How I Learned About the Stock Market – Lessons for Investors

By in Asset Allocation, Bond, Stocks, Wealth | 9 comments

How I Became an Avid Stock Market Investor

At age 25, finally tasting adulthood, I wanted to get rich, or at least richer than I was. I loved the idea of becoming an adult, having my own apartment, job, money, and best of all, control. As I  began to accumulate a nest egg, from saving and a modest lifestyle (I loved that one room studio apartment!).  I wanted to learn to invest.

I had some trepidation about the stock market. In a college stock market course, I learned about the stock market crash of 1929 and it scared me. I didn’t have enough background at the time to realize that although the stock market can decline a lot some years, over the long term, the long-term trend of the stock market is up.

How I learned about the stock market - 90 year S&P 500 returns.

Chart data source: http://www.macrotrends.net/2324/sp-500-historical-chart-data

When I started investing, I went to a stock broker, although today, I’d suggest new investors open their account with a discount broker. I talked to my broker about my  interest in growing my money and my fear of stocks. I was hungry for knowledge and information. In fact, he  loaned me the set of notebooks his company used to learn about investing. I devoured the investment information within a few weeks.

My First Investments

I took the stock broker’s recommendations and invested in a ginnie mae fund, a closed end bond fund, a utility stock my cousin recommended, and a money market mutual fund for the cash portion of my investments. This was not a particularly balanced investment portfolio. I certainly would not recommend this portfolio. Not only that, I didn’t realize that the commission to the broker on the closed end bond fund was quite high. (Note to investors: find out how much and in what way your investment advisor is being compensated).

In spite of the less than optimal investment portfolio, my assets continued to grow. When I saw the results, I gained confidence. While devouring investment information and education, I decided to dip into stocks.

Bonus: What is Smart Beta Investing and Should I Invest in Smart Beta Fund?

How I Began Investing in Individual Stocks

In my job as a Career Counselor and Student Employment Administrator at San Diego State University, I began to invest the maximum amount in the university 403(B). I chose TIAA (formerly TIAA CREF) from the list of providers and invested in the CREF stock fund and the TIAA Fixed Income Fund (at the time paying 7% interest). Our investments continued to grow along with my interest in stock market investing. Next, I wanted to venture into individual stock investing.

Find out: How We Grew Our Retirement Account 538%

My spouse wasn’t onboard with investing in individual stocks. Although I handled the family investments, we discussed my interest in investing in individual stocks. He did not want to “risk” our hard earned dollars in the stock market.

Should I invest in the stock market?

I had a plan to bring him on board. I wrote a research paper about the stock market to convince my husband about the benefits of individual stock investing. The historical results of investing during the last 50-75 years were unequivocal. If you invest in a diversified pool of stocks, continue investing through the ups and down, and reinvest your dividends, over time the returns are positive. Since 1924 The stock market returned on average about 9 percent annually. After inflation, stock market returns beat those of bonds and cash.

The evidence convinced my spouse that it was worthwhile to invest in the stock market. And so began my foray into individual stock investing.

Today, we invest in index and exchange traded mutual funds and seek to match market returns. 

What About the Downturns in the Stock Market?

Investing in individual stocks, stock mutual or exchange traded stock funds is risky. Certain years your investment will decline.  

Our investment portfolio has grown in spite of the stock market crash in 1998, the dot com bust in 2000, and the 2008-2009 mortgage melt down and recession.  As a student of market history, I looked at those market crashes as opportunities to buy stocks at bargain prices. While the masses were frightened and running from stocks after the declines, I had confidence that over time, both U.S. and International economies would continue to grow and the stock market would rebound.

How to Learn About the Stock Market

There is no better teacher than experience (and reading some stock market books). Put some “skin in the game”, invest a small amount in a broad based index fund such as Vanguard’s Total Stock Market Index Fund (VTSMX) or Schwab’s Total Stock Market Index Fund (SWTSX) and continue to add funds at regular intervals. Do not panic when the values decline. Do not look at the prices every day, or every week, or every month. You will drive yourself nuts!

Open an account at a discount broker and start investing now. Don’t put all your extra money in this account, just an amount you leave in for the long term. Commit to staying invested, and don’t pull out at the signs of a market decline. If you have a workplace retirement account, implement this plan by having part of your paycheck diverted into a diversified stock index mutual fund.

Caveat: Take These 10 Steps Before Investing

My Stock Market Investing Trajectory

Since making those first investments decades ago, I’ve continued to invest regularly and met our long term financial goal. Over the years, I got my MBA in finance, became an investment portfolio manager, and taught investing to university students. Today, both my passion and my job is to educate you in the best ways to invest and grow your wealth.  Click on the link to read about my personal investing story

Have you begun investing? What were your first experiences in the stock market?

Updated; December, 2017

    9 Comments

  1. Good going Barb, you’#ve really sorted out your stocks and investments strategies by the sounds of things. Be interesting to see how you get on in the next few months with the way the DJ and FTSE are changing

    Jimmy @ financeromance

    June 17, 2013

  2. My first investment was a bond fund too. Then I started to invest in stocks and mutual funds, although Imy favorite was income property.

    krantcents

    June 17, 2013

  3. I always keep money on the sideline until a really bad day on the market. 1% loss in the S&P is my threshold for investing. Unless there is some fundamental problem, I’m aware of, I buy.

    David @my2centopinion

    June 17, 2013

  4. @Jimmy, I’ve been through many market corrections. Staying the course has worked out well in the long run.
    @Krantc-Time in the market is the way to build wealth, don’t you think.
    @David-Sounds like a nice contrarian strategy. Dollar cost averaging also works well!

    Barbara Friedberg

    June 17, 2013

  5. I’ve been trying my luck with indivudal stocks as well in my etrade account. Been pretty much sticking to the S&P 500 index fund in my 401k account.

    thepotatohead

    June 18, 2013

  6. Thanks for filling us in with a little background histroy Barb. I’m not sure if its too late for me to learn about stock market trading, but i’m going to watch a few videos and read up on this to see if its really for me. Thanks for a bit of inspiration.

    Thomas @ Mr Moneyvator

    June 18, 2013

  7. I’m surprised your first investment was a bond fund! Usually it is some stock fund from a hot tip (talking about personal experience here of course!)! 😉

    Moneycone

    June 18, 2013

  8. We lost most of our investments in 2000 – they went into a tax wrapper but bombed. They were in individual stocks. Now we have started investing again but now use pools of managed exchange traded funds via Nutmeg in the UK so while they may go up and down, they won’t bomb. We hope! It’s a risk anyway because you are not in control. All you can do is decided when and what to buy and sell.

    John@MoneyPrinciple

    June 18, 2013

  9. Thanks for a very informative article, and for addressing the fear factor. I admit, I’ve been afraid to invest in individual stocks so it was interesting to read about your personal experience and strong returns despite the market’s ups and downs.

    Happy Simple Living

    June 18, 2013

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