How Do I Invest in the Stock Market?

In 2005, I bought stock in Barnes and Noble because I thought the new store down the street meant the stock would go up. I wish I could say it was a roller coaster of a first investment, but that would require it to go up first. This was more of a “mine shaft” type ride. Only down.

Investing in the stock market is the best, simplest, and most attainable way for you to grow your wealth. Before we get started, there are a few important things to keep in mind. Any investment in the stock market should be with money you will not need for the next ten years. In order to truly gain all the benefits of investing, you have to wait and be patient.

The value of your investments will go down, probably multiple times, over the course of your investing life. That is okay. Do not sell. You’ve only lost money if you sell. If you have an emergency fund, no credit card debt, and money sitting in a savings account, investing in the stock market can be a great option for you. So let’s get into it.

Thanks to monumental changes and technological advancements, you can now buy stocks as easily as you can buy another Yankee Candle on Amazon (you can always find room for another candle). 50 years ago, this was not the case. In today’s market, I would argue that investing in the stock market is a better way to grow your net worth than owning your own home (which is also great), but that is a conversation for another day.

So how do you get started? We can break this down into seven easy steps with six sub-steps. Just kidding, four steps:

1. Pick a brokerage.

2. Open an account.

3. Transfer money into that account.

4. Invest.

Step 1: Pick a brokerage.

What is a brokerage? A brokerage is the company that facilitates the purchase of stock for you. Just like Amazon facilitates your Yankee Candle addiction, a brokerage lists all available stocks, funds, ETFs, etc. for you to buy and their price. Then, when you want, it purchases the asset for you and transfers it to your account.

There are many brokerages out there. We are going to focus on two because we each use a different one (we have no affiliation with these companies). At the end of the day, they are very, very similar. People overthink this step a lot because it seems like a big decision. You could flip a coin to pick and make a great choice.

Charles Schwab:

• $0 fee for online trades

• No account minimums or trade minimums

• Robo-Investing (more on this in another letter)

  • $5,000 minimum: free

• Retirement Accounts (IRA/Roth IRA)

• Mobile App

Schwab currently has $7.38 trillion in client assets under management in 34 million accounts.

Fidelity: 

• $0 fee for online trades

• No account minimums or trade minimums

• Robo-Investing (more on this in another letter)

  • No minimum, less than $25,000: free

  • More than $25,000: .35% annual fee

• Retirement Accounts (IRA/Roth IRA)

• Mobile App

Fidelity currently has $10.3 trillion in client assets under management in 40.9 million accounts.

As you can see from the bullet points, Schwab and Fidelity are the same where it matters, unlike Yankee Candles. Regardless of what you choose, you will be able to access the same ETFs, stocks, and tax-advantaged accounts. Mutual funds will vary depending on the brokerage, but at these two, they offer essentially the same products. What is important is choosing one and getting started.

I use Schwab because that is what my dad uses, and I didn’t even know there were other options in 2005 when I opened an account to buy Barnes and Noble (I should have bought Yankee Candle stock). I like their completely free Robo-Advisor (the only one to offer that), customer service, and website/app.

Mike uses Fidelity because he likes their fund selection, mobile app, and user interface. Fidelity uniquely offers a few 0% expense ratio funds. Similar funds at Schwab have a .03% expense ratio which is very small, but not 0. A $10,000 investment with a .03% expense ratio would cost you $3 over a year.

Step 2: Open an account.

After you’ve made your choice, go to their website (you can click on their name above) and open an account. They want you to invest with them, so I’ll bet my favorite Yankee Candle (Silver Birch) that it is an easy process. You will have to give your social security number, but this should not affect your credit score.

Step 3: Transfer money into that account.

You’ll probably have to wait a day or two for money to actually transfer. I have linked my checking account to my Schwab account, so I can transfer money easily every month. I recommend you do the same. It saves time and decreases the necessary steps to invest.

Step 4: Invest.

Before I get into this, I need to clarify that neither Mike nor I are certified financial counselors/advisors or anything. We are just two army guys who have a passion for finance. We base our investment decisions on historical data, but past results do not guarantee future results. There is risk associated with investing, but we would argue the risk of not investing is far greater than the risk of investing.

This newsletter would be useless if we didn’t point you in a direction by telling you what we are doing.

Currently, I am purchasing 6 shares of the Schwab 1000 Index ETF (exchange traded fund) every month and reinvesting the dividends (hugely important!). I love this ETF because it tracks a larger bucket of funds than S&P 500 index funds.

SCHK: Schwab 1000 Index ETF. Currently (3 May 2023) $39.28 per share.

But Wilson, I chose Fidelity because Mike is clearly the smarter dude! How can I buy a Schwab product? Long story short, this Schwab ETF is traded on the free market. Regardless of your brokerage, you can purchase it.

This fund tracks the largest 989 US companies (naming it the Schwab 989 Index ETF just doesn’t hit the same as Schwab 1000) . By purchasing this, you get a small slice of Apple, Microsoft, Google, Amazon, Newell Brands (the parent company for Yankee Candle!), and 984 other companies. This lowers your risk from one company performing poorly. It also limits your gains if one company does amazing. However, future newsletters will prove that buying the bucket is not only safer, but the most profitable thing to do.

Mike takes a similar approach, investing in Fidelity’s Zero Fee Total Stock Market Index Fund, which holds all publicly traded US companies and allows the purchase of fractional shares. Since this is a mutual fund and not ETF, if you chose Schwab, their equivalent is SWTSX.

FZROX: Fidelity Zero Total Market Index Fund. Currently (3 May 2023) $14.28 per share. 0% Expense Ratio.

SWTSX: Schwab Total Stock Market Index Fund. Currently (3 May 2023) $69.70 per share. .03% Expense Ratio.

And that’s it! After those four steps, you are now invested in the stock market! Get ready for a bumpy ride. Unlike lighting a Yankee Candle, you won’t smell* the benefits anytime soon. However, in 20, 30, or 40 years you will be shocked to see what that investment becomes.

*see. I had to say smell for the analogy to work. Yankee Candle, please sponsor us.

What We’re Reading/Listening To

Rich Dad, Poor Dad by Robert Kiyosaki. This book is a foundation setting book for anyone looking to elevate their finances. Whether you grew up talking about finances or not, this book will reinforce and/or form great ways to think about money.

Debrief on Deck

Next week, Mike is going to talk about working your way out of debt. There is good debt and bad debt. Mike will focus on getting rid of that ‘bad’ debt, so you can stop paying interest and start buying more assets!

As always, please reach out to us with any questions or comments you may have. You can reply directly to this email or find us on social media (Twitter and Instagram).

Until then, stay the course.

Disclaimer