The other day, a friend and I were chatting on our way to class. In our conversation, they brought up my blog and my interest in personal finance. Our conversation went a little like this:
Friend: So you invest in ETFs, right (Exchange Traded Funds)?
Me: Yep! I’m not nearly savvy enough for stock picking! I mean, who has time to research individual shares and predict the market?
Me: So do you invest in anything?
Friend: No, but I’d like to. I just don’t know where to get started. It’s too risky. I don’t have a lot of money to lose.
Me: I see…
Now, what I really wanted to say to them was “But now is the best time! You have no kids, no mortgage and most importantly, not a whole lot to lose, so why not?”
In retrospect, I’m glad I held back a bit.
A Quick Trip Down Memory Lane
Having this conversation with my friend brought back memories of young, innocent me back in 2015. I was in my final year of high school and was eager to get out there and make it in the big world. I had zero dollars to my name and wanted to find a way to change that.
I had heard great things about so-called mysterious “stocks” and was intrigued. On my journey to learn more about investing, I purchased the top three bestselling books on “How to Get Rich on the Stock market”.
My excitement lasted exactly 25 pages into the first book. After that, I did what any self-respecting teenager would do and promptly flushed down the gutter my dreams of becoming a stock-made billionaire.
In all honesty, finance theory is so hard, not to mention boring! (It’s okay, I’m studying it at the moment, so I can admit that).
Like, this stuff is hard. Investing is hard. Understanding what it all means is hard.
Knowing how to get started is hard.
All these things combined make investing seem like a bit of a gamble. As a broke person, you lack a whole bunch of things, with the biggest one probably being money.
When you are broke, investing is terrifying, especially if money is scarce. You can’t exactly afford to be gambling your hard earned money while also trying to get by.
…or can you?
How Even A Broke Person Can Start Investing
Well, my fellow financially frustrated friend (FFFFs!), I am here to tell you that you can actually start investing right now, and how, regardless of how much you have (or don’t have) in the bank!
See, the thing about investing and finance in general is that we tend to over complicate things.
No, you don’t need to calculate a company’s WACC or even have a clue what a Cost-Benefit-Analysis is in order start investing. Remember those books I mentioned earlier? You probably won’t even need to read those.
What you need to understand is that investing is actually pretty simple if you want it to be. Now, I’m not talking about stock trading, which is essentially trading shares to make a profit. No, I am talking about investing.
On this blog, we take a long-term view to investing, meaning that you only buy something if you intend to hold it for a long time. In the famous words of Warren Buffet, your favourite holding period should be forever.
The Biggest Hurdle Stopping You From Investing
In saying that, often the biggest hurdle to investing is actually fear.
Fear is often what stops the majority of people from even sinking their first dollar into the stock market.
There are two types of fear: fear of the unknown and fear that you can’t afford it. More often than not, they got hand in hand at hindering your first investment!
The first fear deals mainly with trust and the fact that once you put your money out there, there is no telling what will happen to it. Your investment may double or even triple in value within the first 6 months. In saying that, your investment may also get completely wiped out and Terminators may take over! You just don’t know.
Just like you can’t predict the future, you can’t predict the market. Anyone telling you differently is probably trying to sell you something and you should avoid them like the plaque!
Once you accept that you can’t control the market, it is time to conquer the next fear, which is the fear that you can’t actually afford to invest.
Various research on investing has been conducted, with results showing that the number one reason why people haven’t invested yet being the belief that they “can’t afford it”.
Let me just put your mind at ease – if you are broke at the moment but can still afford to live a conformable life by saving a bit of money each month, then you can afford to invest!
The funny thing about the stock market is that you don’t really need that much to get started. Depending on where you live, the minimum trade amount will vary.
In Australia, the amount is $500. To raise this money, you can simply put away a little bit at the end of each month. Say if you were to put $50 away each month, in 10 months you will have reached your goal.
This of course depends to your own personal situation. I too recall the days when $500 seemed like a small fortune and saving ‘just $50’ a month would’ve been impossible.
I remember just how overwhelmed I felt personally when I started my own investment journey. I had the tiniest amount of money saved up, which took me ages. On top of that, the fear of losing it all that in the stock market made me sick.
Because of that fear, it took me two years to invest in the market. Yes, you read that right, two whole years in which my investments could’ve been growing!
It wasn’t until I finally felt like I had the right arsenal of knowledge and courage within me that I actually made my first investment.
Looking back now, I am a little embarrassed that it took me so long to make the plunge. Once over, I realised investing is actually super easy and surprisingly fun!
“But, Corinne, we are half-way through the post and you still haven’t told me how I can start investing?”
I hear you my dear FFFF, I hear you. Why don’t we jump into that right now?
How To Start Investing Step By Step
First things first, as I mentioned above, you need to get over your investing fear. Chuck it out the window, mail it to your ex, just get it out of your system!
A great way of doing this is by actually taking part in online trading games. These games are basically trading simulators of the real life markets, whereby you get given a certain amount of money to invest in shares of your choice. There are lots of these out there, with the best being that the majority are free. My personal favourite is the ASX stock trading game, which I used many times before.
This is a great way to get your skin in the game and experience what it would be like to see your portfolio go up and down over time. It may also teach you a few things about how you handle stress in money related situations, which is always good to know!
The second step to investing is to know your stuff. Like I mentioned above, you don’t need to be a financial analyst to start investing, nor do you need to read advanced books about stock picking. You just need to know the basics!
While I was frantically searching for a way to end my doom of brokenness, I came across a book. Now, I know a thing or two about money and investing, but I am no expert, hence I must give credit when credit is due. This book changed my life.
Okay, maybe life is a bit dramatic, but what this book did do was change my mindset about investing. Most importantly, it dialled investing down to “normal speak”, so that even a non-finance wiz like me could understand it.
I won’t go into too much detail but the book is called “If You Can: How Millennials Can Get Rich Slowly” by William J. Bernstein. This book is worth its weight in gold and if you want to grasp how to invest, I highly recommend it.
Seriously, read it. Check your local library or grab it here* for less than $1.
Bernstein pretty much covers all the bases and teaches you how to invest for the long term while tackling the ever pressing issue of stock picking.
Once you equipped yourself with some brand new investing knowledge, it is time to get onto step 3, which is setting up a trading account. There are two ways to do this:
- You can go into your local bank branch and as them to set up a trading account for you, or
- You can shop around and find the best option
I’d vote for doing option 2, as you can always save yourself some dollars.
The thing you want to compare by is the “brokerage fee”, which is the fee the trading service will charge you every time they make a trade for you. These fees can average anywhere from $10 to $20 (if you choose a trade only account), and can increase significantly if you want to include professional trading advice from your broker.
I personally use NAB Trade, which charges $15 a trade. While I know there’s probably better deals out there, I like the NAB trading platform and am happy to pay a little extra for the perks that come with it!
Step number four is to save some money. Now, you don’t need a fortune to get started. Just the minimum would be enough to dip your toes in the market pool and get yourself a real asset!
Ideally, have at least $500 saved for investing, plus any brokerage fee that your first trade will incur. As mentioned previously, beware of the minimum trade.
The last step is completely optional and includes getting yourself a cheap bottle of champagne and celebrating the day you make your first investment! #picsoritdidnthappen
That just about wraps up this week’s post. If you want to know more about investing, feel free to check out our resources page.
I hope this has shed some light on investing and has encouraged some of you to consider getting started. I know I was absolutely terrified the day I made my first trade, however I haven’t looked back since!
As usual, I want to hear your thoughts! What is one thing you wish you knew about investing before you began?
Let me know in the comments below!
Being broke is temporary. Being rich is a journey.