MI Rewind: A Guide to Getting Started in Investing w/ Stig Brodersen
Mar 15, 2024
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A guide to getting started in investing with expert Stig Brodersen, covering picking a brokerage, understanding investment types, managing emotions, buying/selling stocks, different investment strategies, and the power of compounding for millennial investors.
Select a brokerage with low fees for better investment returns.
Diversify investments with stocks, ETFs, bonds, and commodities.
Prioritize long-term stock investments for millennial investors.
Understand options as a powerful financial tool for investing.
Start investing early to benefit from compound interest and realistic returns.
Deep dives
Opening a Brokerage Account and Choosing Brokerages
When starting an investing journey, the first step is opening a brokerage account. It is crucial to research and select a brokerage that offers low trading commissions and minimum account balances, especially for new investors. The choice of brokerage impacts the fees you pay when buying and selling stocks, influencing investment returns significantly. Opting for brokerages with minimal commission fees and no or low minimum account balances, such as Robinhood, can help maximize returns.
Types of Investment Accounts: Retirement vs. Individual Brokerage Accounts
Deciding between a retirement account and an individual brokerage account is essential for investors. Retirement accounts offer tax benefits and are intended for long-term saving, with limited access to funds before retirement age. Individual brokerage accounts provide more flexibility but involve immediate tax implications on gains. Applicants can submit online applications to open these accounts and fund them through electronic transfers from their bank accounts.
Investors can choose from various assets like stocks, ETFs, bonds, commodities, each with distinct characteristics. Stocks represent ownership in companies, offering potential high returns but also higher risk. ETFs provide diversified exposure to a range of securities or commodities, offering cost-efficient diversification. Bonds offer fixed income through debt investments, with different risk levels based on issuers. Commodities like gold or oil can be invested in through funds or ETFs, reflecting the underlying asset's price movements.
Focus on Stocks for Millennial Investors
For millennial investors, focusing on stocks is generally recommended due to the ownership of real companies and potential profit sharing. Stocks offer the opportunity to benefit from a company's growth and profitability, leading to returns through dividends or capital appreciation. Unlike commodities or bonds, stocks represent ownership in entities that generate profits, making them more suitable for long-term investing objectives. Understanding stock valuation and investing in quality companies for the long haul is crucial for millennial investors.
Understanding Options as an Investment Tool
Options present a powerful financial tool in investing, offering opportunities for both buying and selling assets at specific prices. Call options grant the right, not obligation, to buy a stock at a predetermined price, while put options provide the right to sell a stock at a set price. Options can be complex instruments, requiring careful consideration and understanding of their mechanics before incorporating them into an investment strategy.
Preference for Stocks and ETFs Over Commodities and Bonds for Millennials
When considering investment options, millennial investors are urged to prioritize stocks and ETFs over commodities and bonds due to their profit-sharing nature and long-term growth potential. Unlike commodities that lack profit generation or bonds with limited upside, stocks offer ownership in profitable enterprises with the potential for significant returns over time. Investing in diversified ETFs can provide exposure to multiple securities or assets, aligning with a strategy focused on long-term wealth accumulation.
Long-term Value of Investing in Stocks for Millennials
For millennial investors aiming for long-term wealth accumulation, the value of investing in stocks lies in ownership of real companies with profit-sharing potential. Stocks represent ownership stakes in enterprises that generate profits, offering the opportunity for capital appreciation and dividends. Unlike commodities or bonds, stocks provide a direct connection to company performance and growth prospects, making them a preferred asset class for investors with a long-term investment horizon.
Why Investing Early is Key
Starting to invest early is crucial due to the power of compound interest. Compounding allows investors to earn interest or profits off their previously received interest or profits, leading to significant growth over time. The podcast emphasizes the importance of getting started early to maximize the benefits of compounding, as demonstrated through examples comparing different investment start times and the resulting balances at retirement.
Realistic Expectations and Long-Term Strategy
The podcast highlights the significance of having realistic expectations and a long-term investment strategy. It cautions against get-rich-quick schemes and advises aiming for 5-10% annual returns, in line with historical stock market performance. Emphasizing data-driven decisions, low fees, and emotional control, the podcast encourages commitment to a long-term strategy to navigate market fluctuations and achieve success in investing.
Robert Leonard talks with Stig Brodersen. Stig is Co-Founder and Co-Host of We Study Billionaires by The Investor’s Podcast Network, a best-selling author, and a former college professor. He has successfully grown We Study Billionaires to the #1 stock investing podcast in the world, while building a platform that is also a leading authority in stock investing.
IN THIS EPISODE, YOU’LL LEARN
00:00 - Intro
01:46 - How to pick a brokerage company to invest with.
06:23 - What stocks, ETFs, mutual funds, bonds, commodities, and options are.
10:17 - How to keep your emotions in check and set realistic expectations.
27:36 - How to actually buy and sell stocks and funds.
35:29 - Different investment strategies that can be implemented.
49:38 - How and why compounding is so important for millennial investors.
*Disclaimer: Slight timestamp discrepancies may occur due to podcast platform differences.
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