How to Invest for Beginners: You Don’t Need $10,000 - Start With $5

0:00 Myth or fact, the stock market is basically gambling. Huge myth. The stock market is not gambling. Myth or fact. Buying the dip is always the right move. Myth. Myth or fact. You need at least $10,000 to start investing.

0:17 Myth. Huge myth. You need five dollars to start investing.

0:22 Myth or fact. You can consistently time the market. Myth. Huge myth. You can't time the market. You inherit a million dollars today. Yes. What is your first move? I would go pay off a lot of lunch debt.

0:36 Kids shouldn't owe money for eating lunch. That's insane.

0:39 If the market drops 40% tomorrow, what do you do? Like, what will be your first thing?

0:45 I would buy some calls. And the stock market can go up while the economy is still doing poorly. Because the stock market is not the economy, it's just a bunch of companies. And arguably right now it's a bunch of AI companies.

1:02 All right. Are you ready?

1:05 I'm ready.

1:06 For a rapid fire around myths and facts. Yes. So I'm gonna throw some stuff at you and just give me your best answer. Got it. Okay. Quick and fast. All right. All right. Myth or fact. Buying the dip is always the right move.

1:26 Myth. Why? So buying the dip, it depends on what. Buying the dip is a good move, but dollar cost averaging is a better move. So consistency is better than timing. So time in the market's more important than timing the market. Buying the dip can be very lucrative. You just need to understand why it is dipping and be a little more tactical.

1:47 Okay.

1:48 Myth or fact, you need at least $10,000 to start investing.

1:54 Myth. Huge myth. You need at least $10,000 in a passive index fund of some sort before you start picking stocks, but you need $5 to start investing. Doesn't cost anything. There's zero commissions. You can dollar cost average $5 a week into the fund of your choice, your brokerage firm that offers fractional shares, which is the vast majority of them, and get started right away.

2:18 It will cost you nothing.

2:19 All right. Myth or fact, the stock market is basically gambling. Huge myth.

2:27 Stock market is not gambling. It's a it's a bunch of companies. And when you gamble, the longer that you stay at the table, the more you're going to lose. The stock market, the longer you stay invested, the higher your probability of actually making money and having success, especially with index funds, because they take out the companies that are bad naturally and it self-cleanse.

2:52 Myth or fact. If a company is great, the stock is go always going to be a great investment.

3:00 That's I'm having a hard time with this one. So it's both a myth and a fact. So the stock, if the company is great, the stock should follow through as well. But you could have you have to define great. And I believe that's subjective, and that's where it's coming from. So if you think the fundamentals are extremely healthy, the technicals, however, you analyze it, then yes, the stock price should follow through, but you also have to consider the environment.

3:25 You might have a really great company, but interest rates are beginning to rise and there's geopolitical tensions and things like that. So the stock may not go higher because of the environment. So it's is the company great, but is the company also great in the current environment?

3:43 Interesting. Yeah. We're gonna chop these in shorts, but perfect. Myth or fact, you should sell everything before a recession.

3:52 Oh, huge myth. Huge myth. Huge myth. Stay invested. And we don't even know we're in a recession until usually we're out of it. It's usually 13 months after the recession that we find out that we were in said recession. And it's very simple to tell you why. You don't know you have a bad week on Monday.

4:09 We have to live through the entire week. We have to live through the entire duration of the period in the economy to understand if we've been in a recession or not. That's why. Always stay invested in dollar cost average in during that recession. That's how millionaires are made. Love it.

4:28 Myth or fact, diversification. Oh, sorry, I already forgot. Myth or fact, diversification lowers your returns. Myth.

4:38 Diversification can help your returns. Now it can amplify your returns, but it also amplifies your risks. So your returns could, as easily as they showed up, they can as easily go away. We say you climb up the stairs, you fall down them. And that happens in markets quite a bit. Corrections are very swift, whereas large rallies tend to take some time unless there's some amazing catalyst of some sort.

5:03 Diversification protects you from not having all your eggs in a basket, it's Shinover use saying, but it makes sure that other elements of your portfolio are working while others are not. And that's true diversification. If everything goes up at the same time, you're not necessarily diversified. And that's where different asset classes come in and protection and your risk tolerance, lots of things to consider.

5:26 Myth or fact, the SP 500 is always the best investment.

5:33 For a beginner, I'm gonna say it's it's a fact. It's it's a fact because it's simple and it's easy. It's the way that we measure the stock market. It's the 500 of the largest domestic companies, so US companies, by market cap. So meaning the bigger the company, the bigger piece of pie that you have. It is a good investment because it rebalances quarterly.

5:55 It's we call it an elite club. You have requirements to be in the SP 500. If you're not profitable, you're kicked out of it. That's why it's a good investment. Now, the methodology does prevent you from getting those really high growth opportunities. So if you want to be a little more aggressive, you could look at the NICE 100 or the NASDAQ 100.

6:17 It's a little more tech-oriented, but it allows companies to enter into that before they're profitable. So, for example, example, Tesla was in the NASDAQ 100 before it was in the SP 500. And that allows for more growth opportunities, but also more risk. There's always a give and take with investor.

6:35 Myth or fact, you can consistently time the market.

6:40 Myth, huge myth. You can't you can't time the market. You can some even those, and I know quite a few who are very, very good, can spot areas of supported resistance or supply and demand and get to the close to these zones. However, it's impossible to time the market accurately because it's an auction system.

7:02 If you were to throw up my favorite analogy, actually at explaining the stock market. If I were to throw up a headline that says Apple all of a sudden, I'm making this up, but Apple is working with SpaceX to put data centers in space. Crazy, crazy not true headline. Were you, are you going to buy? Are you going to sell?

7:20 Are you going to hold? Say we put this in front of a thousand people. I have, let's make it a million people. I have no idea what people are going to say. That's the stock market right there. You are, when you buy, you are reflected on the quote, and that's what pushes the price up. If buy there are more buyers and sellers, the price goes up, more sellers and buyers, the price goes down.

7:38 It's really that simple. And so you can't time it because we don't understand. That's why human psychology is very important, but we don't know what humans are going, how they're going to react to any type of news or the environment. It's impossible.

7:54 Myth or fact, the best investors trade frequently. Myth?

8:00 The best investors don't trade frequently. Um, the ones who love it trade frequently. And and um, but no, time in the market's more important than timing the market. So dollar cost averaging once a month, you could still be very successful. If you're trading very frequently, then you have to, it's very different trading versus investing.

8:20 With trading, now you're going to look at probabilities, risk versus reward, and weighing that constantly and adjusting your portfolio to those metrics, even layering on options, you're doing it very, very well because you're constantly looking at your risk exposure and adjusting and making sure that you have higher opportunity for reward versus the risk that's there.

8:42 And that is a very difficult thing to do. And most people aren't successful at it. I worked at an active trading desk for years and have seen people mortgage their homes and not tell their wives, lose all their money from trading. So no, difficult.

8:57 Yes, both.

8:58 Yeah.

8:58 All right, let's do what would you do? Okay. And if you like them, we'll do them. If not, we'll move on to the next one. Sure. Ready for this? I'm ready. All right. You inherit a million dollars today. Yes. What is your first move? The amazing.

9:14 Um, my first move, honestly, is I would call up the local. I know this isn't the answer you want at all. But I always see it in around my son's in school where people have lunch debt. I would go pay off a lot of lunch debt because kids shouldn't owe money for eating lunch. That's insane. That's the first thing I would do.

9:34 Um, from aside from all the helping that I would love to do, I if I was investing that, I would be a really conservative, do a bond ladder where I, or a treasury ladder where I've got payments quarterly where I don't have to worry about it. And then 20% of that, I would have a very fun time trading. Okay.

9:55 Explain the bond ladder so to our viewers. Okay. So what you do, you can do this with treasuries and you can do it with any type of fixed income product, but treasuries are the most popular. You can even do this with CDs. You set them up where they exp mature every single quarter. And so normally when your yield curve looks like this, you it takes you a while to get higher interest rates.

10:15 But when the yield curve is flat or inverted, it's the best time to do this. Um, but it means that I'm getting higher interest rates, and eventually you get the higher interest rates constantly. So basically, you're going to have a treasury that expires in three months, you're going to have another one that expires in six months, another one that expires in nine months, another one in 12 months, and you keep going.

10:35 As the earlier one matures, so the three months, that's going to give you lower interest because it's a shorter maturity. I'll put it in the 12 months one. So I have a little more higher interest, but now my six months becomes my three months. See how it, and it just moves constantly. So you constantly are climbing the ladder to get to the higher interest rate.

10:57 You ladder that out strategically, then you get higher interest rates quickly. And it's actually very good to do when the yield curve inverts.

11:05 Okay. So then that brings me to another question, which is bonds versus CDs. Yes.

11:11 So they are different on a risk level. A CD is issued by a bank. They are insured by FDIC up to 250,000. Then a bond is debt can be issued by a company, can be issued by a government. So the US Treasury treasuries are issued by the Treasury, and it's literally government debt that you can buy. It's considered the backed by the full faith and credit of the US government.

11:37 That's a series seven question. I always put it in quotes because I see it on the studying textbook for some reason in my brain. Um, but then corporations, you can buy uh Google issued a century bot. So a high expires matures in a hundred years. Wow. I know, crazy. But you can buy Google's debt. And the riskier the company, the higher the interest rate.

11:59 And they all have credit scores, just like we do. We call them an it's uh a credit rating. So it's not as simple as ours. Actually, I think it's simpler. Anything that's triple B or higher is considered investment grade. So it's it goes into A, B, and C. Anything below that is not investment grade. And it means that they don't have as healthy as balance sheets, you will get a higher return on those bonds, but you also have higher risk default.

12:24 Wow. Yeah, very interesting. Yeah. All right. Uh what? Okay, hold on. I almost missed. So you're 25 and thank you. You have 500 bucks a month to invest.

12:38 What would be your strategy? So I would start with investing. If I'm 25, I can be a little more aggressive. I would start with something like the triple Q's. So QQQ or again, Nicey 100 exists as well, but something more tech heavy because I have more time on my side. I'm assuming that I already have an emergency fund and no credit card debt.

12:57 That's very important because time in the market is so important. You do not want to take your funds out of the market when it's down because you have to pay for a car or something like that. So 500 a month, I would do it into something a little more aggressive like the queues. And when that reaches 10,000, then I would start adding more exposure to a specific sector or an industry again through ETFs.

13:21 So you still have some diversification. And then once I feel comfortable at this, I'm assuming back where I was at 25, um, which is dip. But anyways, once you're comfortable and understand stocks at that point, then you can start adding stocks because now you have a cushion. And that cushion is your nest egg that you're going to continue to grow.

13:41 But you can take a portion of that, still continue to dollar cost average into it, but then start adding stocks to your portfolio and individual sectors and individual industries. And what's great about that approach, it's the way that you invest. We do top-down investing, or I do with top-down investing just means you look at the macro environment.

13:58 What is happening right now? Is there an inflation problem? Is there geopolitical risk because of oil? How is that going to impact the consumer? What's the headwinds? What's the tailwinds? That's your top. And then it's like a funnel. So then you go into what sectors are going to do better with that.

14:15 Okay, well, if the strait remains closed, then energy might bode very well. What's the best stock within energy? Or the big bottleneck is a need for automation and labor. That's where artificial intelligence comes in. You learn invest in an ETF purely in artificial intelligence or the supply constraints, or you can pick an individual stock.

14:33 And so if you layer your portfolio that way, you can also layer your learning, which I love. I love that.

14:39 Thank you. Uh, question I actually got for my upcoming webinar was I'm a day trader, but I don't know what resources to use on a daily basis in terms of news and like what I should be reading as a day trader. If you're a day trader, what would you read every day? Would it be the news or like reports or earnings, or what would it be?

15:00 You need all of the above. You need to have a system. So, first and foremost, understand the catalysts that'll happen within the market. So the first thing you should look at is an economic calendar. And it surprises me how many people don't even know how to find that or that it exists. And your brokerage firm's website, all of them have an economic calendar.

15:17 That is normally a catalyst that is moving the market higher or lower. Understand where the market is and why. And this is where technical analysis is very helpful with day traders because there are areas of support and resistance, and you know, multiple tests make it stronger. So understanding technical analysis is very much going to help you on an intra-day basis.

15:40 But the catalysts are important. What will move the market higher? It's normally economic events, it's earnings events, and it can be headlines. A lot of times it is headlines. So you'll have to filter through the noise, but there's some great tools out there, even with artificial intelligence, but it starts with what will impact my day, just like you plan your day.

16:02 Plan your day according to the economic calendar and earnings calendar.

16:07 I love it. I didn't even actually know about the economic calendar. Oh, I'm gonna send you a great one. Once again, I learned so much just being around you. I love it. Uh it must be the air. Uh all right. Well, let's posit, let's think of the position of someone who's 60 and who's about to retire soon, let's say within a year or two.

16:25 Okay. Where does the money go in terms of investment? What would you do?

16:29 So if you are 60, and again, I'm assuming that you are healthy financially, so no debt. You're have that emergency fund. It's still very important at this point. You've built up your wealth and your nest egg. Um, if you can't afford it, it's okay to invest in some because you could still have some growth opportunity, but that's going to be your risk part.

16:49 That's a small portion. Otherwise, this is where you get into fixed income and you do that bond ladder that I was talking about. That's something that a financial advisor would talk to you about. You could be tax sensitive and need to make some adjustments as well. So this is where it's really prudent to actually have a conversation and they're free most of the time.

17:09 You can go into Fidelity and go into trous schwabbing and go into Merrill, you can go into e-Trade and say, Hey, I want to make sure I'm on track for retirement. Please tell me. And they will for free. Give you a plan. And everyone should do that if they want to know what they need to do. So that's because it's so intricate.

17:26 You may want to travel for what do you want to do for retirement? You may um want to start a company or something or this little thrift shop. You need to talk to somebody about that and where your finances fit because we're all different. And so our financial situations and the way that we handle our money has to be different as well because we all want different things.

17:44 Okay. I just learned that you can actually walk in and have a free session at any of these places. So you make sure to add that. That's very important for people to know because I I love free stuff. So let's start about free. All right. If the market drops 40% tomorrow, what do you do? Like, what will be your first thing?

18:02 Uh I would buy some calls.

18:04 Um, but tell me more. It's just immediately it's like, ooh, um, 40.

18:09 Well, 40% is huge. That's a lot. I would say 25. Okay, that's still a lot. Circuit breakers would be going off. If there was, as in it would stop it. Um, and a lot of people don't realize that actually. So, since every downturn, there are circuit breakers where if it's moving down too much, trading actually haunts.

18:29 So it stops the market from crashing as much as it has in the past. Okay. Because a lot of people will panic sell. You actually can't get out of your position. Yeah. Um, but then it opens up at certain points.

18:40 And when was the last time that the circuit breaks on?

18:44 I could not tell you the exact date, but I want to I know they went off in GameStop.

18:49 And is that decided at presidential level and stock exchanges level?

18:55 Exchanges. So the exchanges all have their own circuit breakers. You can look up the rules on exactly what triggers them. But it's a certain amount of volume and a certain amount of downturn. And if even short selling, it will require like a tick on the bid before it does move forward. There's it's a little intricate.

19:14 Um, go back to your question though, what would I do? If it dropped that much, normally that's capitulation. So waving the white flag. So as long as everything files, fires off where it's a clear area of support that I would be looking at. If you see the VIX index skyrocket at the same time, then you know fear or uncertainty is at its heighten, its peak.

19:39 And if you see that, that is the opportunity to buy. So if it dropped that much, I would understand why, first and foremost, but I would imagine it would be something very systematic. Like the last time it was something very systematic was the yen carry train unwind. There was no fundamental reason, it's just people were overleveraged.

19:58 Yeah. So therefore, great buying opportunity if you understand market mechanics. Okay. And what is the VIX index? The VIX index, I love this question. So the VIX index is the volatility index, very commonly called the fear index. And I disagree with this. I would call it the uncertainty index. And this is why.

20:18 The VIX index, the it's comprised of SPX options. So SP 500 options. If you buy an option, you are speculating on the market, or you're just speculating on up or down movement. If you buy an option, the premium inflates. So if you are thinking it's going to go up higher for some reason, it's going to be more expensive because of earnings or something like that.

20:43 Okay. If you feel like the market's going to fall, sometimes it inflates, if a lot of people do, the premium gets higher. So the volatility index is actually gets larger when uncertainty is higher because people are willing to pay more for direction. So the VIX index, you can look at it because it's basically people are hedging their portfolios, is the best way to say it.

21:07 Okay. So people are buying insurance. If a lot of people are buying insurance, they're scared. But you have to remember that people are scared all the time. And there's always a net hedge on the market. So we're into market mechanics. But not only can you buy a hedge, you can also buy leverage to the upside.

21:25 And so that's why it's uncertainty, is there could be heightened volatility because you expect movement upwards. Okay. Very misunderstood that one.

21:33 And where can I find the number or the percentage of the VIX index?

21:38 The VIX, you can um, you can just put it on Google. I think it's on the big board over here somewhere. I know it is, I'm not sure where, but it's there. Um, but it's usually on your brokerage firm, it's scrolling on the top. It's the major ones next to gold, but very misunderstood. Okay.

21:54 One is the VIX. I have another question which I'm not even sure if whether you know the answer to. But I'm curious that we're talking about the VIX index, who creates what data points are behind the index and who creates it. So this one was SIBO.

22:07 SIBO created the VIX. Yeah, Chicago Board of Options Exchange because it's options. So the math behind it is literally options. Yeah. And they use 30 days out. Which makes sense because the market is always forward looking. The market, the stock market is trying to say how much are these companies worth right now?

22:25 Got it. And so that's looking forward as well. It's always forward. Never know.

22:30 We'll give that to Chicago. Looking forward and the VIX index. Yes, there we are. I love that. Amazing. Uh okay. You can only invest in one sector for the next decade. Which sector would that be?

22:46 Information technology. Because things will rotate in and out of that. You still have artificial intelligence, but you still have the growth. Yeah. I just really believe in technology. But also have a higher risk tolerance. So that if you are longer in your investment journey and need to protect your nest egg, you do not need to be in information technology.

23:06 Ring all right. Okay. You can only own five stocks for the next 20 years. Oh. Which stocks would those be?

23:18 That's so I'd never want to be stuck to a stock for 20 years, but if I had to rate now, um I would do a mix. I definitely would own Apple because they're really good with their management and free cash flow in comparison to the others. Um probably Citigroup because I think they have the most opportunity from the banking side.

23:41 I'm trying to be a little diverse with my answers here. Um maybe Proctor and Gamble. I believe they're the highest performing stock over time. Um and people, so something in the consumer staples area is what I'm looking for. And we're at three. I love Alphabet right now, but that's right now. That could shift, but I like where they're going.

24:07 Um, and that would be a growth exposure, and I would make sure I retain that. Uh, my risk one would be NVIDIA. I feel like you have to have that, but it's risky to have that for so long. Verily risky.

24:21 Yeah. What about five ETFs that you want to own for the next 20 years? Again, 20 years is such a long time.

24:28 Um, so um I will take a cop out and do SPY. I would have QQQ, even though there's overlap. Uh some I would choose some thematic ones. I don't know the tickers off the top of my head, but there are thematic ETFs that have a very specific theme. So looking for alpha or stocks that outperform the benchmark with innovation, I'd choose something like that.

24:54 Um probably a consumer, a high, a high quality dividend one, actually would be important to have in the portfolio as well. I'm up to four. And then what would my fifth be? It'd be a fun one. Um, I like some of the there is a ETF out there called Wheel W-E-E-L, and it uses the wheel strategy, which is an option strategy that's very optimal in sideways markets.

25:20 So that way you've got some income no matter what type of basically I structured this where I have growth opportunities when the market's up. I've got protection when the market's down by going into um something consumer staples and give in high quality dividends because that's you get a dividend, you're not gonna say they have gross.

25:42 And then a sideways market.

25:44 I tried to account for market scenarios every single one of them for the next 20 years. For the next 20 years, if I had no choice and it was sitting there, yeah. Very nice. I would hate that, by the way. I would hate that. Yeah, I was gonna say 20 years is a long time, but uh all right. What is one signal that you're watching that you feel like investors are missing?

26:07 Uh right now is the two-year note, but the signals change. That's what I love about the market. It's very dynamic. Money signals adjust because what's important now may not be as important tomorrow because of the environment. So understanding the environment, I think, gives you the most edge. But the current signal is the two-year note because the two-year note, which is a government-issued treasury coverage within two years, has moved more than any of the others during this conflict.

26:37 So it tells me it's the most sensitive to this conflict, and the environment is this conflict. That is the headline risk. So that is what matters now because it shows you short-term inflation expectations. Honestly, that's why. But yeah, there are lots of lots of money signals. And the beauty is just finding one that you understand and go from there.

26:57 Love money signals, don't we? Uh, I do. He do. All right. Uh, what's the earliest sign uh that a bull market is losing?

27:07 Oh, I had my strange, my friend Jay Woods said educated me on this one. I'll give it to him. When the Russell 2000 starts rallying as well, that's kind of the end of the bull market cycle. So that's a technical view. I like to look at an earnings view. If earnings are starting to collapse, so we don't have that follow-through, then that tells me we're at the end of a bull market cycle as well.

27:33 Because what is a reason to buy the stock? Well, we think it's going to be worth more in the future because they're making more money. If the they stop making more money and you see a slowdown there, conversely, if you see that turnover, it's even better. Um, but that's when we can see the end of it.

27:49 But normally the end of bull markets or collapses tend to come from a shock of some sort. We're not expecting it naturally. It's a shock.

28:00 Hopefully not. Yeah. Um, and what is one market signal that has changed your minds recently?

28:08 Uh that is a tough question. I feel like I've spent so much time in the bond market lately. Um leverage. I mean, yeah, leverage has been extremely important. You're fine. It's okay.

28:28 Yeah, yeah, yeah. All right. Um, you're totally fine. No, we're yeah, you're totally fine. I was gonna say we're doing fun stuff here. Yeah. Um, which economic indicator do you trust the most? Oh, you can't you can't just choose one.

28:45 You cannot just choose one. You have to use them all together. Um I think they're all surveys. So there's soft data and there's hard data. The hard data I'm gonna trust the most because it's hard data. So soft data are your surveys where you say, where do you think inflation is gonna be? Yeah, CPI, the yeah, well, CPI is gonna be hard data because that actually came through.

29:12 But the soft data would be the University of Michigan saying, where do you think inflation will be? Do you feel like inflation is bad? And then there's so that's your feels, but that moves the market. Yeah. The reels also moves the market, which would be I feel like there's bad inflation, but then, or I feel like the economy is in the dumps, but then you get retail sales and people are still spending and you scratch your head.

29:35 You get inflation data and inflation isn't as high, yeah, you scratch your head. And so it is a balance between the reels and the feels, which is soft data and hard data. Um, I do not have a favorite economic indicator, but if I had had to choose one, I think um it has to be the unemployment report, because that's the heart of the economy, is everyone having money?

30:00 If you have money, you have an income, you're like very likely to spend it. You can go into that unemployment report and see where the jobs are, right? You can see where the jobs are diminishing, and that can give you lots of insight, not only into the economy, but companies as well. If they're hiring more, why are they hiring more?

30:21 Are they innovating? It could you can you can utilize that to dissect a lot of other things. Important one. Are we in a bull market or a bear market? We're definitely in a bull market right now. We're near our all-time high was June 2nd, um, around 7,600. I should know the number off top of my head. I do not nonetheless.

30:43 Uh, but we're so we're 100 points away from all-time highs. So we for the third consecutive quarter, that does not say bear market. And the stock market can go up while the economy is still doing poorly because the stock market is not the economy, it's just a bunch of companies. You can arguably right now it's a bunch of AI companies.

31:01 Awesome.