I remember what it was like to be an investing newbie. I remember all the mistakes I made and I want to help you avoid them. That’s why I’m making an article for you fresh-faced investors. Simple investing for beginners.
This is also my #1 most requested piece of advice and I think it has the biggest ability to change the most lives.
Fundamentally I will be answering the question of:
- What should you invest in and why?
- How do you literally do it?
- How to make it very simple.
I won’t go over a million types of accounts or cover all different investing avenues. Just what’s best for your first step. The other stuff advanced stuff comes later and this is simple investing for beginners.
Want to dive into deeper investing topics?
I’ll tell you the best way to start, why it’s the best way to start, and exactly how to get into it. Then you’ll be an investor, and once you get your sea legs you can start more complicated stuff. For now though, like I said, this is just simple investing for beginners.
Here’s what to expect:
- Why being a beginner investor is hard
- Tell you my story
- Tell you what investment is best for a beginner
- Why it is the best way to start
- EXACTLY what to do to get started
You – The beginner investor
When you are a beginner, starting into the world of investing, everything feels very complicated. You don’t know how to do anything. You know stocks exist but don’t really know how to buy them. You don’t know how to choose from the thousands of available stocks out there.
And worst of all you don’t know all the weird terms people use.
There are different kinds of investing, different strategies and different investment accounts to wrap your head around. All of which makes the first steps very daunting. Like BitCoin what the heck is that? Well, bitcoin sucks. Skip it.
Getting started in investing can be very simple.
‘Simple investing for beginners’ will take all the fear away.
Investing gets more and more complicated the deeper you dig and the fancier you try to get but the beginning is the simplest part, and I want to show you how to do it right.
In fact, investing really only gets more complicated if you let it, and I don’t think you should ever bother getting extra complicated. I tried. It sucked. Keep it simple, I’ll show you why, but first – a story.
My Story – I got into investing in university
I got interested in investing when I was getting to the end of my time at university. I thought to myself “I’m eventually going to have money so I better figure out what I’m supposed to do with it.” In my last two years of university, I read books on investing and invested some of the small sums I could scrounge up.
I wasn’t trying to make a huge pile of money right then, but my goal was to know how it all worked. “Then,” I thought, “once I had an amazing post-school job I could quickly become wealthy.”
I read a lot of books and everything got very complicated. My friends got into it too and we got deeper and deeper into the weird world of finance. I’m an obsessive type of person so once I was pointed at something I was interested in, I threw my whole life behind it. It caused some issues with my grades but I managed to get through.
I spent most of my time trying to pick good individual stocks. I read corporate annual reports and my friends and I pooled together stock pick recommendations we found from around the internet to try to figure out the best deals.
My Eureka Moment
I kept it up after I graduated too since I felt like everything was going so well for me. I made money over the years but damn, I had dumped hundreds of hours into the journey. Then one day I was looking over my investments and I realized I had bought a simple little index fund in my early days that I forgot about.
My first thought was, “index funds are stupid, I can beat these simple little things so I’ll sell it and put the money into a better place.” But when I checked how well it had done over the years, I was blown away.
This little sucker that I forgot about was almost keeping up with all my snazzy stock picking and it didn’t require me to spend my evenings and weekends figuring out what to do with it.
I didn’t trust it though. How could my hundreds of hours of effort really be almost worthless? I was a smart guy and worked hard at this. Surely I was succeeding somehow.
Throwing in the towel and creation of simple investing for beginners
Well, I watched that little index fund for 2 more years and compared myself to this simple little investment all the time.
It drove me to work even harder. It was a competition for me at this point and beating that little jerk was really hard. Finally, after two years dedicating all my free-time towards beating that index fund and not being victorious by much I threw in the towel.
I could beat it for sure but on average it was by so little I just couldn’t justify all the time I was putting in. My stock picking was time-consuming and this simple little thing was almost as good.
I was an index investing convert.
It’s almost all I do now, and it is the way I wish I started out. I could have had a lot more fun doing other things if I just accepted that this was the most cost and time-effective way to invest.
Oh well, you can learn from my mistakes at least. Its why I’m making this article on simple investing for beginners. It still took me years to figure out just why index funds were so amazing but after my studies, I realized why they are the perfect fit for simple investing for beginners.
I want to show you why:
But first, what the heck is an index?
OK I get it you are a total beginner and don’t know what an index is. It’s quite simple. An index fund is a collection of everything, like the index in the back of a book. A stock index is every stock, so when you buy into a stock index you are buying a little piece of every stock out there.
Then since you have a little bit of everything, your index fund does as well as the stock market as a whole.
They were popularized by John Bogle, founder of Vanguard, a few decades back based on the premise that people didn’t want to spend all their time investing when they could be off having fun. (What a concept!)
“Don’t look for the needle in the haystack. Just buy the haystack!”
― John C. Bogle, Founder of The Vanguard Group
The Little Book of Common Sense Investing
There are index funds for a lot of different things but the most popular ones are the general index funds for stocks, and the general index funds for bonds.
OK on to the fun stuff. Why are they great?
Indexes are very little work
When you are a beginner you need momentum. Index funds let you get set up and get investing. If the first step is simple it makes learning to invest just a little speed bump on your way to riches.
If you start with something complicated, like real estate, you have to learn a lot, read about the complicated things then figure out how to actually jump in. Suddenly your speed bump has turned into a mountain to scale.
If I thought you should START with real estate then this would be complicated investing for beginners instead of simple investing for beginners and no-one would read that!
The best part about indexes? They are simple, just like we want! They were designed to be simple right from the beginning. Do you want to invest in stocks? Easy, you just buy into the index for your country’s stock market. Boom, done, now you’re an investor.
You have more money now? Put it in the exact same place! Pfff! Don’t even think about it. Indexes forever.
Oh, you read something and it said you should put 1/3rd of your money into bonds? Just buy into a bond index fund! No need to think hard about the differences between stocks vs bonds. No thinking, no pouring over reports or trying to predict the next big thing or getting deep into bond investing. Just buy the whole market. Awesome!
Literally, you only need to know two names* to get started! How could it be any simpler:
*You buy stock market things based on their special 3 letter short forms, which you have to look up on google.
- If you live in the US:
- VTI = US Stocks
- BND = US Bonds
- If you live in Canada:
- XIC = Canadian Stocks
- XSB = Canadian Bonds
I did do a deeper dive into exactly which indexes were the best to buy and you can see my deeper dive in:
Best Stocks to Buy for Beginners
Index funds are actually almost no work
Actually making simple investing decisions are only half of the reason it’s beginner-friendly.
Choosing when to buy a stock is something people fret over. Let’s say you look at some stock and it went down today. Is it a good deal now? Will it keep dropping? No one really knows.
When choosing when to buy an index though it doesn’t matter. Since the whole market makes a big average there are no days that are very special. A huge day on the stock market makes it move 1%. If you miss that 1%, oh well. A lot of stocks bounce around over 10% on a big day so being on the wrong side of that is catastrophic.
I mean, maybe you could find a good deal but you probably won’t (check the next section). You can’t find a good deal with indexes so there is no point in trying. Therefore, it takes the thinking out.
Then since the timing matters so little you can buy them automatically by siphoning parts off of your paycheck and having them be automatically invested.
That is the epitome of easy. You don’t even have to bother hitting a ‘buy now’ button. It just happens.
It’s amazingly easy to keep up with.
You can make it even easier with some automated free financial analysis: I recommend you read my Personal Capital review, to make life even easier.
Maybe I should have called this super simple investing for beginners
Indexes give the best returns too! Surprise!
So sure, I had a great experience with indexes but maybe it’s just me.
That’s the amazing part about indexes. There is a lot of research out there that shows it is basically impossible to beat them.
Every year Standard & Poors tracks over 10,000 professional money managers in the SPIVA report and checks to see who, with their years of training and huge teams of Ivy league educated staff, actually end up beating the market.
Basically, no one does. Most mutual funds are bad because the chance of the highly trained people beating the index is about 1% and that’s with working a notoriously 24/7 job to get there.
If you have a 99% chance of failure to beat an index and have to work hard to make it, you should really consider not trying.
If you join team-index you have a 99% chance of beating everyone who does things that are more complicated. Those odds are amazing.
Then since it’s super simple, winning takes no effort! All the success and no effort! This almost never happens! Not jumping on that bandwagon is insane.
It sounds bonkers that the simple investing for beginners method can beat the complex hedge funds of the world but I’ve checked this a million times and it’s true. Read the report!
Index investing also costs very little
The last amazing thing about index investing that is great for beginners is that there are very few fees to trade them and very minimal ongoing costs. I consider the most important fees for beginners to be the fees on buying and selling. If you pay $10 every time you buy something and another $10 every time you sell something, it adds up.
It really adds up if you don’t have much money to invest. Like a beginner would.
If you are investing in $200 chunks, the $20 in fees is horrible (its 10% for the non-math inclined). Way more than 0.05% per year fees the index fund skims off the top each year or the 2% a money manager would run away with.
To Mr. Money-bags who invests $200,000 at a time, $20 isn’t a big deal. To you, the beginner, it’s a lot!
The fees on index funds are lower! The best trading platform in the US charges no money at all when trading index funds. And the best trading platform in Canada (Questrade Canada), doesn’t charge you any money when you buy an index fund (they still charge when you sell). They both have robo advisors too which I love because of their amazingly low fees.
That’s the triple whammy of why index funds are perfect for our simple investing for beginners. Really I recommend you never really move on, but at least this should be your starting place.
A quick primer on index investing
A quick education to avoid some confusion for you investing beginners. Index funds are what I recommend. When you buy index funds on the stock market they are called ETFs.
It stands for:
- Exchange (as in the stock market is called an exchange for some reason)
- Traded (because you buy and sell them)
- Funds (a bunch of financial stuff someone put together)
ETFs are any collection of stuff someone came up with. So we are looking at index ETFs because that is what I am arguing for above. That is what simple investing for beginners is based on.
There are other weird ETFs out there, but those aren’t indexes and I think they are stupid. Even better we like big market indexes, like a fund containing All of the Canadian Stocks.
Then, lastly, we like ETFs because the fees are very low. You can buy non-ETF index funds but they charge you more money and I find it more complicated to ferret out the fees they charge. So I don’t recommend it.
Literally, exactly what to do – 15 minutes for your future
Now at this point, I’ll tell you exactly what to do to become an investor. Follow it and you can be a savvy investor in about 15 minutes.
Simple investing for beginners is awesome! Hurray!
This is your action plan:
- Minute 1:
- Block any financial news. It will not help your financial goals
- Minute 2:
- Open an account at an online brokerage and buy some index funds.
- If you are Canadian open an account at Questrade. I shopped around and they are the best. They have small fees and the app is great. Plus, I am making a guide for literally which buttons to hit…but it’s not done yet.
- If you are American, use M1 finance, or read my analysis of why they are the best
- Minute 14:
- Buy some index funds. I will make a more in-depth article, but for now, you’ll be fine by buying 70% stocks and 30% bonds.
- It doesn’t have to be exactly 70%/30% all the time but try to keep it around that value by buying more or selling+buying what you have.
- The exact names (stocks are bought based on 3 letter short-names) to buy once you have your account setup are from above:
- If you live in the US:
- VTI = US Stocks
- BND = US Bonds
- If you live in Canada:
- XIC = Canadian Stocks
- XSB = Canadian Bonds
- If you live in the US:
- Minute 15:
- Blamo, you’re an investor. Pat yourself on the back and go get yourself a drink.
- You deserve it and you have time for it since you are buying simple index funds.
- Think about your future and the awesome things you’ll do with your money while you take your rest.
Once you have taken the first step you can think a bit more about how to invest down the road. But only after you have a funded account! Read about:
- Investing during a recession
- How to invest $1,000
- How to invest $10,000
- How to invest $50K
- How to invest $100K
- How to invest $1,000,000
- Should I Invest $1,000,000 for guaranteed income?
- How to invest 3 million dollars
- How to invest like a multi millionaire
- How to invest 10 million dollars
- Investing for inflation
- How to spend your stimulus check
- A real way for market timing
TL;DR – Simple investing for beginners
- Becoming a new investor can be intimidating
- But it’s best to start TODAY. Catching up is nearly impossible!
- Best place to start is with an index fund.
- Index funds are super fast (no research and easy to set up), super easy to manage (as in, you don’t need to read or know anything), and super effective (they grow with the market. Hellooo.)
7 thoughts on “Simple Investing for beginners: From beginner to investor in 15 minutes”
Hiw do you buy Index Funds if you live in Europe? Thx!
So I’m not european but I have heard good things about Degiro 🙂
You just need an online broker (so that you can buy things) and then you have to figure out the name of the index you want to buy. Usually its 3 letters and you just google ‘___ index ETF’ to find it.
Have you seen this year’s Canadian Couch Potato model portfolio recommendations? I love that they’ve started to suggest single ETF options as the first choice for newbies. I had a conversation with a friend recently about what she should start investing in, and I told her just put everything in VGRO. (After discussing her risk tolerance, time horizon, and making sure she knew to expect volatility.)
One stop shopping, and you don’t have to figure out how much to put in each fund in order to maintain your asset allocation when you transfer in money. I don’t have an issue with figuring that out myself…I like math, and adore spreadsheets…but that’s a barrier for some people, and I think my friend is much more likely to take the plunge if she only ever has to buy one fund.
I hadn’t seen 1-fund couch potato but I’ve seen the 1-fund offerings. Maybe I could make that my beginner recommendation but I don’t like 1-fund portfolios because it’s hard to change your balance if you ever want to :(. Now I’m torn.
100% the best thing for someone to do who isn’t investing is to start investing + be without an advisor. So whatever is simplest is best in my books 😛
what about a 62 year old that is retired
Same advice. The US economy won’t go kaput any day soon so investing in indexes is pretty safe.
If you had piles of money I would venture out into real estate and/or farmland (I have an article on that!). And have a nice 18mo emergency fund like yours truely. 🙂
I’m retired in my 30s and it’s what I’m doing.
Enjoyed your article. Sounds like my kind of advice. Thanks- Bob