Have you ever wondered what the stock market really is? Why do some people like Warren Buffett amass fortunes spanning multi-generations, while others turn the stock market into a casino and seem to lose everything? By the end of this video, you’ll understand how the stock market works, how people actually make money in it, and the tools you can use to start investing with confidence, even if you’re starting with, say, even a hundred dollars. We’ll also go over the proper way to invest in the stock market so that we can give ourselves the best possible chances of making money. So I hope you stick around through this video guide. Take out a notebook and feel free to watch this video at your own pace. That means you can pause the video at the end or even in the middle of these sections, take notes, and then continue. It’s also a long enough video today where you don’t have to watch it all in one sitting, so I encourage you to watch it however it feels comfortable for you. I will bring up a table of contents here on the screen right now of everything we’ll cover in today’s video, which will include things such as why you should invest, how much money you can really make, stock market terminology, how to construct a portfolio, and even live demonstrations later on in this video.
video. All of these will be timestamped and chapter-marked below, along with corresponding resources. Okay, so if you’re ready to dive in, let’s get straight to why you should invest in the stock market. To start, the S&P 500 is a stock market index. That tracks the top 500 US companies. This is one of the most-followed indexes, and is considered the best representation of the USUSUSUSUSU.S.USUSUSUSUSUS stock market. And the best thing you should know about the S&P 500 is that it’s been consistently trending upward, producing an average annualized return of around 8-10% since it began. So that’s the first reason. We know it’s a tried-and-true method for growing your own money and wealth over time. It’s also simple to do if you’re buying the entire S&P 500 index, which we’ll discuss a bit later in this video. The next reason you want to invest in the stock market is that, historically, stocks have produced the best returns over the past 100 years compared to other assets and commodities. Here’s one of my favorite short videos by Max Klemenko, in which he goes to Wall Street and quizzes people who work there about investments over the past 100 years.
Crypto and equities are what you’re looking for. Number one is stocks, with an average annual return of 5—2%. You can see that stocks have the highest average annual return among investments, such as Treasury bonds, fine art, and precious metals like gold. Real estate, for example, even comes in at number 10 at 0.3%. Over the long term, stocks have the most potential to transform your life because they have the highest chances of capital gains. Whenever I interview or talk to someone with a very high net worth, they all agree that, to build your wealth, you need to concentrate the money you do have into appreciating assets. And that brings me to reason number three: you want to invest in stocks. You want your money to work for you. The reason is that having cash in the bank no longer offers you much of a return. Your typical big bank, like Chase or Wells Fargo, will offer you an interest rate of 0.1%, maybe 0.15%—your savings account. Let’s pretend for a second that someone hypothetically gave you a million dollars and you want to live off of that money for the rest of your life. If you were to put it all into a Chase savings account that pays you 0
%,
At 1%, you would earn only $100 in 1 year. In this case, your $1 million is not working very hard for you. And imagine you just had a million dollars earning 10%. That’s $100,000 per year. Now that completely changes things, right? Like we can live off $100,000 per year. That sounds nice to me. And even at 5%, that would get you $50,000 per year with a million-dollar balance. The thing about investing is that our money will work for us and compound over time. And the term compound interest refers to the interest that you earn on your interest. can be illustrated by the following example. Say you invest $1,000 and you get a 10% return in a year. By the end of year one, you’ll have $1,100. In year two, you’ll get the 10% gain again, and now you’ll have $1,210 because you’re getting 10% on the larger sum you started with, $1,100. And if you repeated this every… year for 20 years, you’d have $6,727 by the end. So just by putting $1,000 in and getting a return every single year, you can see your money compound and grow even larger.
And the fourth reason you guys should invest in the stock market is simply because of inflation. The USUSUSUSUSUSU.S.USUSUSUSUSUS has a central bank, the Federal Reserve, that sets the country’s monetary policy. They’ve publicly said they target a 2% annual inflation rate to keep the economy healthy. But in recent years, you might have noticed that in the news, inflation was closer to 5% to 8% during the years immediately following the pandemic. That means, if our money isn’t outpacing inflation, let’s say inflation is 5%, and if we’re not earning at least 5% on our money, then our money is losing purchasing power just by sitting in that account. The example of the USUSUSUSUSUSU.S.USUSUSUSUSUS postage stamp best illustrates this. So in 1971, the postage stamp cost 8 cents to mail a letter. As of this year, it’s 73 cents. The mechanics of the postage stamp are the same. The stamp gets you a letter delivered anywhere in the United States. But over time, it’s gotten more expensive to mail a letter due to inflation. How do we beat inflation? One method is to invest our money. And a question that naturally arises when you’re investing in the market is, well, how much can you really make in the stock market?
The truth is that when it comes to the stock market, there are so many strategies you can employ to grow your starting balance, but one that is tried and true for many passive investors and beginners is the index fund approach. I alluded to this earlier, but that’s where you consistently invest in an index fund that tracks, say, the S & P 500. If you were to do that, your annualized returns would be around 8% to 10% on average. Let’s go through a real-world example here. Let’s pretend you earn $70,000 U. S. dollars a year. That’s about the median household salary in the United States. After taxes, you’ll have around $4,500 to $5,000 per month. Let’s now pretend you have fixed costs, like rent and bills, totaling about $3,500. That means you have an extra $1,000 each month to invest in the stock market. You have about $5,000 in a savings account to start your initial stock market investing journey. So that’s what you do. You put an initial deposit of $5,000 in there, and you’re gonna add about $1,000 per month. The average annual return we’re gonna use is 8%, and the years to grow will default to 30. I want you guys to see the power of compound interest at work here.
In 30 years, your portfolio balance will be over $150,000, and your total over time will be will be $365,000, while your profit will be over $1,180,000. There are two factors at play here. One is that you consistently invest your money in the markets. And the second is that you’re leveraging the power of compound interest and time. Now, on this calculator, you can even play around with different numbers and see what your ending balance is. And you have to know that, when it comes to compound interest, a lot of the gains are going to be towards the end of whatever period you are investing in. So, in another example, let’s say you invested $2,000 a month at this time and got the same return. Look at how much more powerful this is. A $3 million ending balance, and you can see that most of the gains are towards the end. The key to investing is to keep investing and trust the process. Now, a quick note on how reliable the stock market is. Of course, you can lose money in the market. Some years are going to be down years in 2022, for example. The S&P 500 was down close to 18%. And then, sometimes, in other years, you’re gonna be massively positive.
Like in 2024, the S&P 500 was up 25%. And in 2023, it was up around 20% as well. On average, though, you should expect the 8% figure that so many people like to talk about online. That’s typically the average annualized return. I wanna show you guys a fascinating example. Though time in the market can really trump trying to time the market altogether. In a blog post on the website Dollars and Data, a great financial blog, I’m going to link it below for you guys. The author makes a compelling case for why retail investors should keep buying. His main point is that, quote, rather than to worry about whether now is the right time to buy, keep buying. Market high or market low, keep buying. He points out that as stocks get more expensive, he uses the PE ratio to gauge whether a stock is expensive, which we will discuss later on in this video. As the PE ratio rises, their future returns generally decrease. This makes sense. Like if you buy an overvalued stock, it won’t return as high as if you bought it with a margin of safety. And you can see that as the PE ratio increases, stocks get more expensive; there’s a negative correlation with your returns for the next five years.
But here’s the fascinating thing: the author Nick says that as long as you hold for a longer period of time, watch what happens to your real returns, even if you bought at an overvalued price. Looking at this interactive GIF, you can see that as years pass by, 5, 10, 15, 20, 25, 30 years, the number of red dots decreases. He states that, over 20 years, the USUSUSUSUSUUSave had no real negative returns when dividends are included. Over the past 30 years, returns have generally converged despite some dispersion. ItIt tells us that to accumulate wealth aggressively, we should keep buying no matter what. He uses an excellent example: if you were to search on Google for ‘market overvalued 2012,’ many articles would come up detailing what investors believed at that time. They believed that the market was overpriced by 50% in some cases. But look at this from the S&P 500. In 2012, it was trading at $1,400, and today it’s trading at close to $6,000, if not already over that. If you had believed it was overpriced back then, then you would have missed out on some serious gains, as 10 to 15 years later, we’re close to nearly three times that.
All right, so now that we’ve covered that, let’s actually go over what the stock market is. And what is a stock? The stock market is just a marketplace that is now all digital. And in this marketplace, people are buying and selling stocks left and right. When you buy a stock, you purchase a small piece of ownership in a company, and you’re typically buying it from someone who is selling it to you on the open market. Owning a company’s stock gives you a claim on its assets and earnings, and the stock market allows you, as an individual, to trade these shares. The prices of these shares will fluctuate based on factors such as supply and demand, the company’s performance, and its future expectations. Or share prices might fluctuate based on broader economic conditions. The stock market, then, is just a system that allows people to connect to trade these shares. Now, to quickly explain why companies would even want to sell their shares on the open market. The reason is that companies sell their shares on the open market primarily to raise money for growth and expansion. They like to raise capital. This process is called an IPO, or initial public offering. You may have heard that term before, but it means the company has gone public and sells its shares on the open market, giving a larger pool of investors access to the company’s shares, including you and me.
And therefore, we can speculate on the price and the company’s future direction. Now, before I get into how stocks are categorized—which is an important topic we’re covering today—we should go over some of the most important terminology of the stock market so you can speak the language and understand the lingo. Not only will these terms follow in this video, but you might actually hear them out in the world, or you might see them in the news or on financial websites. All right, so here we go. Bull versus bear. This is something you’re going to hear very often in stocks, cryptocurrency, and other markets, such as commodities. Essentially, being bullish on something reflects that you have a positive outlook on the future of that market or whatever you are speaking about. The sentiment basically means you expect prices to rise in the future. You could be bullish on tech stocks, which means that you think tech will outperform in the short term or perhaps the medium term. You could also be bullish on, say, collectibles like Pokémon cards or perhaps rare video games. On the other hand, a bear, as they like to call it, means you have a negative outlook on the market and expect prices to fall. The easiest way to remember the difference between bulls and bears is that bulls typically have horns that point upwards.
And that is the direction you want prices to go— someone who classifies themselves as a bull. A bear, on the other hand, has claws and usually swings downward when catching prey. So that’s the easiest way to remember that, basically, being a bear means that you expect prices to fall. The next important term you should know is market cap or market capitalization. This refers to the size of the company you’re talking about. So, if a company has a large market cap, it means it is very valuable. We’ll talk a little bit more about market capitalization in the next section and actually cement it with an example. The next term you should know is ‘index’. We’ve already covered this a bit, but an index tracks the performance of a pre-selected group of investments, such as stocks. In the stock market, we have the S&P 500, the NASDAQ, and the Dow Jones Industrial Average. Each of these indices tracks the group of stocks that comprises that index. All right, this next term is one of my favorite terms. It’s called frothy. So when someone says the market is frothy, they mean that stock prices and valuations are inflated to the point where it’s bubbling to the top.
Just like with a really bubbly drink, the bubbles are exciting, slowly rising to the top, and you don’t really want them to overflow out of that cup. Frothy isn’t exactly a market bubble, but it’s getting close, and it’s something investors might say if they think the market is overvalued. A stock market bubble, on the other hand, is when stock prices are so inflated that they become overpriced, and eventually the bubble bursts or there’s a crash. A famous bubble was the dot-com era in 2000 and 2001, when stocks traded at extremely high valuations with no underlying business. All right, the next term is blue chip stock. This means an excellent stock. Apple would be a blue chip stock these days; Coca-Cola is a blue chip stock; McDonald’s and Microsoft could count, too. The origin of this term comes from poker games back in the day, when the blue chips were the most valuable on the table. And the term was first used in 1923. to describe stocks that traded at $200 or more per share at the time. On the contrary, a penny stock is typically bought for pennies and is usually issued by a very small company.
That is highly speculative. And the last term I want to cover in this section is ‘dividend’. A dividend is simply a portion of the company’s profits that is returned to you, the shareholder, for owning the stock. The company you are invested in may decide to reward its shareholders for holding the stock. And because they have a lot of profit to pass around, they might actually announce a dividend and pass it back to you. Dividends are often paid quarterly, either in cash or reinvested as stock. Owning dividend companies is one way many beginner investors get into investing, as it’s a nice way to generate passive income. Income and dividend-paying companies are typically large and stable. In our live demo today with one of the brokerages, we’ll create a five-stock dividend portfolio just as an illustration. So I hope you stick around. For that. All right. So now that we understand some basic terminology for stocks, let’s talk about how stocks are typically categorized. They’re categorized in three different ways: either by market cap, capitalization, sectors, or themes. In terms of market cap, this helps you, as an investor, understand the company’s size and risk profile. It’s calculated by multiplying the company’s share price by the number of shares in circulation.
There are microcaps — companies valued at less than $300 million — and small caps, valued between $300 million and $2 billion. Mid-caps are between $2 billion and $10 billion. And then you have large caps with valuations over $10 billion. Technically, some companies are mega caps these days. These are your Apples, Nvidias, and Gooles of the world. Now, micro-cap stocks are usually much more volatile and riskier, and can offer much more upside because they’re so small. They have tons of room to grow, but they are usually considered penny stocks. And as beginner investors, we’re probably gonna stay away from penny stocks because investing in penny stocks increases the chances that you actually lose money. You can also make a lot of money, but it’s really hard to know which ones do well. And a lot of them might go to zero or might fail. Compare micro-cap stocks to a large or mega-cap company. A large-cap stock is much more stable but may offer slower growth or limited upside. So, for example, it’s going to be a lot harder for Apple to double its stock price, because it is already valued at over $3 trillion. For it to double, it would have to double its value roughly.
So another $3 trillion in value, that’s going to be really difficult. The next category we have is sectors. These are simply groups of stocks based on the areas they focus on. You could have stocks in the energy or real estate categories. Another popular one is information technology. These are tech stocks. Having a diversified portfolio of sectors is a good thing because it gives you exposure to many different categories of stocks. Of course, that’s even if you want a diversified portfolio. Some people love focusing on a few stocks, but as beginners, diversification is always helpful. Lastly, there are many themes about stocks. Think of all the themes of companies you could imagine. AI stocks focus on AI. GrowthGrowth stocks focus on growing as quickly as possible. There are ESG (environmental), emerging-market, defensive, dividend, and value stocks. There are so many stocks. These are all examples of themes of stocks that you should have a general… but aren’t exactly super important to basically getting started. You need to know what kind of theme they fit into.
Let’s talk about what to invest in as a beginner. In the stock market, there are a couple of approaches that we’ll go over today. The first approach is simply investing in individual companies. This approach can be very exciting because of its potential for high returns. But it’s also a lot riskier. For example, let’s say you have $1,000 in your portfolio and decide to invest $200 each in five different companies. If one of those five companies performs exceptionally well, let’s say you have Nvidia in your portfolio. And it tripled in value, your $200 investment could turn into $600, significantly boosting your overall portfolio gains. However, the flip side is that if one of these companies performs poorly, or even goes to zero, your losses could outpace the overall stock market returns. For example, if the stock market is down 10% in a year and you’re invested in some companies that are down 50%, you may underperform the market in a more volatile year. And the name of the game with stocks and the stock market is that you don’t wanna underperform the market, because the market is the easiest benchmark to beat. If you invest in index funds, you will hit that market return.
If you were to pick individual stocks, that’s a tempting way to try to beat the market and build your wealth quickly, but it requires a lot of research and a lot of conviction. And you have to accept that you might lose money, or your portfolio balance will be very volatile. The second approach, and the one that’s much simpler and more beginner-friendly, is simply investing in index funds. An index fund, like an S&P 500 ETF, gives you exposure to a diversified portfolio of hundreds of the top USUSUSUSUSUSU.S.USUSUSUSUSUS companies with a single purchase. This is more of a passive. A strategy where you basically set it and forget it, relying on the market’s historical average returns of 8% to 10%. An example of a fund that tracks the S&P 500 is ticker symbol VOO; it’s the ETF version. A ticker symbol is like an airport code. You know how JFK references John F. Kennedy Airport, or LHR is London Heathrow. Investments you can buy in the market have their own codes, called ticker symbols. So companies like Apple, Google, Microsoft, and so on have their own symbols. Index funds are passively managed, so they have super-low fees because they have no fund manager.
And not to mention, your money is being instantly diversified among all these holdings, because an index fund will buy everything that’s in that index. Another similar option is a target-date fund, which adjusts its asset allocation as you approach retirement. For example, if you plan to retire in, say, 2060, a target-date fund will start heavily weighted in stocks now and gradually shift towards safer investments like bonds as the retirement date approaches. 2060 refers to the date you plan to retire, and this figure is most commonly used in retirement accounts such as 401(k) s. For most beginners, you either go with all index funds, or another beginner-friendly strategy is to have the majority of your money in index funds and then add a few additional individual stocks for… additional upside and growth potential. Beginner investing strategies aren’t about day trading or chasing quick returns. It’s more about long-term investing. Remember, there are tax implications for different strategies as well. Which we will cover later, but the key takeaway is this. You want to focus on building a portfolio that aligns with your risk tolerance and goals. I’m gonna give you guys a cautionary tale about why you shouldn’t pick individual stocks as a beginner.
So consider the tech company Intel. They were once a high-flying tech stock during the dot-com bubble, but if you had chosen this stock back then, thank you. You can see in the chart that I’m gonna pull up on the screen that, to this day, you still haven’t broken through its all-time highs back in 2000. Compare that to the market’s overall performance since 2000, which is four times that. This is 4dang5f picking indocks. There is definitely more risk, but there’s also a lot more reward. Suppose you can get it right. So if you had picked Nvidia stock, for example, you would have done incredibly well. However, as beginners, we want consistent gains over time because that’s less stressful. Now that you have some idea of what to invest in, we’re going to talk about the types of accounts you can buy them in and then how to actually evaluate and research stocks to figure out what is right for you. Then we’ll do some live demos of creating portfolios and buying stocks later on in this video. Okay. Whenever you buy a stock, you need a special account to do so. You can’t buy it with your bank account. So you need a brokerage account or a retirement account, like an IRA, a Roth IRA, or a 401(k).
Once you have one of these accounts, you can then transact your stock or your index fund purchases. The most common type of account is a brokerage account. So here’s a list of a few of them. You have Fidelity, M1 Finance, Charles Schwab, Robinhood, Vanguard, E-Trade, TD Ameritrade, Webull, and Interactive Brokers. These are a few. The ones I personally use and recommend to most beginners are M1 Finance, Fidelity, and Robinhood. Just because their user interfaces are very easy to use. And I will leave links down below for these as well. Now, within these brokerage websites, you can open up what’s called a taxable brokerage account. That’s the standard brokerage account most people use to buy and sell stocks. You can also open a retirement account, such as an individual retirement account (IRA) or a Roth IRA. The Roth IRA. The 401(k) plan is something you need to set up with an employer. So these plans are typically employer-sponsored, and you need to set them up through your employer. I have a video detailing the differences between 401(k)s and other types of accounts. I will link to it below as well, in case you want to watch it after this video. Now, my favorite account to trade in is the Roth IRA.
If there’s one takeaway… You remember from this video, out of everything, it’s to start a Roth IRA because the benefits are incredible. This is an individual retirement account where you put in after-tax dollars, but as a result, when you invest within this account, all your earnings are tax-free. The contribution limit on it is about $7,000 per year as of 2025. That could change in the future. It might go up to $75,000, but right now it’s $7,000. Now here’s the power of that account. Let’s say you have Apple stock in a Roth IRA and regularly buy Apple stock. Let’s pretend that, in 50 years, you make about $2 million from it. You wouldn’t owe any taxes on those gains, whereas in a normal brokerage account, you might owe 15 to 20% in taxes. In a normal brokerage account, gains are taxed (we’ll talk more about taxes later), but in a Roth IRA, they’re completely tax-free, which is why it’s so powerful. For now, you have to know we need a special account to trade in. You’ll either set up a Roth IRA or a taxable brokerage account, then trade stocks in it. All right, so let’s talk about researching stocks now because it’s a very important part of this video. There are two camps that investors usually fall under.
There’s fundamental analysis, and then there’s technical analysis. Investors… who love fundamental analysis attempt to figure out what a company is worth intrinsically, which means they’re trying to figure out the true value of a company based on the underlying company’s health, like their revenue, their profits, their cash flow, their assets and liabilities, as well as their position in the market. By comparing the intrinsic value they calculate to the current market price, they can decide whether a stock is undervalued, overvalued, or fairly priced. They can also compare the current valuation of that company with those of comparable companies in that industry. So, pretend Google is an undervalued tech stock because it trades at a much lower price to earnings ratio than, say, Nvidia. That could be an indicator for an investor to buy Google over Nvidia. Another approach is called technical analysis. These are traders trying to identify ways to make money on stocks using patterns on a stock chart. They don’t really care about fundamentals. They’re simply trading on the price action, trends, and movements of certain stocks on a day-to-day or shorter-term basis. An AA technical analysis trader or investor is someone who takes a much shorter-term, micro-view of stock trading and investing.
They rely on these patterns, charts, and price trends. An AA fundamental investor is more likely to take a longer-term approach. The fundamental investor buys an undervalued company, aims to invest in such companies, and then patiently holds the shares, believing the market will eventually recognize their true value, leading to an increase in the stock’s price. Most of what we teach on this channel is fundamental investing, and it’s a really good strategy for beginners. So, in terms of what metrics to pay attention to when researching stocks as a fundamental investor, let’s talk about the five indicators that you might want to look at. Number one and two are revenue and net income. So, revenue shows how much the company is bringing in from total sales. Net income is the profit they bring home after all these costs. And these are general overview numbers to keep in mind as you dive deeper into the company’s other metrics. The third, which is a big one you need to know, is called the price-to-earnings ratio. And I’ve actually talked a little bit about this in this video already. Many investors use this PE ratio to gauge a stock’s current valuation. One way we use PE ratios is to figure out how much we are paying for a given company. If a company’s PE ratio is 20, it means investors are currently paying $20 for every $1 of that company’s earnings. In general, a high P/E ratio suggests that investors expect higher future earnings growth than companies with lower P/EPE ratios. A low PE can indicate that a company is currently undervalued or that it is doing exceptionally well relative to its past trends. When looking at a company’s PE ratio or any other indicator, you must compare it with other companies in the same sector, industry, or niche. For example, companies in the technology sector typically have higher growth rates than those in the retail sector. Therefore, PE ratios for tech companies will be higher overall.
And as with everything, context is very important. This ratio should be used only as a comparative tool when comparing companies within the same sector. There are general benchmarks for what a healthy PE ratio looks like, depending on the sector or industry that you’re trading in. And usually that varies a little bit, but you can do some digging online to figure out what that is. All right, so this is from Yahoo Finance at the time of this recording. In the last quarter, Apple’s PE ratio was 38. 37 over the past 12 months. That means investors are willing to pay $38 for every $1 of profit Apple generates. A higher PE ratio, such as 38, often suggests that investors expect strong future growth or view the company as a high-quality business worth paying a premium for. NVIDIA, on the other hand, trades at a PE ratio of around 53, suggesting the market is pricing in significant growth for the company, perhapsBecause of its innovations, including the chips it’s making for AI. The next metric to consider is the price-to-sales ratio. This is similar to the PE ratio, but it’s simply the price of a company’s share divided by its per-share sales.
One of the areas where the price-to-sales ratio is extremely useful is when a company isn’t yet profitable. If that’s the case, investors can look at the price-to-sales ratio to determine whether the stock is undervalued or overvalued. Investors can’t compare a company with no profit to one with profit. So instead, they would like to use the price-to-sales ratio instead. For example, if the price-to-sales ratio of a prospective company is lower than that of a comparable company in the same industry, and the other company is profitable, investors may consider buying the prospective stock due to an attractive valuation. Obviously, the price-to-sales ratio should be used alongside other financial ratios and metrics when determining whether a stock is properly valued. Lastly, I like to focus on free cash flow. That’s number five today. Free cash flow indicates the amount of cash generated each year that is free and clear of all internal and external obligations. In other words, it reflects the amount of money that the company can safely invest or distribute to shareholders. If there is a positive free cash flow trend, it means the company is doing well, because it has consistently generated enough cash each year to continue its operations and invest. On the other hand, if free cash flow is trending downwards, you should figure out why that is, and it may mean a higher chance of negative stock performance.
Now, it’s important to note that not all companies have free cash flow—it’s not uncommon, for example, for banks to have negative free cash flow, even though much of their revenue comes from interest income and fees. Banks have significant liabilities in the form of deposits, and their assets, such as their loans and investments, can be more illiquid. Therefore, banks might not be as applicable to free cash flow, but in general, most companies are. All right, so those were some indicators that you can pay attention to when it comes to investing as a fundamental investor. There are also some soft factors you may wanna look at to ultimately guide your decision on whether to buy a stock. For example, in 2024, I was paying close attention to one stock in particular: Robinhood. Robinhood was trading around 15 bucks a share in early 2024, and I noticed many people were bearish on the stock due to the negative sentiment still surrounding the brokerage from the GameStop days. But some soft indicators made me bullish on Robinhood. One was that, on Reddit, most people were still using Robinhood as their de facto brokerage of choice, often posting screenshots from their Robinhood app.
In addition, Robinhood continued to innovate in the brokerage space. They offered new features to their platform, a new credit card, bonuses for transferring your accounts, and more. I also read and listened to their Q2 earnings report and realized that Robinhood continued to grow in an archaic space. Charles Schwab, Vanguard, and Fidelity had not innovated on their products in years. And why would they have to? They’re the incumbents, and they had all the assets under management. That’s under custody. Another reason I liked Robinhood was that the founder was still at the helm, and founder-led companies are always ones I am bullish on because founders typically have the full context of building the company from the ground up. Therefore, the founder typically makes great decisions for the company with the most information available. All these soft indicators, combined with Robinhood’s very low price-to-earnings multiple relative to its peers, made me bullish on the company. I started to average into Robinhood from February to August of 2024. And since then, my position has grown tremendously. In fact, I’m up over double. If you’re curious, I post all my buys and sells in my own community on WAP.
And within that paid community, you can also see my entire portfolio and access two bonus videos per month that aren’t available here on YouTube. It’s a great place for a beginner investor to learn more about the stock market. And if you are interested in checking that out, I will have a link to the WAP community down below. Now there’s absolutely no pressure, though. It’s just one of the offerings I have for the people who watch my channel. This video will still be free. All right, so now let’s talk about creating a portfolio. When it comes to creating a portfolio, there are a few questions you need to ask yourself first. First, figure out your investing style—what types of holdings will fit you in your portfolio. Chances are, you know whether you’re more on the riskier or the more conservative side. And if you don’t, there are questionnaires online that you can fill out to figure out what your investing personality is like. And I will link one below in the description. On the screen right now, you can see a spectrum of risk-to-reward ratios. And at the very bottom, we have savings accounts. This is just liquid cash sitting in, hopefully, a high-yield savings account. And it gives you a lot of flexibility because you have access to it right away. If you’re super risk-averse, you may actually only hold cash.
But as we know, holding cash is not the best option because it loses purchasing power over time. Next up on the list are bonds. Government and corporate bonds are fixed income. These are not too risky, but the rewards are not as great either. And then I view U. S. stocks as high risk. To reward, it’s the same as international stocks. And in this graphic, international stocks and USUSUSUSUSUSU.S.USUSUSUSUSUS stocks both have high growth potential but obviously higher risks. The point of this graphic is to show you that. Investments suit different people, and you can tailor your stock portfolio to what you gravitate towards. I’ll give you a simple portfolio that’s good for all beginners in a moment, but the one thing you also need to figure out after you’ve identified your risk profile is how long you’ll invest for. This, in the investing world, is known as your time horizon, and it needs to be answered before you invest. If you’re investing for, say, retirement, you can contribute and invest and feel comfortable with any ups and downs in the market because your time horizon is long. However, if you can only invest for a few years, say, maybe because you want to put a down payment on a house and you’re going to need that money, then perhaps you don’t want to get too risky because if you risk it all in the market and lose it, then well, you don’t have your down payment.
It’s important to understand you’re doing it, because it will guide your investments and help you avoid spending a lot of time studying the best ways to build wealth through investing. One of the simplest and most effective strategies for beginners is called the three-fund portfolio. It’s a great approach that said it and forget it. This is where you buy three ETFs: one covering the USUSUSUSUSUSU.S.USUSUSUSUSUS stock index, one covering the international stock index, and, lastly, a bond ETF. This gives you a diversified low-cost portfolio that can weather almost any market condition. And my personal three-fund portfolio will be up on the screen right now. And this is from the M1 Finance app. This is a great brokerage app for beginners. If you’re trying to start a new portfolio and buy, let’s say, three slices of an ETF. I’m going to include a link to M1 Finance below, and we’ll also go over a live demo later. You can see that this portfolio only includes three ETFs here at the bottom, which is what the three-fund portfolio is. However, you can also buy individual stocks within M1 Finance. Now, the entire premise of the three-fund portfolio is that, since even professional active money managers have a hard time beating the market, the average investor would fare way better if they invested in index funds and ETFs.
So all we have to do as DIY investors is to make three investments, and we will not only have a good, well-diversified portfolio with an appropriate level of risk, but also have the potential for market returns, if not better. Regarding how you allocate your total investment across the three funds, there are many approaches. My personal one is 60% USUSUSUSUSUSU.S.USUSUSUSUSUS stocks, 30% international, then 10% bonds. But it depends on many factors. I have a full walkthrough of the 3Fund portfolio, and I will also leave a link in the description below. Now, if you don’t wanna do ETFs or index funds and would prefer… the individual stock method, you can do that too. With individual stocks, you need to be much more purposeful in your choices. And if you are choosing a basket of, say, five to 10 individual stocks, at least make sure you’re well diversified across different sectors or categories. With stocks, YWithech stocks because if the entire togy category starts to underperform, it could have a huge negative impact on your portfolio balance. All right, so let’s go through a live demonstration on how you would buy and set up a dividend portfolio on the M1 Finance app. We’re going to buy five different stocks in the app.
All right, here’s the live demonstration of the video. I’m going to show you M1 Finance, followed by FidelityFidelityFidelityFidelityFidelityFidelityFidelityFidelityFidelity. So right now, as you can see on the screen, this is the M1 Finance dashboard. Once you’re in here, you can see how much you actually have in M1 net worth. I started this account with $50,000 on November 25th, 2024. And you can click around here. You can look at the one-week performance and the one-month performance.
As you can see, over the last month, I’m up around around $1,357. When you actually log into this app, yours will probably be at zero. You’ll need to transfer money from your bank account to the M1 Finance account. It generally takes about one to two business days to do so. But then once you have the cash in your account, you can start investing. You would then come to this ‘Invest’ tab right here. It will drop down like this, and then you can click ‘Invest’. And this is just my personal portfolio right now. You can see that most of my money here is invested in the three-fund portfolio. In fact, 100% of the money I have invested is in the 3Fund portfolio.
If you click into the 3Fund portfolio, this is exactly what I have right now. You can see the three holdings that I have in the 3Fund portfolio. I know I’ve been saying that a lot. I have VTI, the Vanguard Total Stock Market ETF; VEU, the All-World XUS ETF (international fund); and a bond fund. At the top, you can see I have $1,145 in uninvested cash, so I could add more to this three-fund portfolio if I wanted to. I have total buying power of $51,660, and… they are allowing me to actually trade on margin, which I’m not going to do. That means borrowing from M1 Finance to trade more. We’re not going to touch that. Now, let me walk you through some of the… other features of M1 Finance, which are really fascinating. So down here in the research tab, there’s the news tab. And so you can read the top stories of the day. Today is Friday, January 17th. The market is now… closed. However, you can see what the top stories were today here. And up here in the top left, you can search for any symbol or company name and find out news about them as well. Let’s say I look up Robinhood Markets.
If you search, you can see how the chart is doing. And this is a one-day chart. So this is how the stock traded today, along with the one-week, one-month, and three-month charts. You can find almost all these types of charts in most brokerage apps. And you also get key data on how Robinhood is trading. For example, the price-to-sales ratio, which we’ve talked about in this video. Earnings per share, the price-to-earnings ratio. Previous close. Today’s open. What the day’s range looked like today. So this is how the stock traded. The lowest it traded for today was $46. 97, and the highest it traded for today was $49. 27. We can also see the yearly range. As you can see, it’s trading at an all-time high over the last 52 weeks. And the 52-week low was right around $10. You get some more basic information about Robinhood here: who the CEO is, the employees, the shares outstanding, which is, I think, very important for figuring out market capitalization, as well as how much of your shares are actually worth in terms of percentages. Then, if you scroll down, you can read some of the top articles on Robinhood right here.
And that’s really great. You can search for any company here. We can even click on Apple, for example, and take a look. You can add it directly to your portfolio using this button, or to your watch list. Another favorite feature of the M1 Finance app for me is the ability to view all the stocks and funds available to trade or buy in your portfolio. And you can see that if you click on stocks here, you get basic information about how they’re doing. For example, the market cap and the dividend yield (if any). What the price history looks like with this little mini chart here. As well as the price-to-earnings ratio on the right side. You can even sort and categorize by different types of sectors. Let’s say we want to look at media companies; we can do that by clicking ‘Media’. Same thing: they have filters for everything, and you can add stocks directly from here to your portfolio. I will show you guys how to do it. Uh, you do the same thing here with the funds. For example, these are all the ETFs that they have available to trade. Another favorite feature of mine is called the Model Portfolios. This is M1 Finances; they basically curated a templated portfolio for you.
You can copy and paste one of these portfolios into your own dashboard. Let’s actually look at general investing here. You can easily create a diversified portfolio and set it to your own personal risk tolerance. These pies are cool. You can see that if you’re ultra conservative, you know, if you click on this. This pie you could add to your portfolio, and it includes, looks like, Treasury bonds, small-cap ETFs, and iShares National Municipal. This would be a Muni bond—2% S&P 500, and then international, as well as some developing markets. And you can see the exact slices that they have here. It looks like most of this portfolio is in the one to three-year Treasury bond ETF, which is very, very conservative. You can either click this button and add it to your portfolio. If you’d like, you can see that I can add it right here. But I’m not going to do that. I’m going to do something different for today’s video: create a dividend portfolio of five stocks. But what I like to do is go to my pies right here, then click ‘Build the Stock and Fund Pie.’ We’re gonna click ‘Create a Pie’ right here, then type ‘dividend portfolio.’ I already have that copied and pasted, and then we’re just gonna click ‘Add Pie.’
You’ll see that ‘New Pie’ requires at least 1 slice. You can drag and drop different slices in. However, the easiest way to do it is click ‘Add Slice.’ And then let’s select some stocks that you’d like to add to your dividend portfolio. You can search by dividend yield. So, you could click this button, but that gets you, you know, stocks with a high dividend yield, which is a red flag to me. So instead, we can search for dividend yields between 0.5% and, let’s say, 4%. Those are usually safer dividend yields because it means the company isn’t paying out so many in dividends that it can’t reinvest in itself. So, for today’s example, I’m going to choose five stocks. Let’s say we choose Microsoft. We like JP Morgan. We could get some Exxon in there. Costco, love Costco. And let’s choose one more. AppV, which is actually, let’s choose Johnson & Johnson. Okay, so you click Add at the bottom here. And you can see now you have a dividend portfolio weighted 20% in each of these stocks. If you’d like to change the weighting, you go in here. 25.
And 25 percent of Microsoft, but now you need to remove 5% to get your pie to 100%. Let’s say we want less Johnson & Johnson. Then click Save up here. Now that this pie has been created, we want to invest in it. So just because you’ve created it doesn’t mean you’re investing in it. So now, we want to click “Add to portfolio.”
And we will add that.
All right. All right. It will say securities added at the top. And then you will see that we now have two different pies within our portfolio. We have our three-fund portfolio from earlier, which accounts for 100% of our total allocation right now. And we have the new dividend portfolio that we just made. The problem is, though, that M1 Finance wants you to have a total of 100 for all of your, let’s say, pies, and so what you want to do is actually reduce the amount that you’re investing, let’s say, the three fund portfolio to 99 and then have 1% of your money going towards the dividend portfolio. You can change this ratio however you’d like. Right now, I’m just going to do 1% as an example. So then you wanted to click save.
And then it’ll say confirm changes. Let’s confirm that.
And here we go. We now have two live slices in our portfolio. And then, within the dividend portfolio itself, there are no upcoming trades or activities, but you can still click buy. And let’s say, on the next trading day, we want to buy $500 of the dividend portfolio inside your own portfolio. You will then click confirm buy.
And since the market is closed, it says we’ll execute it for you during the morning trade window, which is Tuesday for me since Monday is a holiday. However, if you click the upcoming activity and select trades, you will see it will buy $500 worth of the five stocks we mentioned, in the exact allocations we specified. That’s basically how it works. And every time you add money to your portfolio, M1 Finance automatically rebalances it to match the exact allocations you wanted in the first place. Some people find it restrictive in this way. And that’s why we’ll talk about Fidelity in the next portion of this video. However, some people really like it because it’s simple, and always stays well-balanced. That way, you don’t have to worry about rebalancing too often, which can be a huge headache at more traditional brokerages. So M1 Finance is a really good go-to-it-and-forget-it, especially if you’re only buying, let’s say, a three-fund three-funder. You may have a dividend portfolio you like in there, but when you start mixing in a lot of individual stocks, it’s not as good.
said portfolio, then it gets confusing. So acknowledge that that might be a drawback of the M1 Finance app. All right, so that was M1 Finance. I hope you enjoyed that. Now we’re gonna go through Fidelity and basically show you how to buy and sell a stock on that platform. It’s going to be a lot shorter, but it’ll be short and sweet. All right, so now this is the fidelity portion of the video. I’m gonna show you guys how to buy a stock using the mobile app. So when you log in, it’ll look like this. And then, at the bottom middle, you can click ‘Transact,’ or click the magnifying glass at the top right. Let’s actually search for a stock today. So we’ll click the magnifying glass in the top-right corner. And let’s say we wanna buy some Coca-Cola stock. You can see it’s a recent quote. I was practicing this a little earlier, since I already messed up the recording once. But we want to buy some Coca-Cola stock. You can see that it’s trading for $62.71. So let’s click on it. All right, so now that we’ve clicked on it, we can see the one-day chart. We can look at the five-day, the one-month, and the one-year. You can see that over the past year, it’s up 4. 53%. Now, let’s buy Coca-Cola. After you click ‘Buy,’ you’ll see a screen like this.
This is the order screen. And you can see that the last price of Coca-Cola was $62. 71. Now, if the market were open, this price might actually be fluctuating, but since the market is closed right now, it’s just at 62. 71. The action type that we’re gonna choose is buy. You can either buy shares or dollars. So that means you can buy one full share, or perhaps, if you wanna buy $100 worth of the stock, you can choose the dollar toggle right here. But for the sake of this video, let’s buy one share.
You can see that the estimated cost here is $62. 68. It’s slightly less than the last price of 62. 71 because that is the asking price of somebody else on the market right now. Next up, you have market versus limit. These are order types, and this is a bit complicated for a beginner, but what it means is that when the market opens next, your share will execute as quickly as possible at the market price. The other option is called a limit, and it lets you specify a price at which your stock can trade. Now, that’s complicated and would take a bit too long to explain, but if you’re really interested, you can look up some tutorials online. For the sake of our video, we’re going to click Markets, then click Preview Order. Let’s click that.
And this is what the order preview looks like. As you can see, we haven’t bought the stock yet. We still have to place an order at the bottom. That’s still the button there. And the market is closed, but let’s click ‘Place Order’ now.
And there we go. You can see that the order was received. We have a confirmation number here to buy one share of Coca-Cola at the market price. When the market opens, the next time the market is open, and that’s all you really have to do. For the sake of this video, let’s do another trade. Let’s do Coca-Cola again, but this time we’re going to buy $50 worth, which is not even a full share. But the beauty of FidelityFidelityFidelityFidelityFidelityFidelityFidelityFidelityFidelity is that it lets you buy fractional shares. If you put in $50 right here, you can see that the estimated number of shares that you get is 0.797. This is a fractional share that not many other brokerages might offer. So what’s really great about Fidelity is that they let you buy fractional shares, which makes it more flexible than some other brokerages. And you can even buy fractional shares of ETFs. Let’s type in the symbol VOO at the top here. And that is the Vanguard S&P 500 Index Fund ETF. You can see that the last price was $549. 46. And if we only bought $50 worth, it is $0. 09 worth of a share of VOO. But let’s do it for fun anyway. And we’ll click preview order.
Um, oh. So this is good to know. Market and limit buy and sell orders of stocks and ETFs in dollars are only allowed during normal market hours. So you can’t buy in dollars right now because the market isn’t open. However, if you buy shares, that is fine. You can place that order over the weekend. But with dollars, you need the market to be open. That is something I didn’t know, actually, until now. So when the market is open, if you want to buy in dollars, that’s exactly the flow that you would go through. And hopefully this was educational. And I hope that you enjoyed this live demonstration portion of the video.
M1 Finance is more rigid with individual stocks, but it’s much easier for beginners to get started. WithWithWithWithWithWithWith Fidelity, you actually need to know what you’re doing with buying and selling shares. And you can actually get very complicated in the Fidelity app. If you want, you can trade options. You can doWith FidelityhaFidelity. Whenever you make a gain in the market
when you sell stock, Fidelity actually pays the tax when you report the gain, which means you have to pay taxes on it. If you bought when the stock was low and just held it indefinitely, you do not owe any taxes. It’s only when you sell the stock and actually make that gain that you pay the taxes. Now, there are two tax treatments for stocks: either short-term or long-term capital gains. A short-term capital gain occurs when you hold the investment for less than one year and, therefore, is taxed at a higher rate. It’s typically your ordinary tax rate, based on your income. So, as an example, let’s pretend you buy a thousand dollars’ worth of Apple stock in January, and then let’s say it doubles. So it goes, you know, it goes up, it’s great. And you sell it for $2,000 in June of the same year. Since you didn’t hold the stock for a full year, you will owe short-term capital gains taxes on the $1,000 in profit that you took. If your ordinary income tax rate is 35%, then you would owe $350 in taxes to the IRS when you file your taxes the following year.
Now, the great thing about most of these brokerages is that when you do buy and sell, they keep track of it for you. You don’t have to track your taxable gains and losses manually. You will receive a 1099 at the end of the year that shows your tax burden. There are also long-term capital gains. So if you’re able to sell a stock after holding it for a year, you will pay considerably less in taxes. The long-term capital gains rates are roughly half the rate of short-term capital gains rates. It’s typically 15 or 20%, depending on your income. There are also some cases where, if you don’t make that much money every year, the long-term capital gains rate is actually 0%, but that’s if you make less than $47,000 a year. So, obviously, there is a huge difference here, but the most important thing to note is that you shouldn’t let taxes control how you buy, sell, or invest. As long as you are making money, profit is profit. And I don’t know about you guys, but I’d rather pay taxes on a profit and at least have some profit than not have any profit at all. Now, if you are on day 364, you have a massive gain, and you want to get out of that position. Then I suggest you wait until day 365 to sell it so that you can save a lot on taxes.
But in most cases, you should not let tax treatments influence your overall investing strategy. Another thing you want to consider toward the end of every year is tax-loss harvesting. That’s where you sell some positions you might have at a loss to offset any gains that you have incurred throughout the year. Okay, so new example, let’s say you take $10,000 in profit in the markets over the course of this year. But you have one pesky stock position. Let’s pretend it’s GameStop and it’s down $4,000 this year. That $4,000 loss of GameStop, if realized, so if you sold it and you actually lost $4,000, you can offset the taxable gain of $10,000 by that corresponding amount. That way, you reduce the amount of taxes you pay because your yearly taxable gain is only listed at $6,000. Now, one way to avoid taxes altogether when buying and selling stocks is to invest through a Roth IRA, which we already discussed earlier in this video. If you do have… tax questions and you don’t know how to answer them, make sure to consult with a CPA or tax attorney that can help you more than this video can. All right, guys, I super appreciate you guys watching this video.
I know it’s been a long one. I hope that you stuck around this entire time, took some notes, and really absorbed what it means to begin investing in the stock market. There are many free resources. I’m going to link it in the description below. If you’d like to support this channel, all you have to do is use the links below, especially if they include my own link or my affiliate code. Lastly, if you want to join my private community, I share 2 bonus videos per month, show you what I buy and sell, and share what’s in my portfolio. Make sure to check out the link below. All right, guys, I will leave another video for you right up here about investing. I hope you watch that as well.
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