Amateur Investor
Before we get started, I highly suggest you do not Google “Amateur Investor”.
Unless you’re specifically looking for porn.
This article is going to be fairly limited in scope, so don’t necessarily take my advice here. In general, yes, I highly recommend following my investment advice for guaranteed returns. Just not this time. For reasons.
Now, if you’re a novice investor or even just wondering about getting started, then you probably understand the idea of paying off your debt and building a small savings cushion. Still, the reason you see this same message over and over is because it is essential you pay off debts. If you are in that kind of debt, the kind where you pay bills with money orders, then you can do a faux-double dip. Start paying with a credit card that gives you % cashback bonuses. Then pay off that credit card.
Say you owe $400 on the card, and $100 on your electricity bill. You only have $100. Pay the utility with your credit card. Then pay $100 to your credit card company. Your lights stay on, you don’t owe any more money on your card, and you probably just covered the minimum monthly payment. I would think, at only $400.
“But Rocky!”, you say, “Why does this matter so much?”.
Excellent question! You need liquid money to invest. Maybe you can somehow fund your brokerage account with credit if you’re wealthy enough…but eventually you still have to pay that bill….or at least agree to.
“So what if I invest $50 a week?” - I get why this makes sense, and $50 a week is much better than $25/month, or even $0 ever. You could get 2 shares of preferred stock. Assuming an 8% return, you’d be get $1.60 per share per year. After the first year you’d have 104x$1.60, $166,.40 a year, paid in monthly increments.
Now you hurry up, download Robinhood, and start investing today! Then you find out that you can’t trade (most) preferred stocks on Robinhood. What now?
Robinhood gets a lot of criticism for all the wrong reasons. We won’t get into it, but it’s a great platform for learning. It’s very difficult to accidentally hurt yourself, despite its limitations. But this isn’t about Robinhood. This is about asking yourself why you want to invest, and what you want out of it.
It’s not enough to just say “money”. “Income” is a little better, and gives us an idea. “I want to make money day trading so I don’t have to go to work anymore.” Totally doable, not extremely difficult. However, I don’t think “day trading” means what you think it means. Actually, I know it doesn’t, but you don’t (yet)'.
“I just want to get a higher return on my money than my bank gives me.” That’s much more specific, and super easy to accomplish. Pretty much any ETF will do that for you. (We can treat ETFs like stocks). Many ETFs follow “The Market”, which is largely ETFs buying other ETFs. ETFs represent a variety of selected stocks. ETFs can be comprised of ETFs of ETFs of ETFs of stocks.
Try not to think about it too much. By no means do all securities of this type follow ‘The Market”.
What if I want more than 2%? First off, now is a good time to talk about dealing with the emotional rollercoaster you’ll almost definitely experience when you first start playing around with stocks. This article is not equipped to go beyond simply acknowledging that it’s a thing you need to deal with. Greed can turn into anger and frustration really fast.
Let’s say we want to go for something like a 15% return, from ORC. Damn, 15% ! There is generally significantly greater risk with a higher return. Also, ORC is a REIT which means things that will be meaningless to you right now.
Then of course, we have just plain good old fashioned dividends from T and HIW..
What are these risks you speak of?
Any security (stock, ETF, preferred shares, REITs, Warrants, etc) all carry a certain degree of risk. Warrants don’t yield dividends, and have no reason to be in that list. REITs have to pay out some 90% of their revenue to shareholders, so depending on which real estate markets they’re involved they can be quite lucrative. ETFs are generally lower risk and have lower dividends as a result. Stocks can disappear overnight.
"Wait, what? My shares can disappear?!” Yes. Yes they can. So that OTC penny stock you bought with a 20% yield is a Red Flag attached to a stop sign. Whereas shares of MCD (McDonalds) with a 2.2% yield is solid. That doesn’t mean higher yields are always high risk. AT&T has a 7.5% yield, for example.
Preferred shares have significantly lower risks, generally, and higher yields. There are similar risks as stocks, but also not. Say you buy redeemable shares at $26, and it gets called after your first dividend of $0;40, you lose $0.60. The coupon rate of most preferred shares is $25.
On the other hand, if you have cumulative preferred shares and they stop paying dividends for a year, it doesn’t matter. Yields tend to be between 5-8% for preferred shares. You will need a brokerage account with something like Tradestation or Schwab. Pretty much any brokerage that isn’t Robinhood or Webull.
Like normal stocks, preferred shares can go bye-bye overnight. Not f’ing likely, and when companies end up going bankrupt, they have to pay back preferred shares first before common (but after bonds).
:”What if I just want to make my own paycheck? How does that work?”
You’ll probably end up paying a lot more in taxes than if you just worked a job that paid you the same. So you’ll want to bare that in mind when you start looking at $75,000 in 6 months. But we aren’t there yet.
Presumably you want a reliable weekly income from the stock market. This is where we look at getting into weekly covered calls. When you own 100 shares of a stock, you can write covered call options. Or if you just want to put up collateral and get money back each week, look at cash-secured puts.
Robinhood makes options trading extremely easy. Also, no commissions. Commissions don’t mean a damn thing, to be honest (and Robinhood as its own dirty method of snaking those pennies from you), Regardless of which platform you use, there will be a learning curve and you’ll want to do some of your own homework and research.
“Dude, I dropped out of college to sell pot. What about me says homework and research?”
THEN GTFO AND STOP WASTING MY TIME
You could get super lucky, but you won’t. And while it is possible to throw money at the market based purely on probability and make huge returns, you still are going to need to educate yourself to a significant degree. Otherwise you might as well play scratch offs.
Alright, a quick recap and then a special cheat code at the end.
AMATEUR INVESTOR TLDR
Eliminate debt.
Decide on a strategy. Stick to it.
Attain mastery of your emotions.