How to Invest In the Stock Market-Background
Jae JunThis is part 1 of the How to Invest in the Stock Market series.
How to Invest in the Stock Market: Part 1 | Part 2 | Part 3 | Part 4 | Part 5
As I’ve been receiving emails from people wanting to learn how to invest, I wanted to get a post out to share my experiences in order to help new visitors be confident that they too can invest in the stock market and manage their own money. I’ll be breaking the article into a couple of posts over the next few days due to the length.
My Background
In case you haven’t read the about me page, let me sum up my previous investing experience in one word. None.
To be totally honest, at the sake or ruining my credibility, if I had any to begin with, I read my FIRST how to invest article on Fool.com in August 2007 and I bought my first company, Genlyte, on September 28, 2007 by subscribing to a 30 day trial Fool.com service. The DOW was at 13,895 on this day of purchase. Note that the DOW’s highest peak of all time was at 14,093 on Oct 12, 2007, just a couple of weeks after I invested in my first stock. Eventually Genlyte was bought out a couple of months later by Philips.
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I started to invest at the worst possible time but had no idea. I knew nothing. No one informed me that bargains were hard to come by. Everyone I knew was just euphoric about AAPL and GOOG. Truth be told, I had no idea why a bull and bear were even mentioned in investments.
Seriously, I had never taken a finance, economics or accounting course in my life. I still haven’t. So for those just starting out or trying to, hold your head up high and keep your shoulders back. You can learn how to invest the stock market.
Fast forward 1.5 years and people are now actually interested in my opinions.
Why You Can Manage Your Own Money
More than 90% of mutual funds underperform the market and a majority of the mutual funds have very similar holdings as other mutual funds.
When brokers issue buy and sell recommendations, most of the recommended companies have already moved up and probably beyond a good buying price. Brokers also tend to issue sell recommendations when the stock is already down. Therefore, they are masters at the buy high and sell low game.
Financial advisors are paid on how well they sell you high commission funds, regardless of performance, and most mutual funds offered by your company are rubbish as the person in charge at HR or benefits, only look at the past return numbers.
The point is, never believe you cannot do it yourself. That’s what I first believed and that is what Wall Street and your 401k company want you to believe. “Smart money” is not as smart as you think. They are tightly constrained to operate within rules of their company and clients.
Don’t worry about the “invest early” cliche. It’s never to late.
Before You Get Started
Do you agree with me that the purpose of investing is to increase your assets? Then the most basic of all steps to investing is to ensure your financial status is organized. This means you are not living paycheck to paycheck, your debt level is easily manageable, credit card balances are low, you have an emergency cash account which can support you and your family for at least 3 months. Money to be used within 2 years is in a liquid CD or high yield savings account.
Some other points to keep in mind and fully understand is that the stock market is not a high yield bank account. Also, now that I have a family, it is also my wife’s money that I am responsible for. If I had to suddenly realize a 50% total loss by investing recklessly, I would be sick to the stomach when it’s time to tell the wife. It’s this type of irresponsibility that creates negative views of the stock market by family members.
My brother, mother and I went through the same thing. I considered the stock market to be a gamble because I witnessed my dad go pale in the face some days and I knew he lost a lot.
Stay Tuned
This concludes the initial background and why you should and can manage your own money. I hope that after reading my story, you can all find confidence in your abilities.
