The Motley Fool is dedicated to the proposition that an individual can, if they invest properly, beat the market. So we're here to give those investors a leg up on the process with our best Foolish advice. But to make use of that advice, you have to be in the market. And while our tips generally start from the premise that our listeners will be, plenty of folks aren't.
We understand. Investing is complicated. It puts your hard-earned money at risk. And the closer one looks, the more there seems to be to learn.
If you're one of the many who want to begin, this Rule Breaker Investing podcast is for you. David Gardner has gathered a talented trio of Fools -- Jason Moser, Matt Trogdon, and David Kretzmann -- to gently guide us through the basics of how to become an investor.
In this segment, they get down to business with a detailed -- but not overcomplicated -- how-to-do-it discussion of the three steps anyone will have to take before they can buy stocks, no matter the size of the nest egg they're starting with. Step one: Open a brokerage account. Step two: Fund the account: Step three: Pick your stocks. But let's begin with step zero -- listen to this podcast.
A full transcript follows the video.
This video was recorded on Oct. 3, 2018.
David Gardner: Gentlemen, three steps to getting started investing. I'm going to read them off one at a time. Let's start with step No. 1 -- "open your account."
Matt Trogdon: I'll take this one. Opening a brokerage account continues to get easier and easier. According to The Ascent, which is The Motley Fool's personal finance brand, you can now easily open an account in almost 15 minutes with a number of brokerages.
Three things that you need, probably, in order to get started. A bank account. You'll need to have your bank account information with you, you'll need to have your Social Security number with you, and you'll need to have your driver's license or state ID just so you can go on the account and identify yourself as being who you say you are and get started that way. It's fairly simple.
Gardner: I'm the person who the more things I can do with a click of a mouse at my home computer, the happier I get. It's one of the reasons I love Amazon. I know I'm not the only one. Many of us love Amazon. So it really is as simple as tapping into a web page these day.
However, if you have a local office, let's say a TD Ameritrade, you can just walk right in there, but you're still going to need your driver's license, your Social Security number...
Trogdon: And your bank account information.
Gardner: And your bank account information to do that, regardless online or off. Anything more to say about opening that account?
David Kretzmann: Just to know that there are a number of different brokerages out there. You mentioned TD Ameritrade. Robinhood is increasingly popular, especially with a younger audience. I have a Robinhood account and that's really just an app. You can download the app pretty quickly, as Matt said. Just breeze through and set up an account.
There are a number of different brokerages out there and I think at The Motley Fool we still have a broker comparison tool, so if you search "Motley Fool," "broker comparison," that will give you a few different options at different brokerages out there. All of them essentially provide the same service where once you have that account set up, you'll be able to buy stocks.
Trogdon: And just to underscore again. If you think about opening an account, that might make you a little bit nervous. That might seem like a really big deal. But it's gotten to the point with our technology that it's no harder than most any other online interaction that you're going to have, whether it's buying a gift or buying tickets to a show or something like that.
Gardner: Let's put a few more names into play just because there are so many choices out there and far more than we can cover in one podcast, but we've already mentioned TD Ameritrade, which, by the way, is a sometimes sponsor of this podcast. Robinhood, which is an app, as David mentioned, and especially for people who love apps [younger people often], a great way to get started. I use Schwab. That's a big, well-known name.
But Stockpile. Who can speak to Stockpile? They have a very interesting way to get started investing. I've seen gift cards of stocks.
Kretzmann: With Stockpile, you can invest as little as $5 into any given stock. I think they have over 1,000 individual companies available, so any names or brands that you're familiar with like Starbucks, or Apple, or Netflix are most likely available through Stockpile. It only costs $0.99 per trade, so I'd say especially if you're starting out with an amount of money between $100 and $1,000, Stockpile is probably a great option, if the idea of owning individual stocks is appealing to you, as a way to get started.
You can easily build up a basket of 15 to 20 companies through Stockpile, so it's a way to get that diversification quickly without having to buy entire shares of the companies. So a share of Amazon.com right now is around $2,000. Buying one share of Amazon straight from the get-go for someone might not be feasible, but through Stockpile you'd be able to allocate $20 or $50 and get a slice of Amazon.
Jason Moser: And for those folks who do like apps, we have our friends over at Rubicoin who have built out a couple of really great investing platforms. They have Rubicoin Learn, which is a structured, educational app to teach you about investing, but then Rubicoin Invest. They partner with DriveWealth that will allow you to open a brokerage account in that app and they also offer fractional shares.
Gardner: So Rubicoin is kind of like the Rubicon River -- crossing the Rubicon -- but it's Rubicoin. I should mention The Motley Fool's invested in Rubicoin. When that talented team came to us some years ago and said, "Hey, our dream is to get young people, especially, but more and more people to get started investing," we said, "That sounds like what we're trying to do at The Motley Fool," so we're invested in them, as well.
Anyway, I think we've done a decent job covering many choices. There are far more beyond that. We could have said Fidelity. There are all number of these. If you have a friend who has had a good experience, you could ask a friend and say, "Hey, what do you use?" So that's step No. 1.
The critical, sometimes overlooked step, especially by this podcast because I love talking about stocks, is we sometimes forget to just explain that you need to have an account and here's what it takes to open one. That's step one. Step No. 2 is to "fund the account." Who's going to speak to that?
Moser: I'll speak to that. Once you have the account opened, funding it is as easy as one, two, three. Kind of what we're telling you here today with getting started. In most cases brokerages will have a tab or a section in your profile where you can transfer funds in and that goes back to Matt's point of knowing your bank account information.
As long as you have that information [typically a routing number and an account number], you can set it up so you can transfer money from your [bank] account over to your brokerage account. Typically that money is available fairly quickly and once it is there and ready, it will be in there as tradable funds, typically they call it, and you are ready to rock and roll.
Gardner: Anything more to say about that? It's pretty straightforward.
Kretzmann: It's straightforward. I'd say it's a similar process if you have PayPal or Venmo. It's a similar process to transferring cash from your savings account or checking account into those apps. Really an identical process.
Moser: And of course you can write a check. You could drop it off at the local brokerage. I know Scottrade, before they were acquired by TD Ameritrade, had offices everywhere. You can take a check in there and give it to them.
Gardner: Your broker would like you to fund that account in whatever way. You can probably just walk in with cash and just go, "Here you go, guys! Please put this in!"
Trogdon: One thing I'll add, here, is you'll have an opportunity to set up an "automatic withdrawal" if you so choose. Automatically adding money into your brokerage account every month can be a very powerful way to make investing something that you continually do.
Gardner: Spectacular! And that brings us to the all-important step No. 3 -- "invest!" Now, you could buy stocks. You could buy funds. Or you might be investing on behalf of your children. And I think we should speak to each of those, because there are many different approaches to getting started investing; the actual investing part of that.
Let's start with funds. The Motley Fool, in our very first book 20-plus years ago, said that a great way for the whole world to invest is just buy an index fund. We talked about it earlier, the S&P 500 Index Fund. Ones from Vanguard over the years have been very low-priced, and you're getting, basically, the market's return without having to take the risk of investing in individual stocks. Without having to feel like you need to know stocks. You could just "mail it in," as I've often said with that index fund. That's definitely one flavor of getting started investing.
Matt Trogdon, working within Motley Fool Asset Management, you're talking to people all the time who just want funds.
Trogdon: Yeah. Funds, whether it's a traditional mutual fund or whether it's an ETF; the main benefit, there, is its instant diversification. The second main benefit, there, is that you don't have to pick the individual stocks yourself. I stopped picking individual stocks a long time ago. I realized that just wasn't my forte and it wasn't something I was particularly good at.
Gardner: How dare you, Matt Trogdon, come on Rule Breaker Investing and say that! This is heretical! Burn him!
Trogdon: We all have to know our strengths and we all have to be self-aware. It's just not something that I'm particularly strong at. But I want to keep investing. I'm definitely interested in having money that grows, and so funds and ETFs make sense for me. As I said, it can provide instant diversification and knowing that you're invested in, say, 50 stocks, or 100 stocks, or even 500 stocks helps you sleep better at night not having to worry that one or two of your stocks might go down.
Gardner: So for a lot of people listening, that's a great answer. Possibly the majority of those listening to Rule Breaker Investing are willing to, with Matt Trogdon, break the rules of this podcast and talk about not investing directly in stocks, but thank you, Matt! And certainly for the vast majority of Motley Fool members, they probably have at least one fund, if not the majority of what they have in funds, as much as we do love stocks, and let's talk next about stocks. David Kretzmann, I know you got started with stocks as a kid. For somebody who's investing their first $1,000, how would you suggest they approach the stock market?
Kretzmann: Well, for those of us who aren't looking to mail it in with the gentleman's C with funds there are a number of options with different brokerages, as already mentioned. Like with Stockpile where you can invest flat amounts. It could be $50 per stock or a $100 per stock, and pretty quickly you can build up a diversified portfolio of anywhere between five to 20 companies initially. And then if you're able to add some money over time, you continue to build out your portfolio.
Perhaps you're a member of Stock Advisor or Rule Breakers, or you follow some of David's stock picks...
Gardner: My five-stock samplers.
Kretzmann: Five-stock samplers, thank you! There's a lot of different ways you can get ideas for certain stocks. Start with companies that you're familiar with. Companies whose products or services you know and love. Just start with things that you understand and pretty quickly through Stockpile, Rubicoin, or some of those other apps [or brokerages], you can pretty quickly build up a nicely diversified portfolio of individual stocks.
Gardner: I appreciate that, David, and certainly with $1,000 you won't be building a fully fledged Fool portfolio. It's a step toward your next thousand and your next thousand after that where you do build that portfolio out over time.
To make an argument in favor of investing in stocks, one of the reasons that The Motley Fool exists is because I think we have a pretty good track record for beating the stock market. So it's exciting, on the one hand, to hear the stock market returns around 10% a year. It's even more exciting when you're beating that per year and doing so over a long period of time. That's why we really love the stock market. I certainly do.
But I think that everybody should own one stock. I'd love to think that even Matt Trogdon may still hold his J.P. Morgan...?
Trogdon: I don't...
Gardner: Doesn't? No, no, that's OK!
Trogdon: I do hold...
Gardner: Well, you had a tough time, there, in 2008 and 2009.
Trogdon: I do hold some others, but I don't hold that one.
Gardner: Good. But in favor of stocks, I've always liked to think rather than buy all of the companies in an index, or all of the companies in a sector, let's buy the best ones. Let's just buy the best ones and probably, I hope, outperform over time.
I want to keep it moving, here, so Jason, I'd love for you to speak to getting started investing for one's kids.
Moser: Sure. You know, this talk of samplers and apps is making me hungry, so I'll try to get through this as quickly as possible. All great information, here, and great answers. I support fun stocks. I think it really does depend on the individual. I think the nice part about getting started investing when you're a kid is you have a lot of years ahead of you, so you can take on a little bit more risk. So it's actually a great time to get them into individual stocks, assuming you feel comfortable enough to help make those choices with them.
And that's essentially what I've done with my daughters up to this point. I've never made the choices for them. We've always held discussions. We typically whittle it down to four names. We talk about those names on the way to school. We eventually come down to two names and then we'd pick the best one. It's kind of like our version of Explorer, David.
I think for getting kids started, it's really about taking tooth fairy money, birthday money, or whatever they're doing to earn money. We've helped them out along the way, as well, played the role of employer and matched some of their funds. That's just been more fun for us, because we know that ultimately it's going to a good cause. But [because of] the advantage of getting them started in individual stocks at such a young age, we aim to buy one either every quarter or at the very least a couple of times a year.
Gardner: That's great!
Moser: And the rule of thumb is that once we buy one holding in their portfolio, that is off the table for the next round, and that encourages diversity. So they bought Starbucks. Now they can't buy Starbucks ever again. They own it. Now we have to consider something else.
Gardner: Love it!
Moser: Consequently, they have a portfolio, now, with I think nine or 10 names and they're all Foolish names that everybody listening here would recognize, I'm sure. And I, of course, don't need to tell you that their portfolios have done quite well, but that is because we've chosen good businesses that they wanted to be owners of and then we've committed to owning those businesses indefinitely. In some cases that's worked out. Now they owned Whole Foods and they lost a little money on that investment when the acquisition was made; but hey, they learned about the acquisition and lucky for them they each own a share of Amazon anyway. So it all worked out in the end.
Gardner: Well, earlier at the start of this podcast I said we're going to talk about $1,000 and I sure hope that we've delivered on that. I hope that especially if you're listening as a new prospect -- somebody who might think, "Yes, I'm now going to get started investing with my $1,000" -- darn it, I hope we've served you well!
However, some people have less than that and some people have more than that, and I wanted to speak to that briefly. David Kretzmann, what if I don't have $1,000? I have $100. You might be summarizing again a little bit of what was said earlier, but if I'm starting with a smaller amount of money, how should I start investing this month?
Kretzmann: The first thing is to absolutely still get started. It doesn't matter if you're investing a smaller amount like $100. You can still go ahead and buy an index fund, whether it's the S&P 500. Get a little piece of the S&P 500. It's instant diversification that way. Or, if you're like me, and you're more excited about the idea of initially buying five, 10, or 15 individual companies, you can absolutely still do that through different brokerages that allow fractional-share investing. You can buy $5 or $10 each of several different stocks and get started that way with individual stocks.
Gardner: Outstanding! And now some people have more than $1,000. They've been sitting on savings for a while. They've just not invested it. Matt Trogdon, if I have not $1,000 but $10,000, how would you speak to that situation vs. the $1,000 that we've focused on with this podcast? $10,000.
Trogdon: Well first, David, I would tie it back to something we talked about earlier in the show, which was compounding. Just running the number on my financial calculator, here, if you have $10,000 and you invested for 30 years, and you got 8% a year; at the end of that 30 years that $10,000 would turn into $109,357. That's the power of what we're dealing with.
Gardner: And you haven't even added anything.
Trogdon: And you haven't even added anything. So I think at $10,000 your strategy doesn't necessarily need to be any different than it was at $1,000. You could go with a group of stocks like David was talking about. You could go with funds, ETFs, or index funds like I was talking about. $10,000 might give you an opportunity to get a little bit more sophisticated with asset allocation and thinking about what types of stocks you want to own. Do you want to own international stocks or any small-cap stocks?
But that's not necessary. I would say the three steps that we outlined for $1,000 would hold quite well for $10,000, as well.
Gardner: That's $1,000. That's $100. That's $10,000. Gentlemen, thank you very much for your time today getting Fools started investing with this podcast! I'd love it if you each could provide one resource, one takeaway, or maybe one web page I can click into or app to download. What's something I can take away and have that to support me through my first month of investing?
Kretzmann: I have several articles that I've written. I think currently the best place to find them is actually on LinkedIn, just reiterating some of the stuff we've already talked about here; the steps needed to get started investing. People can reach out to me on LinkedIn at David Kretzmann or on Twitter @David_Kretzmann. I'd be happy to pass those along.
Moser: I would be remiss if I did not refer people directly to all five of our valuable podcasts. I think we have a library of content that is unmatched, and the best thing about it is it's all totally free. You can download it on your iPhone. You can get it through Stitcher. However you like to listen to podcasts, we have Motley Fool Money, Market Foolery, Industry Focus, Rule Breaker Investing, and Motley Fool Answers. Just wonderful educational content. I just can't speak highly enough of it all. I love it!
Gardner: Thank you, Jason, and thank you for helping host Industry Focus in our financial podcast! It's been really fun to hear you on a regular basis now on that one. I do want to call out Motley Fool Answers, especially connected to this podcast, because if you're new to the market, of our five podcasts Motley Fool Answers is almost set up for you on a weekly basis to help you think through a lot of the things that we're talking about right now. Answers -- Motley Fool Answers -- to some of your basic personal finance questions and get-started investing questions. So I definitely want to underline that one, as well. Matt?
Trogdon: My favorite new resource -- I want to call out my friends at The Ascent, which is The Motley Fool's new personal finance brand. If you just go to Fool.com on the home page and then hover over the personal finance tab, you'll see a link to click there. They have lots of pages on best potential bank accounts for you, best brokers, best mortgage lenders, credit cards; anything you need. If you're trying to decide how to get started with something personal finance related, I think The Ascent could be a good resource.
Gardner: Thank you! Ascent as in ascend a mountain. A-S-C-E-N-T.com. And I'm glad you mentioned them, Matt, because that's a kinetic site. And the purpose of this podcast, this week, was to be very kinetic. To get you into action mode. To act to get started investing. Certainly The Ascent is all about that for things like choosing credit cards, etc.
To conclude, thank you again to my guests Jason Moser, Matt Trogdon, and David Kretzmann for your help and we're looking forward to hearing back from you one month from now. We're going to bring this talented group together and have part two of "Getting Started Investing." Hear from you any questions that were aroused by our conversation today or things that we failed to say, or maybe said not well enough. We'd love to hear from you. What can we bring back a month from now and help close the loop on getting you started investing?
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. David Gardner owns shares of Amazon, Apple, Netflix, and Starbucks. David Kretzmann owns shares of Amazon, Apple, Netflix, PayPal Holdings, and Starbucks. Jason Moser owns shares of Apple, PayPal Holdings, and Starbucks. Matt Trogdon owns shares of Apple and Starbucks. The Motley Fool owns shares of and recommends Amazon, Apple, Netflix, PayPal Holdings, and Starbucks. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.