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0:00
have you ever wondered what the stock market really is why do some people like Warren Buffett amass fortunes spanning multi-generations versus 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 just starting with say 50 bucks or even $100 we'll also go over the proper way
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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 I would suggest you take out a notebook and feel free to watch this video at your own pace so that means at the end or even in the middle of these sections you can pause the video write down some notes and then continue on it's also a long enough video today where you don't have to watch it all in one sitting so I
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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 your portfolio and even live demonstrations later on in this video all of these will be time stamped and chapter markered below along with corresponding resources okay so if
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you're ready to dive in let's get straight into why you should invest in the stock market so to start the S&P 500 which stands for standard and pores is a stock market index that tracks the top 500 us companies this is one of the most followed indexes and it's considered to be the best representations of the US Stock Market and the best thing or fact that you should know about the S&P 500 is that it's been consistently trending upward and producing an average
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annualized return of around 8 to 10% per year since it got started so that's the first reason we know that it's a tried and true method for growing your own money and your own wealth over time it's also simple to do if you're just to buy the entire index of the S&P 500 which we will talk about a little bit later on in this video on how to do the next reason you want to invest in the stock market is that historically stocks have actually produced the best returns over
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the past 100 years compared to other assets and commodities so here's one of my favorite short videos by Max clco in which he goes to Wall Street and actually quizzes people that work on Wall Street what the top 10 Investments are over the past 100 Years A crypto and equities is that what you're looking for number one is stocks with 5.2% you can see that stocks has the highest average annual return compared to other Investments like treasury bonds Fine Art and other Commodities like Precious
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Metals like gold real estate for example even comes in at number 10 at 3% over the long term stocks have the most potential to transform your life because they have the highest chances of capital gains and whenever I interview or talk to someone with a very high net worth I'm talking over nine figures they all agree that in order 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
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want to invest in stocks you want your money to work for you the reason is that having cash in the bank does not offer you much of a return anymore your typical big Bank like Chase or Wells Fargo will offer you an interest rate of .1% maybe 0.15% in your savings account let's pretend for a second that someone hypothetically gave you a million dollars and you wanted 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 say paid you .1% on
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your money you would only earn $100 in one year your $1 million in this case is not working very hard for you and imagine you just had a million dollar 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 pretty nice to me and even at 5% that would get you $50,000 per year with a million doll balance the thing about investing is that our money will work for us and compound over time
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and the term compound interest refers to the interest that you earn on your interest and this 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're going to have $1,100 in year two you'll get the 10% gain again and now you're going to have $1,210 because you're getting 10% on the now bigger sum that you started with of $1,100 and if you repeated this every year for 20 years you'd have $ 6, $727
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by the end of it so just by putting $11,000 in and getting a return every single year you can see that your money starts to compound and grow even bigger upon itself and the fourth reason I think you guys should invest into the stock market is simply because of inflation the US has a central bank called the Federal Reserve which dictates the monetary policy of the entire country they've said publicly that they target a 2% inflation rate per year to keep the economy healthy but as
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of recent years you might have noticed that in the news you might have seen inflation 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 this is best Illustrated with the example of the US postage stamp so in 1971 the postage stamp cost 8 cents
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to mail a letter as of this year it's 73 cents the mechanics of the postage stamp are exactly the same the stamp just gets you a letter delivered to anywhere in the United States but just as time passes it's gotten more expensive to ship a letter because of inflation so how do we beat the inflation rate 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
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comes to the stock market there are so many strategies that you can employ to try 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 a little bit earlier but that's where you consistently invest into an index fund that tracks say the S&P 500 if you were to that your annualized returns are going to be anywhere from 8 to 10% on average so let's actually go through a real world example here let's pretend
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you earn $70,000 a year that's about the median household salary in the United States that means after taxes you'll have right around $4500 to $5,000 per month let's now pretend you have fixed cost like rent and bills of about $3,500 that means every month you have an extra $11,000 to invest into the stock market let's also say You have about $5,000 in a savings account that you can start start your initial stock market investing Journey with so that's what you do you put an initial deposit of
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$5,000 in there and you're going to be adding about $11,000 per month every single month the average annual return that we're going to put in is 8% and the years to grow will toggle this to 30 years and I want you guys to see the power of the compound interest that's working here in 30 years your portfolio balance will be over $1.5 million and your total investment over time has been $365,000 while your profit is over 1.18 million there are two factors at play
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here one is that you are consistently investing your money into the markets and the second is that you are 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 just 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're able to invest $2,000 a month
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this time and you 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 then in my opinion is continually investing and trusting 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
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years you're going to be massively positive like in 2024 the S&P 500 was up 25% and in 2023 I think it was up around 20% as well on average though you should come to expect the 8% number that so many people like to talk about online that's typically the average annualized return I want to show you guys a fascinating example though of how time in the market can really just Trump trying to time the market altogether in a blog post on the website of dollars and data which is a great financial blog
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by the way I'm going to link it down below for you guys the author gives a really strong argument as to why the retail investor should just keep buying his main point is that quote rather than to worry about whether now is the right time to buy just keep buying Market high or Market low just keep buying he points out that as stocks get more expensive and he uses the PE Ratio to gauge whether or not a stock is expensive which we will talk about later on in this video as the p ratio gets more
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expensive their future returns generally decrease this makes sense like if you buy an overvalued stock it probably won't return as high as if you got in with a margin of safety and you can see here that as the PE Ratio increase so as stocks get more expensive there's a negative correlation here with your returns for the next 5 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
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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 quote over any 20-year period US Stocks have had no real negative returns when including dividends and over a 30-year period the returns have generally converged despite some dispersion so that basically tells us that to accumulate our wealth in an aggressive manner we should just keep buying no matter what he uses an
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excellent example that if you were to search on Google stock market overvalued 2012 many articles will come up detailing what investors believed at that time they believe that the market was overpriced by 50% in some cases but look at this graph 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
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10 to 15 years later we're pretty close to nearly three times that all right so now that we've covered that let's actually go over what is the stock market and what is a stock so basically 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're purchasing a small piece of ownership in a company and you're typically buying it from someone that is selling it to you on the open
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market owning a company stock gives you claim on its assets and earnings and the stock market allows you as an individual to trade these shares and the prices of these shares will fluctuate based on factors like supply and demand how well the company is doing and its expectations in the future or share prices just might fluctuate based on broader economic conditions the stock market then is just a system that allows people to connect to one another in order to trade these shares now to
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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 and this process is called an IPO or initial public offering you might have heard that term before but basically it means that the company has gone public and sells their shares on the open market giving a larger pool of investors access
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to that company's shares including you and me and therefore we can speculate on the price and perhaps the future direction of the company now before I get into how stocks are categorized which is an important topic that we're covering today we should go over some of the most important terminology of the stock market so that you can speak the language and understand the lingo not only will these terms follow in this video but you might might actually hear it out in the world or you might see it
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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 or cryptocurrency or even different markets like uh 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 and the sentiment means basically that you would expect prices to rise in the future you could be bullish on tech stocks which means that you think Tech
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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 now being bearish on the other hand uh or a bear as they like to call it means that you have a negative outlook on the market and you expect prices to fall the easiest way to remember the difference between the bull versus the Bears is that Bulls typically have horns and the horns Point upwards and that is the direction you want
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prices to go if you are someone who classifies thems as a bull a bear on the other hand they have claws and they usually swing downward when catching prey so that's the easiest way to remember that uh 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 just refers to the size of the company you're talking about so if a company has a large market cap that means the company itself is very valuable and
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worth a lot in terms of valuation we'll talk a little bit more about market capitalization more in the next section and actually cement it with an example the next term you should know is an index we've already covered this a little bit but an index tracks the performance of a group of pre-selected Investments such as stocks so in the stock market we have the S&P 500 Index the NASDAQ index and the Dow Jones each of these indices tracks the group of stocks that make up that particular
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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 the prices of the stocks and valuations are being inflated to a point where it's kind of bubbling up to the top just like if you had a really bubbly drink the bubbles are exciting and they are slowly rising to the top and you don't really want them to overflow out of that cup fro isn't exactly a market bubble but it's getting
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close and it's something investors might say if they think things are overvalued a stock market bubble on the other hand is when prices of stocks are so inflated because of speculation that they get too overpriced and eventually there's a crash or the bubble bursts a famous bubble was that of the dotom era back in 20002 2001 when stocks were training for insanely ridiculous valuations without even having any sort of underlying business all right the next term is blue
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chip stock this means an excellent stock Apple would 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 came from poker games back in the day when the blue poker chips were the most valuable chips on the table and the term was first used in 1923 to describe stocks that traded at $200 or more per share back then on the contrary a penny stock is something that is typically bought for pennies and is usually a very
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small company that is highly speculative and the last term I want to cover in this section is something called a dividend so a dividend is simply a portion of profit that is passed back to you the shareholder of a stock just for owning the stock the company you are invested in may decide that it wants 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
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quarterly in the form of a cash or stock reinvestment owning dividend companies are one way that many beginner investors like to get into investing because it's a nice way to get some passive income and typically dividend paying companies are 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 of the basic
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terminology around stocks let's talk about how stocks are typically categorized in my opinion they're categorized in three different ways either by market capitalization sectors or themes in terms of market cap this helps you as an investor understand the size of the company and its risk profile the way that it's calculated is by multiplying the company's share price times the number of shares that are in Circ circulation there are micro caps which are companies valued at less than
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$300 million small caps which are valued between 300 million to 2 billion midcaps are between $2 and10 billion and then you have large caps that are over $10 billion in valuation technically there are also some companies that are Mega caps these days these are your apples nvidias and Googles of the world now micro cap stocks are usually way more volatile much riskier can have a lot more upside because they're so small they have tons of room to grow but these
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are usually known as penny stocks and as beginner investors we're probably going to 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 just might fail compare micro cap stocks to a company that is a large or a mega cap a large cap stock is way more stable but may offer slower growth or limited
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upside so for example it's going to be a lot harder for Apple for example to double its stock price because apple is already currently valued at over $3 trillion in order for it to double it would have to basically double its value so another $3 trillion in value that's going to be really difficult the next category we have is sectors so these are just simply groups of stock based on the area that they focus in so you could have stocks that belong to the energy category the real estate category
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another popular one is information technology these are tech stocks having a diversified mix of sectors in your own portfolio uh is actually going to be a very good thing because that gets you exposure to many different categories of stocks of course that's even if you want a different ified portfolio some people just love concentrating into a few stocks but I think as beginners diversification is always going to be helpful lastly there are themes of stocks and there are a lot of themes out
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there think of all the themes of companies you could possibly imagine AI stocks are ones that focus on AI grow stocks are the ones that focus on trying to grow as quickly as possible there are ESG or environmental stocks emerging market stocks defensive stocks dividend stocks value stocks there's so many stocks these are all examples of themes of stocks that you should have a general idea of but aren't exactly super important to basically getting started you just should know what kind of theme
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they fit in all right so now let's actually talk about what to invest in as a beginner in the stock market I think 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 you decide to invest $200 each into five different companies
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if one of those five companies performs exceptionally well let's say you have nid in your you know 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
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underperform the market in a more volatile year and the name of the game with stocks and stock market is is that you don't want to underperform the market Market because the market is the easiest Benchmark to hit if you just 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 a lot of high conviction and you just have to accept that you might
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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 just 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 us compan compes with one single purchase this is more of a passive strategy where you basically set it and forget it relying on the Market's historical average turns of 8 to 10% over time an example of a fund
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that tracks the S&P 500 is ticker symbol vfiax or ticker symbol voo is 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 that you can buy in the market have their own codes and these are called ticker symbols so companies like Apple Google Microsoft Etc they have their own symbols index funds are passively managed so there are super low fees because they have no fund
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manager and not to mention your money is being instantly Diversified among all these Holdings because an index fund will just buy everything that's in that index another similar option is called a Target date fund that 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 right now and gradually shift towards safer Investments like bonds as the retirement
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date approaches 2060 refers to the date that you would want to retire and these are most commonly found in retirement accounts like the 401K for most beginners I think you either go with all index funds or perhaps another beginner friendly strategy is to have the majority of your money in index funds and then just have 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
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long-term investing remember there are tax implications too for different strategies which we will cover later but the key takeaway is this you want to focus on building a portfolio that matches your risk tolerance and your goals I'm going to give you guys a cautionary tale as to why you should not want to pick individual stocks as a beginner so consider the tech company Intel they were once a highflying tech stock during the Doom bubble but if you had chosen this stock back then you can
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see by the chart that I'm going to pull up on the screen that to this day you would still not have broken through its alltime highs back in 2000 compare that to the overall performance of the market since 2000 which has 425x since then this is the danger of picking individual stocks there is definitely more risk but there's also a lot more reward if you can get it right so if you were to pick Invidia stock for example you would have done incredibly well however I think as
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beginners we want consistent gains over time because that's going to be less stressful so 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 in order 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 so whenever you're buying a stock you need a special account to buy it in you just can't buy
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it in your bank account so you need something called a brokerage account or a retirement account like the IRA the Roth IRA or the 401K once you have one of these accounts you can then transact your stock or your index fund purchases the most common type of an account is a brokerage account so here's a list of a few of them you have Fidelity M1 Finance Charles Schwab Robin Hood Vanguard erade TDM Merit trade Weeble interactive brokers these are just to name a few the
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ones I personally use and recommend to most beginners are M1 Finance Fidelity and Robin Hood simply 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 that most people will use to buy and sell stocks in you can also open up a retirement account like the individual retirement
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account known as the IRA or the Roth version of it like the Roth IRA the 401K plan is something you need to set up with an employer so these plans are typically employer sponsored and you need to set it up through them I have a video detailing the differences between 401ks and other types of accounts I will link down below as well in case you want to watch that after this video now my favorite account to trade in is the Roth IRA if there's one takeaway you remember
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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 taxfree the contribution limit limit on it is about $7,000 per year as of 2025 that could change in the future it might go up to 7500 but right now it's $7,000 now here's the power of that account let's say you have Apple
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stock in a Roth IRA and you buy Apple stock regularly Let's Pretend in 50 years I don't know you make about $2 million from it you wouldn't owe any taxes on those gains versus in a normal brokerage account you might owe 15 to 20% in taxes on those gains in a normal brokerage account gains are taxed and we'll talk more about taxes later but in a Roth IRA it's completely taxfree and that's why it's so powerful for now you just have to know we need a special account to actually trade in and you'll
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either set up a Roth ARA or a taxable brokage accounts and then you will trade stocks in them 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
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underlying company's Health like the 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 then decide whether or not a stock is undervalued overvalued or fairly priced they can also compare the current valuation of that company to comparable companies within that industry so pretend Google is an undervalued Tech stock because it trades
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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 that are trying to identify ways to make money on stocks through patterns on a stock chart they don't really care about fundamentals they're just simply trading the price action or the trends and movements on certain stocks on a day-to-day or shorter term basis honestly a technical analysis Trader or
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investor is someone who takes a much more shortterm and micro view of stock trading and investing they rely on these patterns and these charts and these price trends to make decisions versus a fundamental investor is someone who's more likely going with a long longer term approach the fundamental person buys an undervalued company and the goal is to invest in these companies and then patiently hold the shares with the belief that the market will eventually
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recognize their true value leading to an increase in that Stock's price I'd say 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 simply shows you how much the company is bringing in in
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terms of total sales net income is the profit or the amount that they bring home after all these costs and these are General overview numbers that are good to keep in mind as you dive more 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 the current valuation of a stock one of the
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ways we use PE ratios is being able to figure out how much we paying for a given company if a company PE ratio is 20 this means that investors are currently paying $20 for every $1 of that company's earnings or profit in general a high PE suggests that investors are expecting higher earnings growth in the future compared to companies with a lower price earnings ratio a low PE can indicate either that a company may be currently undervalued or that the company is doing
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exceptionally well relative to its past trends when looking at a company's PE Ratio or any other indicator it's extremely important that you compare this ratio of that companies to other companies in the same sector or industry or Niche for example companies in the technology sector typically have a higher growth rate compared to those in the retail sector therefore PE ratios for tech companies will be higher overall and as with everything context is very important and this ratio should
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be only used 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 last quarter you can see that apple had a PE ratio of 3837 over the past 12 months that means investors are happy to
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pay $38 for every $1 of profit that Apple produces a higher p ratio such as 38 often suggests that investors expect strong future growth or view the company as a highquality business worth paying a premium for NVIDIA on the other hand trades for around a 53 PE ratio which suggests that the market is pricing in a lot of growth for this company perhaps per because of all the Innovations surrounding it including the chips that they're making for AI the next metric
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you can look at is called the price to sales ratio this is similar to the PE Ratio but it's simply represented as the price of a company's share price divided by the company's sales per share one of the areas where the price to sales ratio is extremely useful is if a company isn't earning a profit yet 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
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no profit to one with profit so instead they would like to use price to sales instead so for example if the price to sales ratio of a prospective company is lower than that of a comparable company within the same industry and that other company is profitable then investors may consider buying the prospective stock due to an attractive valuation obviously the price of sales ratio needs to be used with other financial ratios and metrics when determining whether a stock
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is valued properly lastly I like to pay attention to 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 just reflects the amount of money that the company can safely invest or distribute to shareholders if there is a positive free cash flow Trend that probably means that the company is doing pretty well because they have consistently enough cash generated each
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year to continue their operations as well as Investments now on the other hand if free cash flow is trending downwards you probably should figure out why that is and it might mean a higher chance of negative stock performance now it's important to note that not all comp companies have free cash flow it's not uncommon for example for banks to have negative free cash flow uh just because a lot of their revenues are reliant on interest income and fees banks have
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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 that you may want to look at as well to ultimately guide your decision on whether or not you should buy a stock to
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give you an example in 2024 I was paying attention to one stock in particular called Robin Hood Robin Hood was training for around 15 bucks a share in early 2024 and I noticed that many people were bearish on Robin Hood because of the negative sentiment that still surrounded the brokerage firm from the GameStop days but there were some soft indicators that made me bullish on Robin Hood one was the fact that on Reddit most people were still using Robin Hood as their de facto brokerage
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of choice often posting screenshots from their brokerage app on that platform in addition to that Robin Hood continue to innovate in The Brokerage space offering new features to their platform a new credit card bonuses for transferring your account and more I also read and listened to their Q2 earnings report and realized that Robin Hood continued to grow in a space that I felt was a little bit archaic Charles Schwab Vanguard and Fidelity had not innovated on their
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products in years and why would they have to they're the incumbents and they had all the assets under management or assets under custody another reason I liked Robin Hood still was that the founder was still at the Helm of the ship and founder Le companies are always ones that I am bullish on because typically the founder has the entire context of building the company from the ground up therefore the founder typically makes great decisions that are good for the company with the most
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amount of information available all these soft indicators paired with the fact that Robin Hood was training for a very low multiple in terms of price to earnings compared to its peers made me bullish on the company I started to average into Robin Hood 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
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portfolio and get two bonus videos per month not seen here on YouTube I think it's a great place for the beginner investor to try to learn a little bit more about the stock market and if you are interested in checking that out I will have a link to the Community down below now there's absolutely no pressure though it's just simply one of the offerings that I have for the people that watch my channel this video is still going to be free all right so now let's talk about creating a portfolio
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when it comes to creating a portfolio there are first a few questions that you need to ask yourself first is to figure out your investing style to understand what type of Holdings that will fit you within your portfolio chances are you probably inherently know if you're more on the riskier side or 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
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below in the description so on the screen right now you can see a spectrum of risk to reward ratio 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 someone who's super risk averse you may actually only hold cash but as we know holding cash is not the best option because it does lose purchasing power
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over time next up on the list are bonds government and corporate bonds or fixed income these are not too risky but the rewards are not so great as well and then I view US Stocks as high risks to reward same with International stocks and in this graphic International stocks and US stocks in my opinion both have high growth potential with obviously higher risks the point of this graphic is just to show you that different Investments can suit different people and you can tailor your own stock
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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're going to invest for this in the investing world is known as your time Horizon and it needs to be answered before you invest so if you're Investing For say retirement you can likely contribute and invest and feel pretty comfortable with any ups and downs in the market because
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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 why you're investing because it's going to guide a lot of your investment decisions and it may actually save you from being too emotional if the market performs
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with a lot of volatility now I've spent a lot of time studying the best ways to build wealth through investing and one of the simplest and most effective strategies for beginners is something called the three fund portfolio it's a great approach that said it and forget it and this is where you buy three ETFs one covering the US stock index one covering the international stock stock index and lastly you have an ETF of bonds this gives you a diversified low cost portfolio that can weather almost
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any Market condition and my personal three fund portfolio will be here 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 have a link for M1 Finance down below and we're also going to go over a live demo of them later you can see that this portfolio only includes three ETFs here at the bottom which is what the
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three fund portfolio is but you can also buy individual stocks within M1 Finance as well 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 just Faire way better if they just simply invested in index funds and ETFs so all we have to do as DIY investors is to make three Investments and will not only have a good well Diversified portfolio with an
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appropriate level of risk will also have the potential for market returns if not better in terms of how you allocate your total investment split among the three funds there's many different approaches is my personal one is 60% US Stocks 30% International then 10% bonds but it's going to depend on a lot of factors I have a full walkthrough on the three fund portfolio and I will leave a link Down Below in the description as well now if you don't want to do ETFs or index funds and would prefer the
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individual stock method you can do that too I would just say that with individual stocks you need to be a lot more purposeful in the ones you do choose and if you are choosing a basket of say 5 to 10 individual stocks at least make sure you're well Diversified across different sectors or categories you wouldn't want want 10 tech stocks because if the entire technology category starts to underperform this could have a huge negative implication on your portfolio balance all right so
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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 be buying five different stocks within the app all right so this is the live demonstration of the video I'm going to show you M1 Finance followed by Fidelity 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 an M1 net worth so I actually started this account
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with $50,000 back in November 25th of 2024 and you can kind of just click around here you can look at the one week performance the one month performance as you can see over the last month I'm up around around $1,357 now when you actually log into this app yours will probably be at zero you're going to have to actually transfer some money from your bank account into the M1 finance account it generally takes about one to two business days to do so but then once you
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have the cash in your account you can start investing you would then come to the this invest tab right here uh 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 that I have uh that's invested is within the three fund portfolio if you click into the three fund portfolio this is exactly what I have right now you can see the three
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Holdings that I have in the three fund portfolio I been saying that a lot I have vti which is the Vanguard Total Stock Market ETF the be which is the allor xus ETF so that's the international fund as well as 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 $
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51,66514 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 so let's just say for example I look up Robin Hood 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
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traded on today's trading day as well as the onee chart one month chart 3mon chart you can find this in mostly any br broker jab these type of charts and you also get some key data about how Robin Hood is trading as for example the price of 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 uh the lowest it traded for today
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was 4697 and the highest it traded for today was 4927 we can also see the yearly range so as you can see it's kind of trading at an all-time yearly high right now in the last year in the last 52 weeks and the 52 we low was right around $10.38 you get some more basic information about Robin Hood here who the CEO is the employees shares outstanding which is I think very important to figure out market capitalization as well as how much of your Shares are actually worth in terms
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of percentages then if you scroll down you can read some of the uh the top articles on Robin Hood right here and I think that's really great I think you can search for any company here we can even click on Apple for example and you can take a look at Apple you can add it directly to your portfolio with this button or you can just add it to your watch list now another favorite feature of the M1 finance app for me is to look at all the stocks as well as the funds
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available to trade or buy within your portfolio and you can kind of see that if you click on stocks here you get some basic information about how the stocks are doing for example the market cap what the dividend yield is 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 so let's say we just want to look at media companies
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we could do that by clicking media same thing they have filters for everything and then you can directly add the stocks from here into your portfolio which I will show you guys how to do 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 version of a portfolio for you so you can just literally copy paste one of these
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portfolios into your own dashboard so let's actually look at General investing here you can easily create a diversified portfolio and set it to your own personal risk tolerance so these pies are pretty 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 I shares National Municipal I I would see I would think this would be a munib bond
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2% S&P 500 and then uh 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 1 to threeyear treasury bond ETF which is very very conservative so you could either click this button and add it to your portfolio if you'd like to you can see that I could just add it right here um but I'm not going to do that what I'm going to do instead for today's video is actually create a dividend portfolio of five
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stocks but what I like to do is I just like to go to my pies right here and then click build the stock and fund P we're going to click create a PI right here and then just type in dividend portfolio I already have that copy pasted and then we're just going to click add pie you'll see that it's says new P requires a minimum of one slice you can drag and drop uh different slices in however the easiest way to do it is just click add slice and then let's select some stocks that you'd like
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to add to your dividend portfolio you can search by dividend yield so like you could just click this button but that gets you you know stocks with a huge dividend yield which is kind of a red flag to me in my opinion so instead we can search for dividend yield between 0.5% and let's say 4% uh those are usually safer dividend yields because that means the company isn't paying paying out so much dividends that they can't reinvest into themselves so for the purpose of today's example I'm just
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going to choose five stocks let's say we choose Microsoft we like JP Morgan um maybe we get some Exxon in there Costco love Costco and let's choose one more ABV which is a uh actually let's choose Johnson and 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 just go in here 25 and 25% in Microsoft but now you need to remove 5% in order
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for your pi to basically total 100 so let's say we want less Johnson and Johnson then you just go up here click save now that this Pi is created we actually want to invest in this Pi so just because you have it created doesn't mean you're investing into it so now what we want to do is 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
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three fund portfolio from earlier which is accounting for 100% of our total allocation right now and we have the new dividend portfolio that we just made the problem is though is 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
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ratio however you'd like I think for me right now I'm just going to do 1% just as a example so then you wanted to click uh save and then it'll say confirm changes let's confirm that and here we go we've got two slices now in our portfolio that are actually live and then within the dividend portfolio itself uh there is no upcoming trade or activity but what you can do is Click buy and let's say on the next trading day we want to buy $500 of the dividend portfolio inside your own
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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 going to be Tuesday for me since Monday is a holiday however if you click on the upcoming activity and click trades you will see that it is going to buy $500 worth of the five stocks that we said we wanted in the exact allocations that we said we wanted it in so that's basically how it works and every time you add money into your portfolio M1 Finance
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basically Auto rebalances it for you so that it basically balances out your portfolio in the exact allocations that you wanted to in the first place some people find it a little bit 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 really simple and it's always going to stay really balanced that way you don't really ever have to worry too much about rebalancing too often which can be a huge headache
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in the more traditional brokerages so M1 Finance is a really good set it and forget it type of place especially if you're only buying let's say a three fund portfolio or perhaps you have a dividend portfolio that you like in there uh when you start to mix a lot of individual stocks within that said portfolio then it does get a little bit confusing so just 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 going to
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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 uh I'm going to show you guys how to buy a stock using the mobile app so when you log into the screen it'll look kind of like this and then at the bottom middle you can click transact or you can click the magnifying glass at the top right let's actually search for
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a stock today so we'll click the magnifying glass at the top right and let's say we want to buy some Coca-Cola stock you can see it's already a recent quote because I was practicing this a little bit earlier because I already messed up the recording once but we want to buy some Coca-Cola stock you can see that it's trading for
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$62.11 day chart we can look at the 5day the one month the one year you can see that over the past year it's up 4.53% now let's actually go ahead and just buy Coca-Cola after you click buy you're going to get a screen like this this is the order screen and you can see that the last price of Coca-Cola was $62.11 this price might actually be fluctuating but since the market is closed right now it's just at 626 uh 6271 the action type that we're going to choose is buy you can either Buy in
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shares or dollars so that means you can buy one full share or perhaps if you just want want to buy a $100 worth of the stock you can choose the dollar uh toggle right here but for the sake of this video Let's just buy one share you can see that the estimated cost here is $626 it's slightly less than the last price of 6271 because that is the asking price of somebody else on the market right now next up you have Market versus limit so these are order types and this
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is a little bit complicated for a beginner but essentially what Market means is that whenever the market is open next your share will execute as quickly as possible at whatever the market price is the other option is called limit and that's where you can specify a certain price for your stock to trade at now that's a little bit complicated and would probably take a little bit too long to explain but if you're really interested in that you can look up some tutorials online for the
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sake of our video we're just going to click market and then we're going to click preview order so let's actually 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 order at the bottom that's still the button there and the market is closed but let's actually go ahead and just click place order now and there we go you can see that the order was received we have a confirmation number here of to buy one
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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 fidelity is that it lets you buy fractional shares so if you put in $50 right here here you can see that the estimated number of shares that you get is 797 this is a fractional share that not many
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other brokerages might offer so what's really great about Fidelity is that they let you buy fractional shares which means that it's a little bit more flexible than some of the other brokerages out there and you can even even buy fractional shares of ETFs as well so let's actually type in symbol vo at the top here and that is the Vanguard 500 S&P uh Index Fund ETF you can see that the last price was $549 46 and if we only bought $50 worth it is 09 worth of a share of VO but let's just do it
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for fun anyways and we'll click preview order um oh so this is a good to know market and limit buy and sell orders of stocks and ETFs and dollars are only allowed during normal Market hours so you can actually buy in dollars right now because you actually need the market to be open however if you were to buy in shares that's totally 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
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until now so when the market is open if you want to Buy in dollars that's what exactly the exact flow that you would go through and hopefully this was educational and I hope that you enjoyed this live demonstration portion of the video to sum up I would say M1 Finance is a little bit more rigid with individual stocks but it's a lot easier for the beginner to get started with I would say with Fidelity you actually need to know what you're doing with buying and selling shares and you can
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actually get very complicated in the Fidelity app if you want to you can do options trading you can do margin trading as well so just be careful if you're taking on more risk thanks for watching those live demos now let's talk about taxes on stocks because this is going to be pretty important when you're making gains in the stock market whenever you make a gain in the stock market you will owe taxes to the government I know it sucks but in the United States they always want to tax
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you now please note in order for you to actually pay taxes on the stocks you actually have to realize the gain which means that you would have have to sold the stock that you made money on if you simply bought a stock and just held it indefinitely you do not owe any taxes it's only when you sell the stock and you actually make that gain then you pay the taxes now there are two tax tax treatments for stocks either short-term or long-term capital gains a short-term
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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 income rate which is the tax rate that is based on your income so as an example let's pretend you buy a $1,000 worth of Apple stock in January and then let's just 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 gain
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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 at least the great thing about most of these brokerages is that when you do buy and sell they keep track of it for you so you really don't have to keep track of your taxable gains and losses manually you will get a $10.99 at the end of the year that you will be able to see your tax burden on
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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 on a yearly basis the long-term capital gains rate is actually 0% but that's if you make less than $47,000 a year so
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obviously there is a huge difference here but I think the most important thing to note is that you shouldn't let taxes control how you buy and sell or invest as long as you are making money profit is profit and I'd rather I don't know about you guys I'd rather pay taxes on profit and at least have some profit then not have any profit at all now if you are on day 364 and you have a massive gain and you want to get out of that position then yeah maybe I would tell you to wait until day 365 to sell
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that so that you can save a lot on taxes but in most cases I don't think you should let tax treatments influence your overall investing strategy another thing you want to consider toward the end of every year is a strategy called tax loss harvesting that's where you sell some positions you might have at a loss in order to offset any gains that you might have incurred throughout the year Okay so a new example let's say you take $10,000 in profit in the markets over
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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 $110,000 by that corresponding amount that way you reduce the amount of taxes you pay because now your yearly taxable gain is now only listed at $6,000 totalar now one way to avoid taxes altogether when buying and selling
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stocks is by inv investing through a Roth IRA which we already talked about earlier in this video if you do have further 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 meant to actually begin to investing in the stock
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market there are a lot of free resources I'm going to link Down Below in the description if you'd like to support this Channel all you have to do is use the links down below especially if they have my own link or my affiliate code on them lastly if you want to join my private Community where I share two bonus videos per month and everything that I buy and sell as well as show you what's in my portfolio make sure to check out the link down below all right guys I will leave another video for you
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right up here about investing I hope you watch that as well I hope you subscribe and I will see you in a future video thank you thank you thank you for being here all right peace [Music] h
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