How The Rich Get Richer: Tips for the Beginner Investor

The Nest Egg vs Play Money

When it comes to investing in the stock market my philosophy is: the serious money i.e. retirement, nest egg, etc. goes into index funds. Index Funds are investment vehicles that try to match the risk and return of the total market. By investing in them I don’t worry about idiosyncratic risk associated with any particular company. The return on investment is whatever the total U.S. equities market does year over year, which historically has averaged around 10%. This can add up over time.

Benefits of Index Funds are:

  1. Ultimate in diversification
  2. Low expense to fee ratio
  3. Strong longterm returns

Below is an an example of how compound interest works investing $10K:

Let Your Money Work For You!

Parking $10K and not touching it for 5 years @ 10% interest.
Investing $10K and contributing an additional $500/per month over 5 years @ 10% interest.

Play Money

Now that we’ve got our serious money carefully invested, it’s time to see if we can beat the 10% return we’re getting on our index funds, by selecting individual stocks. When picking stocks I tend to invest in companies that I know pretty well. If I use their products daily, my philosophy is I might as well get a piece of the action, instead of being a mere customer.

Before I jump in and make a final decision on whether or not to invest, I do some research. I seek to learn how the company is being managed, are they laden with debt? What’s their profit margin? What’s the competition like? What are the products in their pipeline? These are all questions I look to understand before making the plunge (Google is my friend when it comes to research). If they check out, I head over to my favorite trading app and execute the trade. And voila!

What’s your trading philosophy? Hit me up on IG and share the wealth!