My initial advice would be to keep it simple.
I’d start with buying entire sectors with ETF’s. I personally prefer the Vanguard funds but for my personal portfolio, breakdown as follows:
30% S&P ETF (acts as a hedge to my own incorrect stock picking)
10% Emerging Markets ETF (YTD return on these has been incredible… no promise for the future)
The remainder goes into individual companies for which I do proper research.
Going forward, my calls would be to buy some volatility ETF’s because our incompetent commander in chief and his goons in office are, well, unstable. I’m probably getting a little ahead of myself though because I don’t think these are as simple as sector ETF’s.
Paper Trade or Start Small
Depending on your comfort level and how you learn best, you should either start small or open a paper trading account. This will act as a safety net as you are learning the basics of investing, managing your portfolio, reducing risk, and developing an investment strategy. Personally, I think paper trading offers a false sense of security that can lead to ill thought decisions once you start live trading. Starting small with real money creates an acute awareness that you can and will lose money on trades from time to time. During this stage you should familiarize yourself with market conditions and order types. I’ll do a separate post to discuss this in further detail but I’ll go ahead and say I think knowing when to get out and setting a “stop-loss” order is critical. Online brokers such as Scottrade, Fidelity, Schwab, and TD Ameritrade offer clients paper trade accounts.
Trading versus Investing
Differentiate between investing and trading. It’s important to know if something is a long term buy and hold or a short term gain. Unless you’re already familiar with concepts like hidden Markov models or Kernel tricks, you’re going to be wasting a lot of time chasing benchmark-beating risk-adjusted returns. Not to mention the transaction costs and short term capital gains tax rates. If you’re going to trade you’ll soon realize it takes time and dedication.
Anyone who invested directly into buying Bitcoin made money hand over fist. Indeed, it has undeniably been one of the best investments of the last 10 years. Ethereum is perhaps the cryptocurrency I’m most excited about at the moment – as are many others. There’s far more to choose from than just BTC & ETH in the crypto space. Before buying into any specific cryptocurrency I think it’s important to do your research, understand it’s application, and role in crypto. As with stocks, you should have a firm body of knowledge and understanding on why you believe it is going to succeed long term. Of course, you can also day and swing trade these as well. Whatever you decide to do, I can’t stress enough that you should first understand how to keep your cryptocurrency secure.
So with that said, I think you should have saved up a year’s worth of your salary then you need to start reading books on investing.
These books help conceptualize aspects of how the financial system works:
- The Ascent of Money
- Fooled by Randomness
- Liar’s Poker (silly book but maybe worth a read to see what goes on in the inside)
- Rich Dad, Poor Dad
- The Intelligent Investor
The Intelligent Investor is the fundamental guide to Fundamental Analysis. If you aren’t doing fundamental analysis you are playing a practically zero sum game in an incredibly competitive environment.
Reading up on Economics is advised since it’s believed that as the economy improves, companies make more money, and their stock value rises in accordance with the increase in their intrinsic value.
Robinhood is great platform for getting started trading. There are no commissions which will save you a great deal if you’re only wanting to invest a small amount initially. Shameless plug – here’s my referral link if you want to try it out: https://robinhood.com/referral/williar739 .