What do I need to get started in investing?

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You might be scared of starting your investment journey. Questions of where to start, what to buy, the best places to learn from, and so on are looming on your mind. This post will answer the question, what do I need to get started investing to set you up on the right path.

We are an investment website and are primarily concerned with the best way to move capital (money) from one place to another to generate a return. That is essentially what investing is. So the first thing you will need is starting capital. This, of course, is obvious, but I see these questions routinely pop up on various forums:

And many, many more.

There are also blog posts floating out there titled “How to get free stocks?” or “How to invest $100?” and countless other iterations.

The unfortunate truth is that if you want to positively impact your financial position and start building a solid investment portfolio, you will need more than a few hundred dollars. It doesn’t, however, mean that you need hundreds of thousands of dollars.

How much money do I need at the start?

$1,000 – $5,000+. You won’t need it all upfront, but eventually, you will need to invest that much to build yourself a solid portfolio.

Personally, I started with $800 more than 15 years ago, and with small monthly contributions, I built out my portfolio. I routinely invest as much of my savings as possible, and my portfolio is continuously growing. So don’t worry if you are starting with little capital but expect to invest more as you build confidence & knowledge.

Why this minimum?

Ideally, in the beginning, you would want to buy an excellent portfolio to set yourself up for long-term success. Portfolios consist of multiple assets that are best to purchase all at once. It is possible to build out your portfolio slowly by continuously purchasing the required pieces. However, as prices change, make your life easier in the beginning and have enough capital to set up a winning portfolio right away. You will be adding more money later on, but it will be a lot easier to do once you have a solid foundation to build on.

I also love setting aside some capital for individual stock purchases. More on this later.

Pick an online broker.

Once you have your initial capital ready, you will need a brokerage to buy stocks and other assets.

There are a million broker reviews online. I don’t want to waste your time, and honestly, it almost doesn’t matter what broker you go with.

Every brokerage will do everything in their power to sell you on why they are the best, but in reality, most features don’t matter as long as the broker doesn’t charge you commissions and don’t impose inactivity and low balance fees. Because of that, you can quickly remove most brokers belonging to big banks. Banks hope that by offering you synergy between your already existing bank account and brokerage account, they can get away with charging you fees. In today’s reality, it just doesn’t make sense. I am okay waiting a day or two for my withdrawals or deposits to clear or to have a separate app on my phone for banking and my brokerage. It is not a big deal.

Also, avoid brokerages that offer too many “Trader” focused services like advanced charting capabilities & research services. In reality, you don’t need those unless you want to trade, which if you are, you are probably not reading this article. Going with the most popular option will likely give you everything you are looking for.

Here is what I use (in Canada) and my friends use in the States. Both offer $0 commissions, no minimums & no inactivity fees.

U.S Investors Canadian Investors 
WeBull WealthSimple Trade
Setup Account Setup Account

Wait a minute if these brokerages are free, how do they make money?

They make money by collecting interest on cash balances in their accounts and selling order flow and exchange rate differentials if you need to convert currencies. So they are not free, but they are cheaper than the traditional brokers used to be.

Am I getting the best deal with these brokers?

An order flow broker is a company that connects traders by using algorithms to find the best prices for people who want to trade. The mechanical nature of brokers allows them to execute trades very quickly, and they do this with a lot of different people simultaneously.

Should that concern me?

Most online stock trading brokers are considered order flow brokers. Will you get the best price if you set a “Market” order with such a broker? Perhaps not, but we don’t recommend buying anything with a “Market” price, and price differences will be small enough that you will not notice them anyway.

Choose an account type.

Now that you have your initial capital and a broker of your choice, you will have to pick an account type when you register with them.

What account type should I set up?

Important: Choosing an account type will have year-end tax implications.

There are Taxable and non-Taxable (Tax-advantaged) investment accounts.

Taxable

Depending on your investment goals and savings situation, you might open a regular investment account with a broker. These accounts are taxable.

What does that mean?

It means that any gains you get from selling your investment or any dividends you receive throughout the year are subject to taxes. Given your situation, other income, and tax bracket, it is impossible to say how much you will have to pay at the year-end. If you decide to open a taxable account, talk to an accountant and check out the IRS website for more information: https://www.irs.gov/publications/p550#en_US_2020_publink10009851.

Note on losses: Losses also carry tax implications, albeit positive ones, as they can reduce your taxable income.

Tax-advantaged Accounts

A tax-advantaged account allows you to defer or exempt you from paying taxes on any income or gains you receive from your investments. These accounts have limitations and stipulations, so they, too, need to be carefully reviewed.

Tax-advantaged account information for U.S Citizens.

Tax-advantaged account information for Canadian Citizens:
The Tax-Free Savings Account & Registered Retirement Savings Plan (RRSP)

Eventually, you will have an account of each type but in the beginning, ask yourself: What are you investing for? If it is for your retirement, then a retirement account is a better choice, but you will not be able to access your money without tax penalties until a certain age.

If you are starting and are not investing for retirement specifically, I recommend you go with an account that will allow you to access your money without tax penalties.

What do I buy for my first investment?

You might think this is the most challenging part, but it is not. However, it would help if you settled your expectations.

We won’t all be Warren Buffets

If you set out on your investing journey with the expectations that for the next 50 years, you will return 20% a year, you will be disappointed. Even people who dedicate their whole lives to the craft can’t consistently produce these results consistently.

So, to start, I’d buy two things:

  • A diversified all-ETF portfolio like a lazy portfolio
  • Individual stocks that you research to your best ability
  • Easy to setup portfolio

    These portfolios will do a few things for you:

  • Generate stable return
  • Provide diversification
  • Teach you about risk
  • Teach you basics about stocks & bonds
  • Teach you about ETFs and broader markets
  • Teach you what moves the markets
  • However, if your financial situation allows it, I would save 10% of my money and invest it in individual stocks.

    Individual stocks

    Now that you have the majority of your money invested in a well-diversified portfolio, you can take a little bit of money and invest in a handful of well-researched stocks.

    This is the single best thing you can do to learn how to invest:

  • It will teach you about individual businesses, how they make money and how that correlates to the stock price.
  • You will learn how to assess if the company is a good investment or not.
  • You will understand how outside factors influence businesses and particular assets.
  • You will earn higher returns on some stocks and lose more money on others.
  • You will feel fear and joy and regret and a range of other emotions that don’t come from investing in safe and boring portfolios.
  • How do I find individual stocks to invest in?

    At first, we can rely on outside research to help us.

    There are a million and one investment research services out there, so it can take some time to learn how to find gems in the sea of mediocre analysis.

    Here are a few of my favorite places to read:

  • Value Investors Clubhttps://valueinvestorsclub.com/
  • Micro Cap Clubhttps://microcapclub.com/
  • Contrarian Edgehttps://contrarianedge.com/
  • Places to avoid:

  • Fool.com – Generally, because they churn out way too much content for every stock, that is often extremely low quality.
  • Expensive, stock research services that offer absurd-looking results. These are usually presented on a massive landing page with “Money-Back Guarantees” and “Save now before the offer expires” banners that feel low-quality and, in most cases, are just scams.
  • Penny stock research services. However, keep in mind that not all penny stocks are made the same.
  • So hopefully, this will set you on the path to investing glory 🙂 Start with an easy portfolio first and then dive deeper into well-researched stocks, and eventually, you will get to the point of doing your research. If you can’t wait, here is a short article on how to start understanding business finances.

    Happy Investing!

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