I'm a new investor. Help!

By: Shannon Lin, an ex-new investor  😇

I don’t have enough time or resources to think about every detail about my portfolio everyday. How can I sit back and watch my portfolio rise ~10% yearly on average? 😎

Read on to learn how this could be you too!

Blog summary 💬

  • 3 highlighted tips & tricks to get you started: think long-term, diversify your portfolio easily through indices, understand a bit about taxes 
  • Does passive 10% yearly income sound too good to be true? Read on!

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Welcome to this new magical world of flying unicorns and money-making tricks… Kind of. When I first started, I thought investing would be the key to retiring early and making lots of money without much effort, like a fairyland. However, I also didn’t feel confident enough to make every decision on my own and didn’t know how to judge risk. Today, I’m here to share with you some of my thoughts to help you get started with your first portfolio. But take it with a grain of salt, I’m just one opinion and it’s healthy to sometimes be skeptical of what people say. 🤔

General investing principles I follow 💯

Long term investing ⏱

No need to watch your heart rate fluctuate with the market’s short-term ups & downs

I’m young so I have many years ahead of me to invest. This means I don’t have to worry about short-term ups & downs as much because the yearly average stock market return has been ~10% for the past century. So even if I experience a bad year, the many other years I’m investing will help to average the solid 10% return. 

How can I easily get this ~10% return? Read 2nd point below.

Read 3rd point below to learn about the tax benefits to holding stocks longer term 🤓

Don’t put all your eggs in 1 basket 🏳️‍🌈

Diversify portfolio through indices

Most of the time, I’m a rather boring investor with most of my money in a basket of stocks. Instead of manually investing in a bunch of stocks, I’m able to invest in a group of stocks via a single ETF. ETFs are exchange-traded funds that track some index. An index (plural= indices) tracks overall performance of a group of tickers, like S&P 500, Russell 2000, DJI, etc. In summary, index = basket of companies and ETF is the way we can invest in those indices easily without having to manually recreate the basket ourselves.

More specifically, the S&P 500 is an index that tracks 500 large US companies and averages 10.5% market return every year. By investing in this index (via an ETF ticker like VOO), I’m investing in all ~500 companies within this basket and am automatically better diversified than holding a single stock. This is because the performance of the index is less influenced by dramatic swings that individual companies face, since there’s hundreds of others that even it out.

Of course, when the entire market faces a crash (like in 2020 due to COVID), the index doesn’t protect you against those type of market-wide losses but individual stocks usually aren’t better either (unless you happen to have picked the right one, like Zoom during pandemic). This goes back to the first point of owning various ETFs long-term to achieve the averaged ~10% return without needing to hand pick individual stocks & stress over keeping up with every piece of financial news.

Read more about the S&P 500 here from one of our co-founders!

Don’t forget about taxes 🤠

Specific blog about this coming soon

Taxes vary across countries, types of investments, income bracket, and so much more. This section is by no means comprehensive. Instead, I am just here to remind you that investing will probably affect your taxes, but don’t fret. You’re only taxed on capital gains. In this context, capital gains = profits made from investing. I know I prefer making money and paying some taxes than making no money in the first place! Especially if I just follow the tried & true method of owning indices long-term.

Here’s a couple interesting scenarios I’ll quickly highlight to further inspire you to dig in deeper yourself!

  • If you hold stocks/ETFs for longer than 1 year in Slovakia, you don’t owe taxes on the profits. This goes back to my first point of long-term investing. Beyond averaging stable returns, there’s tax incentives to hold onto your stocks/ETFs for longer!
    • For Czechia, it’s the same story except you have to hold for longer than 3 years.
  •  In Slovakia, dividends are taxed at 7%. Dividends are a share of the company’s profits that you receive as a shareholder of the company by investing in their ticker. Some tickers will give you dividends, some won’t. For example, the ticker VOO that tracks the S&P 500 index (as aforementioned) has a 1.49% dividend rate paid out every 3 months.
    • In Czechia, dividends are usually taxed at 15%.

That’s as much as I’ll tease you with for now 🤑 Our app will soon provide further resources to help you understand your particular tax situation and better navigate tax season.

Summary takeaways 🗯

Hopefully these 3 pointers give you a helpful starting point: tax-informed, long-term investing with a diversified portfolio through ETFs. Sometimes, boring principles can be great fun in making money passively! Enjoy the journey and reach out if you have any questions, comments or concerns- cheers! 🙌

PS. Pictures are taken from Giphy.com.

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