Disclaimer: This is not financial advice or advice to invest in stocks mentioned in this post. This is an opinion and strategy that works for me and is customized towards my comfortability as an investor. Invest responsibly.
Hey readers! I spend a lot of time talking about real estate investing and general personal finance tips and I wanted to give you readers a look into what I invest in besides real estate. That’s right, the good ol’ stock market! I’m going to dig into what I am currently investing in, how I ended up investing the way I invest now, and why I choose to invest in certain stocks. Before digging into my current investing situation, let us dip into how I began investing in stocks.
I began investing in stocks back in 2016 while in college. As a business/accounting major, I had already been exposed to stocks through my courses and my father had always exposed me to stock trading whether it be equities, options or foreign currencies. I always had an itch in college to start investing in stocks after switching my major, but never really invested until I came across this trading app: Robinhood. I began playing around with small amounts of money, $100 here and there, but never really had a strategy and often bought and sold stocks for short term profit/losses. A lot of it was getting my feet wet with buying stocks. My father set me up with a Roth IRA at Interactive Brokers (IB), where I was able to contribute money into the account and trade. It wasn’t until the middle of 2017 where I really started to get into trading stocks and options. For the sake of time, I won’t go into options contracts in this post for that is a whole topic in itself LOL. Using Robinhood & IB, I started getting heavily into trading, but was losing money and/or breaking even on trades. Looking back now, I wasn’t really investing in stocks, I was a wannabe trader thinking I could make a lot of money by trying to outsmart the market. Well…that wasn’t the case and if that was the case and I made a lot of money, I probably wouldn’t be here writing this next sentence:
It wasn’t until the end of 2018 after losing well over $10,000 in trading stocks that I began to look at investing in stocks for the long term rather than trading and trying to secure profits in the short term.
I’ve been burned so many times by the market (FYI, the market senses your emotions, market psychology is a real thing) and gotten my butt handed to me on trading stocks and options, that I needed to understand what and why I wanted to invest in the stock market. This led me to reading a lot on buying and holding stocks for the long-term and retirement. This is where I am now:
I invest in stocks to buy and hold for the long-term, for retirement and probably for me to pass down to my future children. I invest in stocks such as Exchange Traded Funds (ETFs) and stocks of well-known companies that are continuing to grow.
What is an Exchange Traded Fund (ETF)?
Think of a basket of apples and in this case scenario, the apples are stocks of publicly trade companies. In this basket, we have stocks like Apple, Amazon, Microsoft, Berkshire Hathaway, Facebook, etc. An ETF is a fund that tracks a basket of stocks; so if all the stocks go up, the value of the fund goes up and vice versa. Investing in ETFs are a great way to invest in industries as a whole without having to individually buy those stocks.
VTI (Vanguard Total Stock Market ETF) is one of my main ETFs that I invest in. This fund holds a little bit of all sectors and industries and tracks the stock market as a whole. Here’s a look at the top companies that are tracked by VTI (from ETF.com):
Included in VTI are some of the big name stocks. This gives me the opportunity to indirectly have some Amazon stock without having to pay $3,000/share. ETFs like VTI give smaller investors a better shot at investing in the market, different industries as a whole, or different sectors without having to invest so much money.
What Am I Investing In?
About 25% of my current Roth IRA portfolio consist of VTI because I treat the stock as a life-long growth fund. Yes, the stock market will go up and down, but how many times have you heard that the stock market hit a new low versus the stock market hitting a new high? The stock market may have downturns and recessions happen, but that is all part of the business/economic cycle. Although past performance in the stock market does not define future performance, it gives us an indicator through charts of when a downturn is coming and when the market is most likely going fly to the upside.
The other 75% of my current Roth IRA portfolio consist of stocks I have done my research on, am familiar with their product/service and stocks that are deemed risky but can hold value in the future. Apple Inc. (AAPL) is my biggest stock holding outside of VTI. Yes, VTI does track AAPL, so why do I own individual AAPL stock? I love the company of course! I’m typing all these on my MacBook Pro right now! I use a Mac Desktop for work! I have an iPhone! Why wouldn’t I invest in AAPL? Some other stocks I currently own:
My Roth IRA has its limits ($6,000 maximum contribution annually) so in time, I will invest more in my current stock positions as they grow and add in more stocks to the portfolio. The importance for me is the progress I’ve made since 2016. I’ve transformed my portfolio into a cash losing account to a long-term growth account. On top of my Roth IRA account @ IB, I still trade options on Robinhood because I love trading options! Have I made money recently? Yes. I’ve restarted a small $1,000 portfolio and am looking to grow it by using the strategies me and my father formulated to get in and out of positions. Let’s hope this turns into something bigger! I also recently opened an online brokerage account with IB in addition to my Roth IRA so I can begin funding it to invest in more stocks since my Roth IRA is limited to $6,000 per year.
How Do I invest In Stocks?
After a lot of losses and reconfiguring my strategy, I primarily use Dollar-Cost Averaging to invest in stocks. Dollar-Cost Averaging is a strategy used by investors to simply buy stock in increments.
For example, White Tee Jay wants to invest $10,000 in Apple Inc. (AAPL). However, White Tee Jay isn’t sure when he should invest the $10,000.
Let’s look at two scenarios of when White Tee Jay buys AAPL in one shot vs. using Dollar Cost Averaging with a hypothetical stock price of AAPL being $100.00/share and the stock price rising to $150.00/share after one year, but hitting a low of $80.00/share throughout the year.
|Bought AAPL In One Shot||Total Cost||Bought AAPL Using Dollar Cost Averaging||Total Cost|
|100 Shares of AAPL @ $100/share||$10,000||25 Shares of AAPL @ $100/share||$2,500|
|25 Shares of AAPL @ $90/share||$2,250|
|25 Shares of AAPL @ $85/share||$2,125|
|25 Shares of AAPL @ $90/share||$2,250|
|10 Shares of AAPL @ $87.5/share||$875|
|100 Shares of AAPL @ $100/share||$10,000||110 Shares of AAPL @ $90.90/share average cost (110 divided by $10,000)||$10,000|
Looking at this table, in both scenarios, we bought $10,000 worth of AAPL stock with two different strategies and received two different results. On the left side, we got our 100 shares of AAPL, great! However, on the right side, we bought in increments and ended up with 10 more shares of AAPL at a lower average price because of Dollar Cost Averaging! Now will this always be the scenario? No, but when you throw all your money in the market in one shot, you won’t have money to invest if the stock dips down 10-20%! You’re stuck with what you bought the first time.
Let’s look at the year end profit with AAPL’s stock rising to $150.00/share:
|100 Shares @ $100/share||$5,000.00||110 Shares $90.90/share||$6,501.00|
See the difference? That’s a $1,501 difference right there! This won’t always be the case, but sometimes, not buying in one shot will benefit you a whole lot more than throwing everything into a stock or the market at once. For the example, we used two different approaches and came out with two totally different results. Dollar Cost Averaging can be a powerful tool for investing and can create wealth at a faster pace.
Why Do I Invest In Stocks?
To build wealth of course! Money sitting in the bank is security, I have that. However, money sitting in the market calls for wealth building potential. I invest in stocks because I only work a W-2 job right now that pays x amount of dollars after taxes. I also live in New Jersey, a state with a higher cost of living. The need for me to invest in the stock market to get where I want to get is important because I know my W-2 job income won’t get me where I want to get. This is why I invest and this is why I highly suggest you should invest as well. Whether it be stocks, bonds, real estate, businesses, entrepreneurship, invest! I have a rental property and I invest in stocks. It takes a lot of sacrificing, yes. But for the acceleration of living the life I really want to live, I’ll do it in a heartbeat every single time. For ordinary people like us, the importance of us investing our money into income and wealth producing assets is almost as important as getting a job.
I hope this encourages readers to take a hard look into what they want in life, how they would get there and see that investing can help get you to where you want to get.