so you've saved up some money and you want it to work for you you've probably heard of this term called investing and that's the practice of allocating your money in a way so that it returns more to you in the long run however if you are a beginner it can be really overwhelming there's tons of terms you've probably never even heard of for example bear versus bull markets ETFs index funds limit orders ticker symbols the S P 500 the list goes on so I'm actually of the firm belief that investing doesn't actually have to be overwhelming so in this video we're going to show you why you should be investing how you're going to be investing and what to actually invest in and these are going to be in terms that anybody can understand we'll also go over some basic beginner strategy and also talk through some frequently asked questions as well as go through a live example of actually how to invest so if that sounds good to you stay a while listen grab a drink and let's get into why you should be investing all right plain and simple the reason why we want to invest is that we want our money to work for us so if you're actually saving your money right now in a savings account for example at a big Bank like Chase or Wells Fargo or anything like that the interest rates that they're paying you on your money is not very high typically a bank like that might offer you point zero one percent or even 0.15 on your money so let's pretend for a second that someone hypothetically gives you one million dollars and you take that million dollars and you put it in Chase Bank in a savings account that yields you about point zero one percent at the end of the year that million dollars will have earned you one hundred dollars in that case your million dollars is not working very hard for you imagine you were getting 10 on the money per year that would be a hundred thousand dollars that's a huge order of magnitude different from your hundred dollars which is the typical savings rate at a big Bank even five percent on a million dollars would be fifty thousand dollars a year and I think that many people could live comfortably in retirement off of that money so investing can get our money to compound over time and the term compound interest refers to the interest that you earn on your own interest so this is kind of a confusing concept if you're new but it can be illustrated by this example here say you invest a thousand dollars and you get a 10 return at the end of year one you're gonna have eleven hundred dollars now when you start that next year if you get ten percent on eleven hundred dollars you'll end up with year two at the end of year two twelve hundred and ten dollars now pretend that this pattern continues for another 20 years your money starts to earn money on the previous balance every single year so at the end of year 20 you're gonna have six thousand and 727 so just by putting a thousand dollars in and getting a return every single year your money starts to grow and grow and grow and that's called compounding another reason we want to invest some of our excess cash instead of having it sit in a savings account is the concept of inflation the US has a central bank and that's called the Federal Reserve and that actually dictates the monetary policy for the United States but you just need to know that they are targeting a two percent inflation rate every single year for a healthy economy but I'm sure you've seen the news recently recently the inflation reports are saying it's between six to eight percent a year that means if our money isn't earning six to eight percent a year that money is losing value just by sitting in the account it's losing purchasing power all right if you really want to see inflation in action all you have to do is look at the stamps that you buy for your letters in 1971 the stamp cost eight cents to mail a letter as of this year in 63 cents to mail that same letter the mechanics are exactly the same the stamp allows your letter to be delivered anywhere in the United States But as time has passed the stamp has just gotten more expensive due to inflation so that's also why we want to invest so let's get into how do we actually invest the first thing to understand about how to invest in the stock market is to understand that we can actually invest in a variety of things so you can invest in companies like investing in stocks so the better that a company does financially the better that your investment is going to do you could also invest in real estate so your family may have bought a house in the 90s and maybe they bought it for a hundred thousand dollars at that time but over time nowadays your family home is worth one million dollars that 900k difference that you're seeing there is known as real estate appreciation and appreciation is a term to describe what what happens to your asset when it appreciates over time so it increases in value over time you could also invest in Collectibles so Pokemon cards for example the first edition Charizard cards are going for like twenty thousand dollars these days but back in the 90s the late 90s when the Pokemon cards just came out those cards were probably worth no more than twenty dollars now all of these Investments do carry risk and it can be pretty difficult if you're a beginner to figure out what to actually invest in but I promise you if you just keep watching we're going to answer all of these questions for this video we're going to be talking about investing in the stock market so investing in companies as this is the most common type of investment and also has the most predictable returns over a long period of time I'm going to define a long period of time as anything over 10 years but the longer that you hold on to your stocks and Investments the better and I'm going to show you with a stock market example so this is the graph that represents the S P 500 which is known as the top 500 companies in the United States and I'm going to explain a little bit later in this video how to buy this exact Market or this exact s p 500 with just one purchase but what I want to show you guys is what's really interesting here is that if we click on Max we can see that this S P 500 was started back in 1983 and you can see that the general Trend in the general direction is that it goes upward over time now sure there are some dips and there's some valleys right here as you can see famously in 2008 the market kind of had this little crash right here and and same in the 2000s it also the.com bubble it also crashed right here as well so sometimes there are periods where if you if you don't hold long enough you could lose money so for example if you bought in 2000 you sold in 2003 right here you would have lost money investing in the S P 500 but if you had held long enough you can see that back over here in 2015 you would have made money on because it's higher this this number right here is higher than what it was back in 2003. historically if you invest in the S P 500 Index it typically returns between 8 to 10 percent a year and that's since the Inception of the s p 500 so that means if you had put a hundred dollars of your hard-earned money back in 1980 let's say you were live back then and you invested it into the stock market it would be worth nine thousand nine hundred and seventy seven dollars today adjusted for inflation a hundred dollars is worth 360 dollars today but that means that your money still would have gone up about 27 times in value just for investing and that's why it's so important to invest and grow your money so that you're not just leaving money on the table and honestly investing is not that difficult especially if we know what to invest in so let's actually get into what do we actually invest in all right in terms of what to invest in as a beginner I'm sure many of you have heard of your friends or family buying individual stocks so maybe your dad or your friend might put a hundred dollars into Coca-Cola stock or Tesla stock or something sexy like that the thing is though is that investing in individual companies can take a lot of work oftentimes they are more volatile in their returns and they're definitely like a more active style of investing think of like a day trader a day trader is looking to maximize it Returns on a daily basis so they might be looking at a Stock's performance by minute by hour and that's something that takes a lot of work adds a lot of stress into your life and it's not something that as beginners we want to do a more passive style of investing will just involve buying all of the stocks in the stock market kind of forgetting about our investment and just checking it once or twice a year and seeing our money grow over time and the way that we're going to do that is to invest in what's called an index fund so an index fund is something that a lot of financial advisors will put their clients into and basically it's a fund that is well Diversified tracks the stock market and as long as you invest in them over time consistently the path to becoming a millionaire is almost guaranteed so what is an index fund exactly though so to understand when an index fund is we actually need to talk about the fund that preceded it and that's actually known as a mutual fund a mutual fund is when many investors will pool their money together they'll come together so let's say you have a million dollars and I have a million dollars we both give it to a a mutual fund manager and that fund manager's job is to try to give us the best possible return they might raise more money from a bunch of different people and by pooling that money together they then pick a selection of stocks based on their expertise to try to get you the highest return in exchange for this service the money manager will charge a really high fee to its investors because the money manager is doing all the work and also the money manager has kids to feed in a house to mortgage or a house mortgage to pay off as well so they need to get paid a pretty high fee so a mutual fund has a professional manager involved but an index fund on the other hand is passively managed and it tracks an entire stock index a stock index is something like the S P 500 which tracks all the 500 top companies in the United States the NASDAQ is another example of an index and in the UK they have something called the ftse so they had the ftse 100 which tracks the top 100 companies in the United Kingdom so an index fund would automatically track and invest all those companies in that specific index so all that we have to do as a beginner investor is by that Index Fund so on the screen right now I have the S P 500 companies by weight just to give you an example of what kind of companies are in the S P 500 we can see that apple right here is the world's largest valuable company it has a weighting of 6.14 in the S P 500 Microsoft is in here Amazon alphabet Exxon Visa Tesla Home Depot you get the idea these are all larger really really large companies as we scroll down the list you can see that the companies will start to get a little bit more unfamiliar for example if we went all the way down to the 400s I've never heard of Camden Property Trust never heard of it in my life however if you were to buy an index fund that tracks the S P 500 your money would get split proportionally among all the S P 500 companies that we see here so an example of an S P 500 Index Fund would be like ticker symbol vfiax so a ticker symbol is like an airport code so whenever you're landing at your airport there's usually a three letter code for example so JF K would be John F Kennedy Airport or London Heathrow would be lhr stocks and Investments also have their own ticker symbols so if we scroll all the way to the top we can see that ticker symbol for apple is AAPL Microsoft is msft Amazon is amzn ETC so index funds are passively managed which means that they don't have a professional money manager which also means that there are not super high fees for owning an index fund what the index fund does it's just really a convenient way for you to invest your money and then get instant diversification among all of those Holdings within the index fund it's definitely a really great beginner strategy because it kind of takes the guesswork and the work out of investing you just invest in everything and so if you want some more further Evidence as to why you shouldn't pick individual stocks consider the tech company Intel they were once a high-flying stock back in the 2000s during the.com bubble but if you had chosen this individual stock back then you can see by this chart that to this day a you would still not have broken through its all-time highs back in 2000. now compare that performance to the overall stock market performance since 2000 which has four times since then so this is the danger of picking individual stocks while there is more reward sometimes there is definitely more risk and so what we're looking for is consistent gains over time because that's just really nice now everyone's goals and time Horizon are very different when it comes to investing investing is extremely personal right so when I used to be a financial advisor one of the first things that we would ask our clients is hey what's your risk tolerance and how long do you want to be Investing For are you the type that's okay with really big risks and big swings in your account or do you just want to see it steadily grow over time and this is something that you should definitely ask yourself before investing I would say the index fund strategy is very good for a beginner investor that's on the younger side however if you are nearing retirement let's say in five years you might not want to invest in index funds because they could be too volatile for you and the reason is pretty simple is that if you're about to retire in five years you need all the money that you can possibly get your hands on so it doesn't really make sense for you to risk your money in the market now compare that to someone who's 20 years old who has 45 years left to retirement that person might have a higher risk tolerance because they have more time to kind of f up and mess up because even if they do mess up they have more time to recover so the basic gist here is that if you are earning a consistent income you should be setting aside a portion of that income and consistently investing over time again the average return for the market is typically around eight to ten percent a year in the S P 500 but as you saw in my earlier example with the S P 500 graph that there are periods of time stretches like eight to ten years where it might trade flat or you might actually lose some money I would say for the majority of people watching an index fund that tracks the S P 500 is the way to go now you're probably wondering to yourself well could the stock market ever go to zero well historically based on all the data it probably will not go to zero like for the stock market to go to zero basically all hell has broken loose on planet Earth and all of our financial systems have collapsed so if the stock market were ever to go to zero let's just say we would have way bigger problems than just the stock market being zero I'm sure money would have no value at that point however I'm not going to rule it out like there might be a point zero zero zero zero zero zero one chance that it ever happens I never want to say never on this channel so Never Say Never Justin Bieber Jay Smith and JB but I don't think it's gonna happen so is that a realistic risk that you should be worried about probably not okay in terms of where to invest your money within what type of account you usually want to do it in a retirement account or a brokerage account now a retirement account is something like a 401k which is employer sponsored which means that your employer usually sets it up for you and you can invest in their program or there are also individual retirement accounts such as the IRA or the Roth IRA if you're in the UK Canada or Australia what I'm going to do right now is put up the equivalent account Types on the screen right now so in the U UK it's known as an sippp or pension and the IRA is known as the ISA in Canada they're known as rrsps and the IRA is known as the tfsa and in Australia they're known as superannuations let me know if that's correct you Aussies down there and then the IRAs simply an IRA now while I can't speak for the countries outside of the United States the main advantage of investing in a retirement account is that there are usually some tax advantages now if you are investing within a retirement account just know that the trade-off for those tax advantages is that you usually have to wait until you retire to withdraw that money so essentially you're locking up your money until retirement not all the time there are some ways that you can get it out before retirement but you'll usually have to pay penalties now if you don't want to invest in a retirement account what you can do is simply invest in what's called a brokerage account and those are usually taxable on a year-to-year basis so back in the day before the internet what you would do is you would call a stock broker on the phone you know you'd call anyone like this or like this depending what age you are and uh the that's kind of like the scene in The Wolf of Wall Street you'll remember that Leonardo DiCaprio when he's trying to sell stocks to the phone he's literally riding on a piece of paper that he's gonna sell this aerotine you know Industries to this person over the phone and then he's going to actually place the trade via paper and that's how it's gonna go back then you would need a broker to place your trades because the entire financial industry is heavily regulated and it's not like you could go to a company's website these days and just buy their stock however these days instead of contacting a broker you have what's called just a brokerage account or a brokerage app and what you do is sign up for an account and then you can just place your trades electronically a brokerage is something known as like Fidelity that's a brokerage Charles Schwab that's a brokerage Robin Hood Weeble these are all examples of brokerages now if you aren't sure of how to place a trade within a brokerage like that at the end of this video we're going to go through a live example of how to buy an index fund or an ETF using one of these apps now first let's actually answer the question of when you should start in testing because I think this is always a question that people have it's like okay am I too old to invest am I too young to invest the short answer is that you should start investing as soon as you can the earlier you start investing the better because you have more time to take advantage of those compound returns and more time to hopefully if you mess up you can make up for it now I will say that you should not start investing if you don't have at least three things done yet number one you should have all your high interest debt paid off and the reason is is that usually High interest rate debt is anything over 10 percent so if you can get a guaranteed return of 10 by paying off your high interest rate debt you should probably do that because that's guaranteed the trade-off is that yeah you don't invest in the market but what if the market loses you money I'd much rather just be free of high interest rate debt before I start investing the second thing you want to have established is an emergency fund so that's a fund that you set aside just for emergencies and hopefully you have three to six months of your expenses saved in that account that's an account that you do not touch unless for emergencies and this is actually going to give you a lot of Peace of Mind before you start investing lastly only invest which you can afford to lose so for example let's say you want to buy a house in the next two years with your nest egg of money I probably would not be investing that in the market because what if the market takes a downturn and all of a sudden you can't buy that house anymore investing does carry risk and while we have been going over a strategy that in the long term Nets you between eight to ten percent you know in any given point you could lose money so that's something you just want to keep in mind all right so how much money should you start with in terms of how much money you want to start with investing this is where I have kind of a controversial take a lot of people are going to say to invest whatever you have into the market and I think a more important condition on whether or not you should do that is that if you have a reliable way of generating more income then you should be consistently investing into the market but if you only have let's say a hundred dollars to your name and you invest in the stock market and let's say you get 10 percent that's ten dollars over the course of a year that's not a lot of money so your money in that case when you only have a hundred dollars it's much better to invest that in yourself build some skills start a side hustle so that you can get more consistent income but if you are someone with a consistent salary a consistent income you don't have any High interest rate debt and you have an emergency fund taken care of that's when I would say start to set aside a portion of your income every single month or every single paycheck and invest that into the market if you're still having trouble trying to figure out how to make money you should should check out my video on how to go from zero to a hundred thousand dollars within a year I just posted that on my channel not too long ago okay so let's go through a live example of buying shares on a brokerage app now obviously I change clothes because I did record this the other day but the recording got kind of messed up so I'm doing it again now but in terms of The Brokerage you choose it doesn't really matter too much they're more or less the same across the board as long as they are one of the bigger brokerages like Fidelity or Charles Schwab or TD Ameritrade Etc all these platforms will take care of calculating the taxes for you the commissions are going to be low or even zero for some of these and the only really big difference is the interface so it really just comes down to like personal preference I personally use Fidelity or Robinhood just because their interfaces are really easy to use and some of these brokerages if you're not even signed up yet you can get some free stocks when you use for example my links Down Below in the description so I'll leave those down below in case you want to get some free stocks when you sign up for them but it's definitely not required it's just something that's there okay so let's actually go through and buy some shares of a ticker symbols such as voo that's an ETF that tracks the s p 500. all right so you usually come up to one of these screens and I'm just going to click on trade at the top left right here and then I'm just going to type in vo you can see that it's actually listed in my symbol or company names for the recent quotes but I'll just type in vo anyway and it'll come up the Vanguard 500 Index Fund so we're just going to click on that now we're at this screen we can see that it's trading right now for 367.16 I'm just going to click on Buy all right once you get to this screen this is where you want to just choose buy for the action as you can see here you can also press sell if you had some shares but we're just going to buy today so we're going to click buy the quantity type here you can choose to buy in shares or the dollar amount so I'm just gonna buy one share right here and just kind of show you how it works so it'll tell you that the estimated cost here is 367.10 the order types is Market or limit now these are a little bit complicated but all you really need to know as a beginner is that market will make make it so that you buy these shares as soon as possible so as soon as possible ASAP if you choose limit that's when you actually have to set a limit price and that means the order will only go through if the price of that share is trading at the price that you specify so it's a little bit more I would say customizable so that you get the perfect price that you want but for the sake of our example we're just going to use market and I'm just going to click on preview order all right so this is the order preview it just kind of goes over an overview of what you're about to buy and then once you're ready to buy here you're just going to click the place or button and we'll do that confirming trade and boom order received and I have a confirmation number it's easy as that now let's actually go through an example and buy with dollars since I just showed you how to buy one share let's actually buy a hundred dollars worth of VO because you can also do that too all right so now we're back at that trade screen that I showed you earlier we're going to click on buy and then instead of shares we're going to choose dollars and let's say we only want to buy a hundred dollars worth of VO we can just type in a hundred dollars right here and same thing we're going to place it as a market order and if we just preview this we can see that the order preview in this case the estimated order value is only a hundred dollars so we're basically buying a fractional share of VO which means we're not going to get the full share we're probably going to get like 100 divided by 366 what is that uh we'll get 27 of one share so 0.27 shares of VO I'm just going to click on place order right here and boom just like that we've placed an order for some shares so that's exactly how that works within the Fidelity app and many of The Brokerage other the other brokerage apps are going to be very similar all right guys if you enjoyed this video I hope that it was incredibly valuable and helpful as a beginner getting into investing please share this with a friend if you think it would be helpful and make sure to check out the links Down Below in the description and also lastly subscribe to this channel because we come out with new investing personal finance and really cool videos all the time and I hope to see you guys in a future video alright peace