The first investment can be scary. You know the stock market can be a beautiful place that will make you rich as well as an awful hellhole that can destroy your life.
Before deciding to jump into it, it took careful consideration and months of thinking and researching, during which I was trying to answer these three questions:
- Where to invest? - on which platform/app/account
- How to invest? - what would be the strategy, how much, how often
- In what to invest? - why do I actually want to invest and what stocks do I consider interesting based on my objectives
So let's see how I answered these questions.
Where to invest?
Those of you who've been following me for a while probably know that I have a Robinhood account but that I never invested anything with it. I just created it a few months ago to get that one free stock they offer when you open an account, because who doesn't like free money?
I looked into other apps such as eToro, WeBull, M1 Finance, Public, and figured, considering my current personal situation, they were all pretty much the same. Robinhood has ease of use (both on a phone and a computer) and allows the purchase of fractional shares, which can be convenient in some cases. I read that it didn't have the best customer support, but I'm not going to throw all of my money in there so I'm hoping this won't be a problem.
I was kind of scared of how they handle crisis situations and treat their customers since the GME madness of last January, but, after researching it further, I realized they had not done anything wrong on that matter. I actually wrote a post explaining this whole situation, feel free to check it out. It made me feel better to learn about all that. I see people on Twitter complaining everyday about not actually owning the crypto they bought there or whatever, but that's just people who didn't research properly before buying, I would never use RH to buy crypto...
I also looked into different types of brokers and accounts, meaning not just an app, like retirement accounts and special investing accounts. I'll definitely open some of these soon, but in my current situation this was not the smartest/easiest move for various reasons.
So, to answer the question of where to invest: Robinhood, for now, as it's a good entry point into the market for beginners, and I definitely won't put the majority of my capital there.
How to invest?
Now, what kind of investor will I be? The beginner kind, for sure. I don't have the time nor training to keep an eye on the news and the stock market every other second to know when to buy or sell what. I'm not in it for day trading, rapid growth and immediate big gains, I'm in it for the long run.
That's why I decided to go with the classic Dollar-Cost Averagingstrategy. If you don't know what it is, it is a way for investors to build they portfolio and wealth over a long period of time while cancelling out short-term market volatility. It consists in investing a fixed amount of money into specific stocks on a regular basis.
You basically commit to buying $X of Y stock every Z days. No matter the price of the share at that moment, you invest the same amount. This means that you will get more shares when the market is low, and less shares when the prices are soaring, thus neutralizing the volatility.
It's a very basic strategy, recommended for beginners as it is simple and relatively safe, or at least way safer than saying "okay I'll start investing today, let me buy $10,000 worth of Tesla and wait it out!". It's a long term strategy, and I'm a long term investor.
Here are some reasons that convinced me to go with this strategy:
- It disciplines you and forces you to be consistent. Consistency in a budget is key if you want to grow your savings steadily over the years.
- It's a fairly good protection against market volatility.
- It also protects you from yourself and potential FOMO. Being committed to your regular investment will prevent you from buying out of fear or "social pressure" when the prices are low, and from panic-selling when the prices are high and seem to start slowly decreasing. If you believe in yourself and your plan, you know you'll compensate for any dip eventually.
- It allows you to "not care" about how the market is doing, meaning you don't have to constantly be on the lookout and ready to buy or sell.
- Finally, having the ability to buy fractional shares (as you get in Robinhood and some other apps), you can easily choose to invest even small amounts without having to worry about the price of shares.
Regarding the decision of how much to invest, that was pretty simple to determine. I keep a tight budget, writing down every income and expense that happens in my life, so I know at any given time how much I can afford to spend on what. I already transfer money into a savings account every month, so I just decided to cut a slice of this transfer to put it into the market instead. For now, most of it will still go to the bank every month, and I'll grow my investment percentage over time as I feel more and more comfortable. So I set myself a minimum amount to invest each month, that I'll split into 4 purchases, every Monday. Why Monday? I don't really know, why not?
So, to answer the question of how to invest: dollar-cost averaging, a fixed amount, every Monday.
In what to invest?
Okay, so now that I determined where, how and how much I'll invest, let's see what to buy. And for that, I need to know what my short-term/long-term plans are. Why do I want to invest? What's the end goal? As my plan for this year is to open new streams of income, this is what I see when I look at the market today, a potential stream of income. I basically consider it a more volatile savings accounts. So, with this in mind, I know that in my current situation, I am looking to build a source of passive income, and in the market, this means prioritizing dividends over growth. As of today, I'm not interested in buying stock with the intention of selling one day to make a profit, I'd rather my investments give me regular income than a one off capital gain. I know taxes are harsh for REIT dividends, but taxes be taxes, and it's not like they're taking 100%, the extra income still exists at the end of the day, which would not be the case with money sitting on a checking account or a lower yield savings account.
Now, to avoid too much volatility, I turned to the real estate sector: REITs and REIT ETFs. Simply put, a REIT (Real Estate Investment Trust) is a company that owns real estate, collects rent and gives 90% of it back to investors in the form of dividends and a REIT ETF (Exchange-Traded Fund) is a company that invests in several REITs and allows us investors to diversify our portfolio and exposure by just buying into one stock. The value of these stocks typically does not fluctuate as much as business equities, meaning a share of a REIT bought today might be worth approximately the same thing in 20 years. But they typically give out better dividends than most businesses, so it's exactly the type of ROI I'm looking to get.
Here is the criteria I set when I started looking into REITs and REIT ETFs:
- Low volatility: how did the stock fluctuate in the past? I want it to be fairly stable, again, I'm not looking for growth but stability and consistency.
- Portfolio: global occupancy rate, number of properties...
- Diversification: what types of real estate is this stock invested in? Residential can seem risky (low occupancy rate, potential rent issues), commercial is struggling during the pandemic, but at least big corporations tend to pay their rents every month and the bigger the brand, the more changes it has to stick around for a while.
- Dividend yield: anything above 3% is better than what any bank would give.
- Dividend schedule: if I want to build growing passive income from this, monthly dividends are a huge plus.
- Dividend performance over time: are dividends being paid when they should? Have dividends been growing or lowering over the years? If I want to get passive income from this, it needs to be reliable.
- Dividend performance in 2020: were dividends paid in 2020, especially between March and June? If so, how did they handle the crisis? Were there stupid risks taken with investors' money?
With this in mind, I decided to give a shot to two different stocks: SRET and O.
- SRET (Global X SuperDividend REIT ETF) is an ETF that yields a 7% monthly dividend. It invests in 30 the highest paying dividends in the world, 70% of its portfolio being in the US. I had my eyes on some REITs and found that they were part of this portfolio already, which reassured me. It's fairly recent (2015) and low entry (one share is a bit less than $10 at the time of writing). Since 2015, it's been pretty stable, and even though the price of the share suffered a lot in March 2020, it's steadily growing back to where it came from, and they managed to pay out their monthly dividends, lowering the rate a bit in order to do so.
- O (Realty Income) has been around for more than 50 years, and they've been giving out monthly dividends for more than 50 years, without missing a day. It's one of the most popular REITs on the US market, paying a monthly dividend of more than 4%. The returns are lower but it feels pretty safe because of its consistency. One share is around $67 today, and pays almost $3 yearly per share.
I feel confident with these choices, one giving out a better ROI but being younger and maybe more volatile, while the other pays a bit less but feels very stable and reliable. I decided to split my investments 60% SRET - 40% O for now, putting more in what earns more, and the rest as a safety blanket.
If you're thinking of investing yourself, I strongly encourage you to think about it extensively, to ask yourself these same questions (and more), to make sure you set a goal, a strategy, to determine why you want to invest, to know how much you can afford to invest and to only do it once you're comfortable with all the answers you find. Remember that, while it can be interesting to read articles, watch videos or listen to podcasts about investments and strategies, only you can answer these key questions about your own investments. Don't do it blindly, avoid FOMO, stick to your strategy and do your own research. If you want to join Robinhood to get a feel of what it's like, you can do so using this link to give us both one free stock worth up to over $200 (with no minimum deposit required): https://join.robinhood.com/nathaln-81f11a
DISCLAIMER: This is not financial or investment advice. In any way am I even remotely qualified to tell you where and how to invest your money. I simply wanted to share my own experience. Remember to always DYOR and invest only what you feel comfortable losing.
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