Stock Market

Hey there! Ever wondered about the stock market and how it all works? Well, you're in luck because we're doing a broad overview of the stock market, its historic return averages, and a few other nuggets of wisdom to get you started on your investing journey. If it ever feels complicated and confusing just remember two things, 1) there are no get rich quick options, slow and steady wins the race and 2) if some guys and gals in suits on Wall St can make money from it then much smarter folks like you will be just fine in figuring out what you need to know.

The Stock Market in a Nutshell

The stock market is like a giant global network where shares of companies are bought and sold. Imagine it as a marketplace, but instead of buying apples or jeans, you're buying pieces of companies. Historically, the US stock market has provided an average return of about 7% per year, after adjusting for inflation. This means, over time, investing in the stock market can be a powerful way to grow your wealth. A key phrase to remember is, "time in the market beats timing the market". Don't try to figure out if it's about to go up or down because the answer is yes, it'll do both....many times over. Your best bet is to set it and forget it. Ideally you're investing for your future some number of decades from now. 

The Simple Path to Wealth

If you're looking for a straightforward guide to navigating the stock market, "The Simple Path to Wealth" by JL Collins is a fantastic read. Collins breaks down complex financial concepts into easy-to-understand advice, focusing a lot on the power of investing in low-cost index funds, which are a type of mutual fund that tries to mimic the performance of a specific index.

Enter ETFs and Mutual Funds

Now, let's talk about ETFs (Exchange-Traded Funds) and mutual funds. These are basically baskets of stocks or bonds that allow you to invest in many companies at once. It's like going to a buffet instead of ordering a single dish. ETFs are traded on stock exchanges just like individual stocks, while mutual funds are purchased through the fund company at the end of the trading day's price. Both are great ways to diversify your investments and reduce risk. While buying Apple and Tesla may sound like fun try to remember that everyone thinks they can predict which companies are going to do well in the future. Ever hear of Kodak or Blockbuster? While some may feel like a sure thing, technology and society can change leading to the rise and fall of different companies. Investing in an ETF that tracks the S&P 500 (five hundred biggest companies on US stock exchange) like Vanguard's VOO or its index fund VTSAX are a safer way of investing in Apple and Tesla along with many other big companies to help spread out your risk.

Tax-Advantaged Accounts First

Before you start pouring money into a personal brokerage account, consider maxing out your tax-advantaged accounts like 401(k)s, IRAs, or HSAs. These accounts offer tax benefits that can significantly boost your investment growth over time. Think of it as putting your money in a special container where it can grow faster because the tax man can't get his hands on it quite so easily.

Choosing a Brokerage

When you're ready to dive in, look for a brokerage company that offers the lowest expense ratios for the types of funds you're interested in. Expense ratios are the fees charged by the fund, and they can eat into your returns over time. Vanguard is my go-to for their low-cost index funds, but Fidelity also offers some great options.

BiggerPockets Money Podcast

For those who enjoy learning through podcasts, the BiggerPockets Money Podcast is a terrific resource for personal finance education. It features interviews with individuals from various walks of life, sharing their money stories and the unique ways they've approached their financial goals. It's a great resource for understanding how different strategies might align with your own financial goals.

Wrapping It Up

Starting your investment journey might seem daunting at first, but with resources like "The Simple Path to Wealth" and the BiggerPockets Money Podcast, plus a focus on tax-advantaged accounts and low-cost funds, you'll be on your way to making informed decisions. The key is that growing your wealth takes place over time, so patience and persistence are key. Happy investing!

Disclaimer

Remember, all the information provided here is intended for educational purposes only and isn't financial advice. Investing always involves risks, including the loss of principal. It's important to do your own research or consult with a financial advisor to find what's best for you.