On Stock Market Investing

If you’re a veteran, especially one of the "four-years-and-done" vets, chances are no one handed you a playbook on personal finance or investing in the stock market. And if we’re being honest, the financial world can seem very intimidating, like you feel like you need to sit down with some financial advisor in a suit and tie just to figure out what to do with your savings. But I am here to tell you that investing isn’t rocket science and you don’t need to be rich to start. What you do need is the basic understanding of the market and a system—and that’s exactly what this guide is here to give you.

This isn’t about get-rich-quick schemes or chasing flashy trends. This is about authentic, long-term strategies for building wealth in a way that works for regular people.

1. Mindset: Start With Your Spare Money—and Build an Emergency Fund

The first rule of investing is simple: never invest money you can’t afford to lose. Life happens—your car breaks down, a medical bill pops up, or an unexpected move comes your way. That’s why you only invest with the money you can afford to lose. More importantly, you need to build an emergency fund before you invest a single dollar. A good rule of thumb is to set aside three to six months’ worth of expenses in a saving account. (if you are extra savvy, you put this money in a high-yield saving account) Once you’ve got that safety net in place, you can confidently invest your spare money without worrying about what life throws at you.

2. Think Long-Term: Investing vs. Gambling

Investing is not about chasing highs or instant gratification. That’s gambling—and it’s why many day traders lose their shirts. To put it simply:

• Gambling: Chasing short-term gains, relying on luck or “instinct”, and often end up losing everything.

• Investing: Building wealth over time by putting your money to work for you.

In other words, when you invest, approach it with a long-term mindset. If you think, “I’ll buy this stock today and sell it within a week,” you set yourself up to be influenced by every minor market fluctuation. This leads to emotional decision-making, which is exactly what you want to avoid. Mixing emotion and investing is always a bad bad idea.

On a side note, do you know what’s the worst thing that could happen to a novice investors? Blindly invest in some random stock and win big. I am just going to leave it like that.

So, why is a long-term approach favorable for investors? The answer lies in the magic of compound interest—the process of earning returns on both your initial investment and the returns it generates. Over time, this creates a snowball effect, amplifying growth exponentially.

Here’s a simple example:

• By investing $500 a month into an S&P 500 index fund, which has historically returned about 10% annually, your investment could grow to over $1 million in 30 years. This isn’t luck or magic—it’s mathematics, and it highlights the incredible potential of letting time and discipline work in your favor.

3. Start Simple: Invest in S&P 500 Index Funds

One of the easiest and most effective ways to start investing is with an S&P 500 index fund. These funds let you invest in 500 of the largest companies in the U.S. all at once, spreading your risk and capturing the overall growth of the market.

why is S&P 500 a smart choice?

The S&P 500 has consistently delivered strong long-term returns. Here’s the proof:

• Over the past 30 years, the S&P 500 has averaged an annual return of approximately 10%, even when accounting for market downturns like the 2008 financial crisis and the COVID-19 crash.

By investing in the S&P 500, you’re essentially betting on the U.S. economy as a whole—a bet that has historically paid off.

However, not all index funds are created equal. Different companies offer S&P 500 funds with different fees, called expense ratios. ****These fees, even if they seem small, can significantly impact your long-term returns.

For example:

• A fund with an expense ratio of 0.04% will take $4 annually for every $10,000 you invest.

• A fund with a ratio of 0.50% will take $50 annually for the same $10,000—a big difference over time.

My personal favorite is VOO (Vanguard’s S&P 500 ETF), which boasts one of the lowest expense ratios in the industry. By minimizing fees, you maximize your long-term gains.

Quick Note on Stock Tickers

A stock ticker is a unique abbreviation used to identify a stock or fund on an exchange. For example:

• AAPL is the ticker for Apple Inc.

• VOO is the ticker for Vanguard's S&P 500 ETF.

Think of tickers as shorthand codes that make it easy to find and trade assets in your brokerage account.

4. Take Action: Pick a Brokerage

Once you’re ready to invest, you’ll need to open a brokerage account. Think of a brokerage as a platform that lets you buy and sell investments like stocks or index funds. Here are a few great options, with their official websites to get you started:

• Charles Schwab (schwab.com): Known for excellent customer service and easy-to-use tools for beginners.

• Fidelity (fidelity.com): A top pick for low-cost options and a user-friendly mobile app.

• Vanguard (investor.vanguard.com): Focused on long-term investing with some of the lowest fees around.

Once you’ve chosen a brokerage, you’ll need to create an account (like setting up a bank account), transfer some money into it, and you’re ready to start investing.

5. Learn to Use the Tools

Using a brokerage app or website might feel overwhelming at first, but it’s easier than you think once you get the basics down. Here’s a simple roadmap:

• Search for Your Investment: Once logged in, use the search bar to find your investment. For example, if you’re investing in the S&P 500 through VOO, type “VOO” in the search bar.

• Buy Your First Fund: When you click on the fund, there’s usually a “Buy” button. Here’s how it works:

  • Market Order: This buys the stock or fund at its current price. Since stock prices fluctuate constantly, this means you’re agreeing to pay whatever the price is at the moment your order goes through.

  • Limit Order: This lets you set the maximum price you’re willing to pay. The system will only execute the order if the stock’s price drops to or below your set limit.

Example:

Imagine you’re buying Tesla stock, and its price is currently $200 per share:

• If you place a market order, you might end up paying $200, $201, or even $199, depending on how the price fluctuates at the time your order processes.

• If you place a limit order and set it at $195, the system will wait until Tesla’s price drops to $195 or lower before buying the stock for you.

Understand Market Hours:

The U.S. stock market is open from 9:30 AM to 4:00 PM Eastern Time, Monday through Friday. These are called “market hours,” and most buying and selling happens during this time.

• Extended Hours: Many brokers allow you to trade before or after market hours, but this comes with risks. Stock prices are more volatile, and it’s harder to find buyers or sellers, which can make trades difficult.

• After Market Closes: If you place an order when the market is closed, your broker will hold it and process it when the market opens at 9:30 AM the next business day.

• Check Your Portfolio: Once you’ve made your purchase, your investment will show up in your account under “Holdings” or “Portfolio.” This is where you can:

  • See how many shares you own.

  • Track the stock or fund’s current price and how much it’s gone up or down.

  • Monitor your overall gains or losses over time.

Pro Tip: If anything confuses you, don’t hesitate to call your broker’s customer service team or look for answers online. Communities like r/personalfinance on Reddit or forums specific to your broker (like Fidelity or Vanguard) are also great for advice.

6. Avoid Stock Options as a Beginner

Stock options might sound exciting, but they’re not a great starting point for beginners. Here’s why:

• Stocks are straightforward: When you buy a stock or an index fund, you’re betting that over time, its value will go up. You don’t need to worry about anything else—you can hold it for years if you want.

• Options are risky: When you buy an option, you’re not just betting that the stock will go up—you’re also betting how fast it will go up, because options have expiration dates. If the stock doesn’t move quickly enough, the option can expire worthless, and you lose all the money you spent on it.

Real-Life Example:

Let’s say you think Apple (AAPL) stock, which is currently at $150, is going to go up.

• If you buy the stock: You buy 1 share of AAPL for $150. If it goes up to $180 next year, you make $30. If it takes 5 years to reach $180, you still make $30. There’s no time pressure.

• If you buy an option: You buy a call option that gives you the right to buy AAPL at $160—but only for the next 3 months. You pay $5 per share for this option. Now, two things need to happen for you to make money:

  1. AAPL must go above $160 (so the option has value).

  2. It must happen before the 3 months are up.

If AAPL only goes to $155 in 3 months, you lose the $5 you spent on the option because it didn’t move fast enough. Even if AAPL eventually hits $180 in a year, it doesn’t matter—your option has already expired, and you’re left with nothing.

The Takeaway:

Buying stocks is like planting a tree and letting it grow over time—there’s no rush, and time is on your side. Options, however, are like saying the tree has to grow a certain amount by a specific date. If it doesn’t, you lose your investment.

Stick with straightforward investments like stocks or index funds while you’re learning. Save the more complex tools like options for later, once you fully understand the risks.

If you follow this simple guide and invest in s&p500 monthly for decades, it’s hard not to have a good retirement when you get older. I hope this guide helps you to achieve financial freedom and long term happiness!