Breaking Down Investing

Investing is one of the best things you can do for yourself. You probably already invest via a 401k or some other retirement plan through your work. Some of my most-read posts are financial posts, and I love learning more about finance since I know so little.

Now, before you read the rest of this, keep in mind that I am not a financial advisor. This is just information I found to help me with my investing and wanted to share it with you. I am not giving you financial advice nor telling you what you should (or should not) do.

I currently use Robinhood for partial shares or smaller sums of money.

Have a goal with your investing.

What is your reason for investing? College tuition, retirement, and more are all reasons to invest. If you’re doing retirement, look into a Roth IRA. A Roth IRA allows you to put a certain amount of money in per year (based on income) and then when you withdraw it later, it’s tax-free. Remember, the main reason to invest is that you’re saving money at the rate of inflation which most savings accounts do not allow you to do.

What is Micro Investing?

Micro investing is typically done through an app, like Acorn. It allows you to invest change or small amounts of money through automatic transfers. Another example of a micro-investing app is Robinhood. You can join Robinhood here and get some money to start investing with right away. Robinhood does allow for you to buy a partial share, which means you can invest smaller sums of money at a time. I also know that Ally has investment options without fees.

How Will You Decide What to Invest in?

Personally, I don’t invest in a company unless it’s one I believe in. However, there are a lot of different methods to decide how you will invest. Some people decide to invest based on social causes, others decide to invest solely in one field. I think it is important to have a diverse portfolio and invest in companies you’re passionate about.

Investment Lingo

This is where I struggle the most. What does everything mean?

Let’s break it down:

• Share: a unit of stock. This is the smallest amount of stock you can buy. Keep in mind, some apps allow you to buy partial shares.
• Shareholder: the person who holds the unit(s) of stock.
• Dividend: regular payments of profit to shareholders. *Some stocks do not pay dividends.
• Dividend Yield: this is expressed as a percentage and explains how much a company pays in relationship to the price of a share. You want this number to be higher.
• P/E Ratio: Price to Earnings Ratio. This ratio values the company based on it’s current share price to it’s earnings per share. To find a good P/E ratio, you must compare stocks of the same type (i.e. a technology company to another technology company).
• EPS: Earnings Per Share. This is a company’s net profit divided by the number of shares. To sum it up, this is how much per share you would make.
• Cryptocurrancy: a collection of binary data that works as a medium of exchange (aka, computer lingo that you should be able to trade). This example is Bitcoin. I will say, cyptocurrancy does make doing your taxes more complicated.
• S&P 500: This is the Standards and Poor 500 list. It’s an index that tracks 500 publically traded US companies. This is apparently a great way to know how the stock market in the US is doing.
• Index Fund: this isa mutual fund or exchange traded fund (ETF). They follow the index and not the state of the market.

What’s Important to Remember

You can lose money in the stock market and with investing. This is not like a savings account. If you invest $100 and the stock market drops 5%, you’re doing to $95. What if it drops 20%? You’re down to $80. However, I think the biggest piece of advice I’ve seen in all my research is that the stock market is not for short-term gains. It’s meant for you to keep your money in for an extended period of time. Investments, unlike savings accounts, are also not insured.

To help with the fact that the stock market is meant for an extended period of time, I only invest small amounts at a time. Typically, I do somewhere between $50 and $100. This is not an amount that I’ll miss. Plus, I already do not see what is being taken for retirement.