Investing for Beginners

I'll call it Investing 101 and 201

This is not investment advice; If you follow my ideas and lose your shirt, don’t even think about suing me, because you wouldn’t get anything, because I would have lost my shirt too. This is just what I would do and what I recommend to my children, based on my own personal experience, unprofessional opinions and philosophy. Take it for what it’s worth and use your own good judgment. At present, I believe the stock market is priced so high that it’s not a good time to get into it. Sure, it could go higher, but I always was afraid of heights. That’s why I climbed Mt Hood 5 times from the South side; but never the North side, which is way steeper and scarier.

Yours truly and my good friend Kurt Risley on top of Mt Hood

Investing 101

First, you have to save so you’ll have something to invest.

Save 10% after giving 10% first, and yes, that means learning to live on the remaining 80%. It takes real discipline and commitment. Study and learn basic principles of investing and risk management. Set a goal and a plan to become debt-free. After saving 10% for long enough to have a safety cushion for emergencies, get ready to invest the 10% that up till then was going to savings. Start by deciding whether to put your money in short term treasury bills (T-bills) or in stocks.

If the stock market is hitting all-time highs, and T-bills are paying over 5% interest, like today (June 2024) then I would buy a T-bill with an online account at treasury.gov.  The minimum T-bill investment is $1000. You will link your bank account for payment and when the T-bill matures, the money can be sent directly to your bank, or you can set it up to automatically reinvest in another T-bill when it matures. You can change that any time.

If you’re concerned about inflation, and you should be, then a traditional hedge against inflation is gold. Allocating 10% of your investments to gold is a good idea. It’s like insurance, in case of a dollar collapse, which would probably be manifest as runaway inflation. You can buy gold coins, or you can buy a gold ETF (Exchange Traded Fund). Gold coins have to be kept in a safe place of course.

If the stock market crashes, and it will, sooner or later, it always does – then when you think it’s down far enough to make sense (good luck trying to catch the actual bottom – that’s just as hard as trying to pick the peak) – by making sense I mean a reasonable expectation for a decent return -either by growth or by dividends or some of each. Then you can start “nibbling” on conservative stocks. I say nibble, because you don’t know if the market might go lower and you might be able to nibble some more at a lower price.  

Start by opening an online brokerage account and buying small amounts of ultra conservative ETFs. An ETF gives you the advantage of immediate diversification – spreading your investment over many stocks in a sector rather than just trying to pick one or two companies. Fidelity is a brokerage that has no minimum to open an account, and they even allow you to buy partial shares.

Give some thought to what sector to invest in. For example, biotech stocks, in the healthcare sector, have been in the doldrums for a long time. Yet biotech is not going to go away. XBI is a biotech ETF that might be a good buy when it’s been beaten down.

Sectors as defined by usnews:

• Materials.

• Industrials.

• Financials.

• Energy.

• Consumer discretionary.

• Information technology.

• Communication services.

• Health care.

• Consumer staples.

• Utilities.

• Real estate.

Over a period of months, if things start going your way, you may decide that the tide has turned enough that you might sell your T-bills and have that much more to put into stocks.

Investing 201

After getting started with a T-bill account, or a basic and modest stock portfolio, or both, and a little gold, real estate is what I would look at next. It has been one of the traditional best long term investments, but it seems way too expensive for beginners.

There is an answer. Here is a description by one of the investment funds that can get you started in real estate for $10.00!

“For almost a century, regulatory barriers made it difficult for individuals to invest in private markets, giving billion-dollar institutions preferred access. The result has been that most investors have been limited to public markets and excluded from private investments—ranging from real estate to venture capital. Technology is finally disrupting this status quo.¹

Enter: Fundrise, America’s largest direct-to-consumer private markets manager. We built our technology platform to bridge the barrier. Software allows us to achieve the scale of institutions without the bureaucracy. Combining our technology and investment expertise, we are pioneering a new model to build you a better portfolio.” Source

Another type of real estate is where you’re the banker and you lend money to private borrowers. The advantage is that in exchange for the risk, you’ll receive a much higher interest rate than what a bank will give you on a savings account. An example is Groundfloor.com, which like Fundrise spreads out the risk among many small investors. Here again, you can start with as little as $10.

“Once your account is set up, you’ll have access to a platform that empowers you to explore and invest in fractional real estate investments to help you grow your wealth. Take the first step toward financial freedom by creating your Groundfloor account today.”

As time permits, I’ll write Investing 301, which will go into a lot more options, usually called ‘alternative investments’. That’s when the fun begins!