Want to know the simplest trick to earn passive income?
Now, notice I didn’t say the easiest and quickest way to make passive income, but let’s face it, investing is something we all know we should probably do…
You hear about investing in the break room, your uncle Joe tells you at the reunion you need to do it and you possibly know a friend who “Hit it big”.
Truth be told (If you’re anything like me) you want to invest, but you don’t know where to start. Perhaps you’re asking yourself, “What are good investments for beginners?”
Don’t worry, I have been there. Keep reading to laugh at my blunders investing and how to learn to properly start investing the right way as a beginner.
- Learn my from my early mistakes investing
- Figure out good investments for beginners
My life before being introduced to investing.
Before I explain to you how I was introduced to investing I think it is vital to first let you know this:
For the better part of my 20’s, I spent more time paying attention to the bottom line on ESPN than I did worrying about my networth.
It is pretty well documented, but I had firmly possessed the poor habit of spending money on stuff that… well, let’s just say the typical return was a headache on Sundays.
As I have alluded to so many times, I decided to grow up and start taking my finances seriously around 2015-2016 by the age of 29. After getting engaged and recognizing that our student loan debt was a serious problem, my wife and I went all in on making sure we made the most of what remained of our 20’s.
Our financial game plan was to:
- Pay off my student loans
- Pay off cars (Get more cash freed up)
- Throw everything we had at her whopping $270,000 student loan balance.
Ever since we implemented that plan in February of 2016 we have managed to accomplish the first two, and we are on our way towards the third (Your biggest priority before 30 should be to get out of debt, then invest for the future – more on that later).
However, in the spring of 2018, I got a little greedy. I thought I would become Mr. Investor.
I WAS an idiot beginner investor.
Remember the break room investing advice you heard?
Let’s just say I took some and ran with it. The advice came from a person who knew what they were talking about – as it pertained to their investment needs – but not my needs.
Long story short, I was talking to someone about investing out of plain curiosity. I had heard through the grapevine he did well investing and before I knew it we were emersed in a two-hour-long conversation.
This guy (Who we can call Tee-Man) was a nut – he had his own spreadsheets, he checked his stocks religiously (Like hourly) and he possessed a true passion for investing.
Sort of like my passion for helping people get out of debt, this guy loved talking about stocks. Tee-Man told me how he put two of his daughters through college with his investing returns.
As our conversation got deeper, he proceeded to tell me all about these hot bio-pharm stocks that I needed to get. One, in particular, had a high risk/high reward potential. But what I wasn’t keeping in perspective was the plain fact that:
I had never invested before!
Tee-Man had good intentions.
He loved talking about stocks. His information was highly accurate, but truth be told I wasn’t passionate or knowledgeable about playing with stocks or investing in general.
I mean if it was easy, everyone would do it – and bee good at it!
However, investing is anything but easy. There is a reason that 9 in 10 will lose money investing in individual stocks. Investing on your own is hard and like anything, it requires expertise.
But Tee-Man assured me I could simply start investing by getting the Robinhood app and buying these biopharma stocks he was telling me about and that it would be no big deal.
Call me naive, but I took $200 out of my checking and bought 50 or shares of the Geron Corporations stock knowing that in August or September there was a 50-50 chance their product could get funded.
Funded = stock blows up.
Not Funded = stock is worthless.
Each day, as it got closer to September, the stock grew, eventually growing to over $6 (Which is not bad for a penny stock that I bought at less than $2 a share).
Needless to say, I was excited, and I was fist-bumping Tee-Man in my head, he knew his stuff!
That bad thing was, I was out of touch with Tee-Man and I didn’t know if I should hold or sell.
So I held the GERN stock…
Sure enough, it was the wrong move. Because I was such an amateur I had no clue that the funding for GERN wasn’t looking good.
As you can imagine (And as you can see below), the funding didn’t go through and the stock plummeted:
Just missing the mark one day caused my investing account to plummet from $600 to around $100. Like a bad blackjack hand, instead of being up $400, I was down $100!
However, I learned a valuable investing lesson that day.
Truth be told, I learned a valuable investing lesson that day (It’s all relative, I lost $100), but a lesson I am extremely grateful for.
I learned that unless investing is YOUR THING, you will most likely lose money investing in individual stocks (Statistically speaking).
Don’t misinterpret what I am trying to convey, as I am not referring to your 401K, Roth IRA, 403B plan or your spare change app. I am solely referencing investing in individual stocks.
Most people fail to win investing due to:
- Lack of understanding market cycles
- Letting emotions guide decision making
- Thinking investing is a get rich quick game
- Checking their accounts too often
- Being impatient and lastly,
- Simply not knowing enough.
Because of this, I made a mental pact with myself to never invest again… by myself that is!
What I invest in now.
Some say the highest form of intelligence is, “Seeing oneself objectively.” Call me objective, because I can firmly admit that I suck at investing.
Warren Buffet has been quoted saying some really cool stuff when it comes to investing, such as this:
“Successful investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can't produce a baby in one month by getting nine women pregnant.”
Discipline and Patience – those words do not describe me, or most people these days. While I only lost $100 in the stock market (I know, I know, virtually nothing) I am glad I learned the lesson when I had nothing to truly lose.
My philosophy when it comes to money is to:
- Spend less than you make
- Pay off debt (besides mortgage)
- Max out retirement contributions or at least 10% automatically
- Than build wealth with investing
But even after my small investing loss, I was torn. I still wanted to invest some of my money. So I started small with $300 and my new brokerage account!
Why Invest, even if you don't know-how.
Knowing I suck at investing actually resulted in me looking into some other investment options (I guess you could say I am glad I lost some money?).
Wanting to learn more and with a small investment budget, I started doing my research. I had heard all this talk about “Robo-advisors,” however, call me old school, but I like having an expert making my decisions for me…
And since I am not an expert, that is what got me excited about some of the investment options out there for beginners:
- Robo investing
- Stock index funds
- Spare change investing
But what did all this mean??
Beginner Investment Options:
On my quest to make sure I did a better job as an amatuer investor I learned one important lesson:
Be willing to invest what you can afford to lose!
That was a simple lesson, and even though Mr. Buffett said don't lose money… you don't always win. However, you can mitigate your losses and use the right tools that are provided.
Here are my “Top 3” options for investing as a beginner:
Stock Index Funds
According to Investopedia, an index fund is “A type of mutual fund with a portfolio constructed to match or track the components of a financial market index, such as the Standard & Poor's 500 Index (S&P 500).”
Another way to put it (for simple people like myself) is you're basically buying an investment fund that is made up of the best companies so you're not constantly trading stocks.
Warren Buffet put it this way,
It makes more sense for the average investor to buy all of the S&P 500 companies at the low cost an index fund offers-Warren Buffet
This is actually what I did in 2019. I opened a Vanguard account. You can read about the whole thing right here.
In the 1980s the everyday person couldn't just invest. You had to hire someone to do that for you. Now those same advisors you saw in Wolf of Wallstreet are being replaced with artificial intelligence, aka “Robo-Advisors.”
I used M1 Investing for my first Robo-investing.
Spare Change Investing
Third, spare change apps are great if you're first starting out with investing. They literally do everything for you by rounding up your purchases to the nearest dollar and investing it.
Acorns is the most popular and commonly used spare change investment app and it's how I got my start. Here is how it works:
- Make purchases after linking accounts to Acorns
- Round-ups or “Spare change” is invested for you
- Pick your type of investment options – Conservative, Aggressive, etc.
- Add more on your own each month and watch your money grow
- Cash-out whenever you want!
- FEE: $1 per month
Cons: The only con with spare change investing is that investing $10-$20 a month will do very little in the long run. Not to mention, $1 is a 5-10% fee, which is significant with such a small investment.
So make sure you have a plan to add more eventually, not just $10!
My final take on beginner investments:
At the end of the day, the most important thing you can do when it comes to money is to make more.
Saving more, spending less and paying off debt is vital, don't twist my words. But making more money is typically the quickest solution to most financial problems.
There is lots of chatter in the world about passive income, but the best form of passive income is STILL making your money work for you – aka investing.
- You want passive income, but don't know how to go about getting it.
- Investing in stocks scares you
- You don't have time to do stock research yourself.
Question: What is your take on good investments as a beginner?
A quick note if you have debt: If you have high-interest debt and you’re trying to invest, first learn to pay off your debt before investing. The 7% return on your $2,000 annual investment will not offset the 6% interest charge on your $75,000 student loan, regardless of the interest rate.
Josh writes about ways to make money, pay off debt, and improve yourself. After paying off $300,000 in student loans with his wife in less than five years, Josh started Money Life Wax and has been featured on Forbes, Business Insider, Huffington Post, and more! In addition to being a life-long entrepreneur, Josh and his wife enjoy spending time with their chocolate lab named Morgan, working out, being outside, traveling, and helping others with their finances! I got serious with money when I used Personal Capital to track my finances.