchases, such as for real estate, to invest in or rotate into another stock, or to trade stock options that can generate me way higher returns.
Wealth building is playing the long game. Are there ways to make money from the stock market quicker? Absolutely, especially when you trade options, futures, or other instruments. But those quicker approaches are much riskier, and their gains won’t nearly match the gains from long-term investing over 10+ years.
The best money is made over time.
Stock Investing Vehicles & How I Got Started
There are many vehicles for investing in stocks, such as individual brokerage accounts, retirement accounts, 529 College Savings Plans, Health Savings Accounts, and even permanent life insurance policies. For the sake of this post, though, I’ll only discuss employer-sponsored retirement accounts, individual retirement accounts, and individual brokerage accounts.
401K/403B Employer-Sponsored Retirement Accounts
As I mentioned earlier, I’ve been a stock investor for almost a decade, but I didn’t know that I was a stock investor during my first couple years of it. During my first tenure-track professor job at Indiana University, I enrolled in my university’s 403B, a retirement plan offered by public institutions that is equivalent to the 401K offered at for-profit companies. I vividly recall sitting in New Hire Orientation and listening to the HR representatives review the retirement plan. I was confused. After listening to their spill for 20 minutes, I had no clue how the retirement account worked. But, I enrolled in the retirement plan anyway. Despite my ignorance, I at least knew that the 403B would benefit me in some way and that I would have an account with money in it by the time I was 60 years old. After signing up for the retirement plan, I never looked at it—let alone managed it—until a couple years later when I realized those funds gained handsome returns from being invested in the stock market.
401(K)s and 403(B)s are employer-sponsored retirement plans offering significant tax advantages to help you accumulate wealth for your golden years. You contribute a portion of your pre-tax salary (gross income) to your 401(K) or 403(B) account, reducing your taxable income. In many cases, employers will match your contributions (giving you free money!), which further grows your account. The money grows tax-deferred until you withdraw it in retirement, when it's taxed as income. This tax advantage allows your savings to compound faster, potentially leading to a larger nest egg. These retirement plans typically offer a range of investment options, such as mutual funds and stocks, allowing individuals to elect investments and tailor their portfolios based on their risk tolerance and financial goals.
Investing in your employer-sponsored retirement plan is an easy way to start investing in the stock market. However, be sure to familiarize yourself with all the limits, rules, penalties, and caveats. As just one example, I recently helped my client review and understand her new employer’s retirement plan. She needed to decide whether to choose her employer's plan or her own individual retirement account. Her employer's plan had a vesting period of 3 years, which meant she would have to work at that company for 3 years before being eligible to take the money with her. Since she intended to work at the company for only one year, I recommended her to consider an individual retirement account instead, specifically a Roth IRA given her financial goals and timeline.
Individual Retirement Accounts (Roth IRA & Traditional IRA)
If you don’t have access to an employer-sponsored retirement plan, no worries. There are retirement accounts that you can get on your own that don’t come from an employer. These are called individual retirement accounts (IRAs), such as Roth IRAs and Traditional IRAs. Each account type has its own tax benefits. The beauty about them is that they are outright yours and are not tied to an employer. IRAs are another vehicle you can use to invest in stocks that give you far more stock investment options than employer-sponsored plans. However, be sure to familiarize yourself with all the limits, rules, penalties, and caveats of IRAs, and be sure that they fit your individual goals and timeline. You can open an IRA on your own at any brokerage of your choice.
Individual Brokerage Accounts
Individual brokerage accounts are the standard vehicle used to invest in stocks. They are not retirement accounts and therefore don’t offer tax advantages, but the huge benefit is the complete freedom and control you have over these accounts. They are not subject to the rules, limitations, penalties, or caveats of retirement accounts. You can easily move money in and out of your individual brokerage account whenever and however you please (based on your brokerage’s rules, of course). You can open an individual brokerage account at any brokerage of your choice.
Four Actionable Steps to Start Investing in Stocks Today
Now that you understand how to make money in the stock market and the various stock investing vehicles available to you, it is time to take action. Here are four actionable steps you can take today to start your stock investing journey, based on using an individual brokerage account.
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