Stock market and my way of investing

I recently read an article stating that majority of millennials (under age 30) don’t invest on stock market. In fact the survey suggested that only 26% own stocks. The market rallied the past 6 years and most millennials missed this opportunity.

Reading through the article, 53% of survey partcipants don’t invest because of lack of funds. I was not surprised there, given that our generation suffered from the financial crisis and had a hard time getting employment. What surprised me the most is the lack of knowledge about stock, with 23% citing this as a reason for not investing. Given that we are generation who grew up with information on our hands, I expect that millennials will have a way to know this. I can understand that millennials don’t trust the market or don’t want to take the risk. This is my reason for not investing and here’s how I overcome it.

Keeping it simple and calculate the risk you can take

My advice to my fellow millennials is to keep it simple. Unless you’re really serious with investing, there is no need to know about derivatives, stock options or other financial products.

If you’re employed, start with a tax deductible investments. This will limit the amount of research you need to do and hopefully, signing up is easy. Here’s how I allocate my money.

401K – I started investing through my company’s 401K. This is probably the easiest and most simple way to invest if your employer offer this. Investments can be limited. I started by looking at the cheapest ETFs and allocate my contributions evenly. I think of this investment as “money I never had” — hence lessening the perception of the risk. After a year, I saw my investment grew, I started getting excited which lead me to maxing out my contribution the following years.

Individual Retirement Accounts (IRAs) – After maxing out my 401K, I started contributing to an IRA. There are two types of IRA, traditional and roth. Traditional IRAs are tax deductible while roth IRAs are not. The amount of deductions for traditional IRAs phases out depending on your income. I started out with traditional IRA and now contribute to Roth. I do pick stocks on my Roth IRA. I take more risk on my Roth IRA and consider this as my emergency fund. The principal is not taxed if I need to withdraw it. If your company don’t offer 401K, you can still contribute to an IRA. Mad Fientist wrote a really good article, comparing Roth and Traditional IRA. I have my Roth IRA through Fidelity. I like that I can pick my own stocks.

Health Savings Account (HSA) – Another way to invest is through your HSA, if your company offers high deductible health plan. Individual contribution max out to 3,350 in 2016 tax year and is tax deductible.

Legos
Legos – investment?

Taking a bit more risk

Now, after maxing out your retirement account and you are more comfortable with investing, you can even try investing using an after tax dollar. I still keep it simple and here’s how I invest.

ETFs – After maxing out on tax deductible investments, I started buying ETFs. I chose Vanguard ETFs since the expense ratio is the lowest and it’s free to trade if you have a Vanguard account. I obviously have a Vanguard account. I chose 4 ETFs  and I contribute every month and buy it at market rate. I buy it every second Tuesday of the month. The process of investing every second Tuesday of the month started when I was in college. I signed up for Sharebuilder (now own by Capital One 360) and it cost $2 per trade if you trade every second Tuesday of the month. My initial investment was Apple, IBM and Costco. There was no minimum amount to invest at the time. I no longer have a Sharebuilder account but I continued with this process. I don’t even try to beat the market. I took the timing out of the equation, hold to my investments and make sure that it is diversified.

Choose a product you believe in and invest in the company – This only applies if you can handle the risk. I don’t read the annual statements but looked at the product. Some of the stocks I owned that performed well: Apple, Costco, FB and Amazon. I also lost quite a bit on Real 3D. I really thought that 3D was cool after watching Avatar, but I have to sell this at lost. Sometimes, instead of buying ETFs, I replaced it with stocks and invest on it for that Tuesday.

If you really don’t want to invest on stock, at least open a CD or a high percentage savings account. I like Capital One 360. But seriously, try out investing on stocks through retirement accounts. Think of tax deductions as gains  right away.

 

 

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