March has come and gone and not only does it mean that spring weather is here, it also means that it has been approximately one and a half years since I started investing aggressively. A year and a half ago was the time when my wife and I started to make a little extra money – giving us enough to actually start investing. At the beginning, I didn’t really know what I was doing – at all. This isn’t an exaggeration.
Despite my initial lack of knowledge of how the stock market actually works, the important thing is that I did start investing and I’m happy to report that we’ve made a lot of progress in the past 18 months. Let’s take a closer look at what I’ve learned and how much progress can actually be made when you put your mind to it.
How Much Our Portfolio Has Grown
A year and a half ago wasn’t the first time that we started investing – it was just a turning point where were able to invest more aggressively. My wife already had a Roth IRA that we were using to invest for retirement. It wasn’t much, but considering that we were also paying for graduate school, it took a huge sacrifice to be able to invest what we could. After this turning point, things started to grow much faster. As I’ve learned, the faster your portfolio grows, the more exciting and more likely you are to keep doing it.
Over the past year and a half, we have more than tripled our investments. This does not include our emergency fund, but includes both tax advantaged accounts and taxable account. Tripling your investment account sounds great (and is by any standards), but just keep in mind that it is easier to double and triple your investments when you start small. Growing our investments this much hasn’t been easy, but it is a great sign of how far we have come.
What I have Learned About Investing
While we have made a lot of financial progress, I also consider the past 18 months to be a learning experience. I still don’t consider myself an expert investor, but I do know more than the average investor. Here’s a closer look at some of the things that I have learned.
It Can be Challenging (at first) to Overcome Fears
When I first started investing more aggressively, it was difficult to pull the plug. I spent weeks doing research and making sure that I wasn’t making a bad decision. I had worked really hard to earn this income and I didn’t want to lose it because of a bad decision. While you should be careful when you are first start investing, don’t let your fears paralyze you. I was able to tell myself that I had years to recover my losses if we lost a large amount – this was enough to get me to pull the plug. I also realized that without investing, my money was losing its buying power thanks to inflation.
Every Little Bit Adds Up
Another thing that I have learned is that every small amount adds up over time. I opened one account and decided to invest $100 each month. I knew that I wanted to increase the account’s balance by $1,000 over a year’s period. It didn’t seem like much to start out, but after 6 months or so, I started to realize how much money I had in this one account. This got me excited about how much progress we had made and then I bumped it up to $200 per month. While it may not seem like much at the time, if you consistently invest money, you will be surprised at how fast it adds up. If the market is growing, your account will also grow as a result of capital gains.
ETFs Have Several Advantages Over Individual Stocks
When I started investing, I didn’t even know what type of investment I should put my money in. I couldn’t believe how little information there is for first-time investors. I ultimately decided to start with a few ETFs. I’m glad I did this because there are huge advantages to ETFs, especially for young adults who don’t have a lot of money to invest:
- No Transaction Costs – When you buy an individual stock, you often pay a commission or trading fee. I believe my investment broker charges me $7 to buy and sell. Many brokerages offer commission-free ETFs. This means that you can buy a single share without paying a fee. This may not seem like much, but it lowers your rate of return if you are paying $7 for every transaction.
- Diversification – An ETF is a collection of individual stocks. Every investor should properly diversify their portfolio to protect their investments without sacrificing the potential for high returns. This means that an investor can diversify much easier than with individual stocks.
- Dividends – You can also buy ETFs that offer dividends. This means that you can get 1-3% (on average) automatically to increase your rate of return.
While there are additional fees with ETFs, they are usually pretty marginal. The savings in the commission or transaction fee more than makes up for the management fees – at least when you are investing small amounts.
I still have a lot to learn when it comes to investing, but I’m happy that we got serious when we did. Not only do we now have more money accumulating interest, but we have learned important lessons that many people my age don’t learn until they’re in their 30s.
What lessons did you learn when you started investing?