The Investing Process

Now that you have your finances in check, here are four simple and straightforward steps to kickstart your investment journey in the stock market. These investing methods are back-tested and validated to have great success over long periods of time without the need for excessive planning, financial knowledge, or stress.

Create a Brokerage Account

What is a brokerage?

In order to start investing, you must first select a brokerage. A brokerage is a financial institution that facilitates the buying, selling, and holding of investments like stocks, bonds, or mutual funds on your behalf. It acts as an intermediary between you and the securities markets, providing you with the tools and account management necessary for investing.

There are numerous types of brokerages, each offering different perks and benefits. You may have heard of platforms like Robinhood, Fidelity, Vanguard, E*TRADE, Charles Schwab, Webull, and others. There are also various types of investment accounts available, including Individual, Joint, and Retirement accounts. 

For New Investors

• For U.S. citizens, we recommend opening a Roth IRA account due to its tax advantages for retirement savings.

• For non-U.S. citizens, consult with a financial advisor (or AI) to find equivalent tax-advantaged retirement accounts in your country.

Open a Roth IRA

What is a Roth IRA?

A Roth IRA (Individual Retirement Account) allows you to contribute a set amount annually, with the advantage of tax-free growth and withdrawals in retirement.

Benefits of a Roth IRA

• Tax-Free Withdrawals: No taxes on your investment gains once you reach 59.5 years old.

• Flexibility: Use your earnings for specific purposes like college expenses or a first home purchase after 5 years, without penalty. * **

• Withdrawal of Contributions: You can withdraw your contributions (not earnings) at any time tax-free and penalty-free.

Roth IRAs serve as an excellent introduction to investing, fostering a long-term investment mindset where patience is key. This approach avoids the pitfalls of reacting to short-term market movements.

Dollar-Cost Average (DCA)

What is Dollar-Cost Averaging?

Dollar-Cost Averaging (DCA) is a strategy where you invest a fixed amount of money at regular intervals, regardless of the asset's price, reducing the impact of volatility.

Why DCA? 

• Reduces Emotional Investing: By investing consistently, you avoid decisions driven by market fear or greed.

• No Market Timing Needed: You don't need to predict market highs or lows; you simply invest regularly.

Example

• Interval & Amount: Invest $500 monthly.

• Action: Buy stock (e.g., an index fund like SPY) on the first day of each month.

Index Funds

What stocks should I buy?

Instead of focusing on a single stock, dollar-cost averaging into an index fund like the S&P 500 (ticker: SPY) is advisable. An index fund holds a diversified portfolio of stocks:

• Diversification: Spreads risk across many companies.

• Historical Performance: The S&P 500 has shown about a 10% average annual return, recovering from downturns over time.

Simplified Example of Long-Term Growth with Compound Interest

With an annual investment of $7,000 into the S&P 500, broken into 12 equal monthly contributions via dollar-cost averaging and an annual compound interest rate of 10%, you would have approximately:

These strategies will get you started on your investment journey. Remember, while these methods are considered low-risk with a long-term perspective, consulting with a financial advisor is always beneficial for personalized guidance.