Invest Your Money: Just Do It
I want to tell you a little secret – our MBA educations did not teach us how to invest in the stock market. Instead, we learned about the capital asset pricing model (CAPM), beta, and the theory of diversification. If you went to Chicago Booth like myself, you quickly grasped the meaning of liquidity preference function (LPF) – not its textbook definition that explains the demand for money, but rather our weekly social gathering that is named LPF. The irony, however, is that I never talked to anyone in that setting about personal investments.
As I reflect back, I think my male classmates were having side investing conversations amongst themselves. According to a Financial Times survey, 40% of men “enjoy the sport of investing,” compared to 22% of women. I saw this statistic play out in my own life. My fiancé, who is a technology consultant, made it a priority to understand the stock market. He read articles, learned basic investment terms, and talked to me about his stock ideas. The next thing I knew, he opened up a brokerage account and purchased three stocks in hopes of supplementing his income. I could not believe it – in three weeks, he had enough confidence to plow into the market. Yes, he was nervous that he might lose money, but that nervousness did not overshadow his desire to take action and invest.
On the other hand, I worked at an asset management firm for one year before I made my first non-retirement investment. It took me a long time to make sure I understood how everything worked and feel comfortable with the process of investing. Clicking on the “buy stock” button on my brokerage account mortified me; I always wanted to double-check my research and often second-guessed my decisions. I hated the thought of losing money – my loss aversion bias was playing out in its finest form.
Over time, however, the tension that once arose upon clicking “buy stock” has dissipated. The new feeling I receive is one of optimism and possibility, which reflects a desire to make money instead of not lose money. I still understand that I can lose money, but I am not handicapped from taking action because of that feeling.
Investing takes time and practice, but once you start, your confidence will rise. If you lose money, which is a reality, guess what? You have the opportunity to try again. I have made more money in the stock market after first failing at making money in the stock market. [Re-read the last sentence a few times.]
Here are five easy steps that can help you begin, or refocus, your investing journey.
- Make a conscious decision to Just Do It – Invest.
- Open up a brokerage account. For non-retirement investing, you must open a brokerage account. All of the big firms like Etrade, TDAmeritrade, and Schwab all have comprehensive research tools and general financial knowledge on investing basics. Before opening the account, make sure you check the commission rate, or how much it costs to place a trade.
- Decide how much money to set aside to fund your initial investment and continue to contribute funds. It takes money to make money. If you are serious about making stock investments, you should have enough money to make it worth your time. I have found that $2,000 is a good level to aim for to get started. Continue to invest by making regular contributions to your brokerage account. Try contributing once per quarter or opportunistically if you want to take advantage of market dislocations and dollar-cost average down.
- Pick one vehicle to start with and go from there. Decide amongst stocks, bonds, mutual funds, or Exchange Traded Funds (ETFS), which are some of the most widely used vehicles today.
- Create an investment community. Whether your community is just with one other person or an investment club, other people keep you encouraged. When it comes to investing, we all suffer from confirmation and hindsight biases, so it is important for others to know our investing history. Aside from others keeping us honest and accountable, we can learn a lot from others’ investing perspectives, tactics, and expertise.
Investing is a skill that we must continuously develop, even if (and I will argue especially when) we have a financial advisor. In a country where 6 in 10 African Americans provide financial support to someone else and cite debt repayment as their number one financial priority (compared to saving for retirement for the general population), we must begin to look for other ways to generate income.
Yes – we have competing priorities for our money, but we must take advantage of our income ability to invest.
If not us, then who?