The Art of the Fuck-Off Fund: A Beginner’s Guide
Practice safe stocks.
This one goes out to those who thought The Big Short was a foreign film; to those to whom stock is a soup base, a bond is a sexy Secret Service agent, and a mutual fund is when everyone pitches in to split the brunch tab; to those whose investment portfolios consist of a Macbook and a Mansur Gavriel (although, in your defense, you may well be on to something).
OK, fine. That essentially describes us, too.
If you’ve so much as glanced at a newspaper or accidentally tapped the Stocks app in the past few months, you’ll know it’s an intimidating time for a beginner investor looking to break into the market (so many little red minuses…).
It doesn’t mean you shouldn’t start, but it also means you need to play smart. Which is where Priya Malani, partner at financial planning firm Stash Wealth, and Baiju Bhatt, co-founder of the investing app Robinhood, come in: to give us the rundown on investing for stock-market virgins—the prep work, the lingo, and how to cover your ass[ets].
1. Establish Your Emergency Fund
Before you think about investing, you need to lay the groundwork. And that means setting aside a three- to six-month cushion to cover your fixed expenses—things like groceries, rent, car, and utilities—and stash it away in a high-interest savings account, says Malani.
2. Sort Out Your Priorities
Ask yourself why you want to start investing in the first place. Is it with a specific goal in mind, or is it because you think it’s something you should be doing as a Mature Young Adult?
“As far as we’re concerned, investing for the sake of investing is just gambling,” says Malani. “Gambling is not a very smart—or successful—way to build wealth. Investing should be the solution to achieving larger financial goals, whether those goals are a secure retirement, purchasing a home someday, leasing a car, or planning for a much-needed getaway.” Coles Notes: Investing without knowing your long-term goals is like that high school friend who got married after three months because all her sisters were and she wanted to see the inside of a Kleinfeld’s. Do you want to be like Shacked-Up Pam? No, you don’t.
3. Set Those #Goals
Investing is never one-size-fits-all. Before even discussing investing with her clients, Malani has them articulate their short-, mid-, and long-term goals using a process she calls The Stash Plan, examining your life and how you want to live it down the road before designing a plan to get there.
“From there, we back into how and where you should be invested, so it’s a little different for everyone,” she says.
4. Know Your Shit
Remember when Monica put the last of her savings on a stock with her initials on Friends? Don’t do that. It’s never too early to start understanding the stock market, says Robinhood co-founder Bhatt.
“You don’t want to wait until you’re older with a family, when the stakes are much higher,” he says. “Read the finance or business section of a newspaper every now and then.”
And if the thought of reading any book titled Common Stocks and Uncommon Profits for pleasure makes your toes curl, try subscribing to an email newsletter or using an app to track market data before plunging your savings into the company with the best name (current frontrunners: AssCompact, Analtech, and Schwing America; all real, all solid gold).
5. Start Small
So your emergency fund is in place. You’ve set your goals. You’ve done your market research. Bhatt says the best place to start for a new investor is, well, small.
And one of the first things you should know about investing? It ain’t free. Buying, selling, and trading all come with price tags attached, and there is usually an account minimum, forcing new investors to come in stronger than they may be comfortable.
If you’re a first-time investor, consider trying an app like Robinhood—it has no account minimum and free trades on any U.S. stock, so you can start with as little as you’d like.
6. Learn the Lingo
Because let’s face it, Wall Street vernacular can be about as confusing as breadfacing (don’t ask, just Google). These are a few of the terms Bhatt recommends brushing up on before diving into the stock market.
Bear market (bearish): A market in which prices are falling, encouraging selling.
Bull market (bullish): A market in which prices are rising, encouraging buying.
Dividends: A sum of money paid regularly to a company’s shareholders out of its profits.
Market capitalization: The total dollar market value of a company based on current share price and outstanding stocks.
Capital gains: A profit from the sale of a property or investment.
Diversification: A risk management technique that mixes a wide variety of investments within a portfolio. If you’re ever confused about whether diversity in your investments is a good idea or not, just think about the Oscars: Yes. Yes it is.
AND REMEMBER, THERE’S NO SUCH THING AS RISK-FREE INVESTING
Even the safest, most diverse portfolios have some risk attached, and there’s always the possibility of losing your hard-earned funds. So practice safe stocks, K?