How to Start Investing in a Brokerage
DISCLOSURE: I AM NOT A FINANCIAL ADVISOR
Why am I Writing this?
There are so many times I've watched people say, yeah you should invest your money. Or you should buy X stock instead of Y stock. But how do you get started with investing in the first place?
That was the question I've wondered for so long in high school. Back then, I've heard so many people talk about buying stocks and crypto and stuff but there were very few step-by-step tutorials that went through how it all actually worked.
I started investing since my first internship 4 years ago and since then so many of my friends I wanted a simple guide to consolidate everything I've learned over the years in one place (mostly for myself but also for friends whenever they ask me for advice and I can look back). I love sharing information with the world and investing has definitely given me that cushion of mind over the last few years.
In terms of my gains (which I'm obviously not going to post the exact numbers here), it's more than doubled my overall net worth by literally just moving money from one account to another and investing in stable long-term securities which have been proven (ex. S&P 500).
And also...
Background Info + Terms
With anything finance-wise, there's also a bunch of boring terms that you need to learn first. I remember when I first started, I was like wtf are all these random symbols and numbers. Over time it started to make sense for me but it was definitely overwhelming at first.
Terms
- Shares = A unit of a company. When someone mentions buying 1 share of a company, it means that they are buying 1 unit of a company. So when you buy 1 share of a company, you own 1 unit of that company. When you search up a company's name + stock price (ex. Apple stock price), the listing on Google will be the share price.
- Splitting =
- Security = Any tradeable assets
- DCA = Dollar Cost Average
- Individual Stocks
- Index Funds
- ETFs
- Mutual Funds
- Taxable Brokerage
- HYSA
- HSA
- 401k
- Roth IRA
- 529
Individual Stocks vs ETFs
How do you actually invest in a stock? Through a brokerage!
A brokerage is the middleman that allows you to buy assets and securities like stocks and bonds. Unlike a traditional bank, they don't typically have in-person locations and
Opening Account on Fidelity
In order to start investing, you need to open an account. When you click on the Fidelity dashboard, you get several options for which accounts to open.
I personally have the following accounts opened:
- 1x Brokerage Account
- 1x Roth IRA
- 2x Cash Management (CMA) accounts
- 1x Health Saving Account (HSA)
Honestly, there’s no harm to opening any of those 6 accounts that Fidelity has listed. Fidelity doesn’t do any hard inquiry or credit checks when opening any of them. There’s also no annual fee, maintenance fee, etc. that some banks charge so even if you don’t end up using it, there’s no downside.
Transferring Cash into Fidelity
When you open a Fidelity account, you’ll see all your accounts listed on the dashboard. and see the dashboard, it will look something like this:
All your accounts will be listed on the left-hand side and you can click on each one of them to view more detailed info like what securities you’re invested in, how much you’ve gained, account/routing number, etc.
Now in order to actually start trading, you need to transfer cash over to the account. You can do this by linking your bank, credit union, debit card. To do this click on Transfer > EFT to or form a bank and follow the instructions listed there.
Now just like when you transfer cash from one bank account to another, there is a waiting period where it takes time for the cash to actually “settle”. So let’s say if you transfer $100 on Monday, it might take 2-4 business days for the cash to become available to trade. In Fidelity, the cash will show as “Pending Transfer” and once it’s done transferring over, it’ll then show up as cash and the default position that you selected.
Speaking of default position, as part of the account opening process, you’ll be asked what to put your core cash in. One of the reasons why I prefer Fidelity over other brokerages is that the default core position SPAXX is a money market fund (MMF) which generates 3-4% interest rate per year just like an HYSA. It’s awesome because this money is auto-invested AND auto-liquidated meaning that it essentially performs just like a regular savings account (and in some ways better). Some brokerages like Charles Schwab don’t offer this feature so you have to manually buy/sell MMFs which takes time and the default position functions like a regular bank which only generate 0-0.05% interest rate (so nothing).
Placing Trades in Fidelity
Ok cool, so now all your cash is settled which means you can begin trading! For the first trade, I highly recommend you do it during the market hours so you can actually see your trade go into effect real time. The market hours are Mon-Fri 9:30am-4:30pm EST and it’s closed on holidays. Fidelity will likely make you trade during market hours for your first trade anyway.
To start, open the trading menu by clicking Trade:
Trade: As you can see, you get a ton of options for what you can invest in. Since we just want to invest in VOO (the S&P 500 ETF I mentioned earlier), let’s just stick to Stocks/ETFs.
Account: Remember to set the correct account you want to trade for. This is independent from the account you’re currently looking at in the dashboard.
Symbol: For the symbol, search up “VOO” and make sure when you select it, it returns “Vanguard 500 Index Fund ETF.”
Action: For the action, set “Buy”.
Quantity: You get the option of doing it by shares or by dollars. Let’s stick to dollars since that makes it easier. Ex. For VOO, it’s easier to just put $100 for the buy order instead of 0.14 shares (which btw remember the share amount keeps changing during market hours so it’s not guaranteed to be 0.14 when you actually place the trade). And Fidelity will automatically convert that $100 into whatever the fractional share amount is.
Order Type: We can do “Market” so it executes immediately if in market hours. Or once you do after-market trading, you can do limit orders.
Time in Force: Set to “Day”
Once you have all of that, you can click “Review Order.” Make sure it’s all correct, and then go ahead and place trade.
If Fidelity doesn’t detect any issues, the order will be submitted. Otherwise, Fidelity will give you a warning before proceeding. Common warnings I’ve had in the past are good faith violations and wash sales.
- Good Faith Violation = You’re trading with money that hasn’t settled yet. Usually these can be safely ignored unless you’re immediately buying a stock after selling.
- Wash Sale = When you try buying the same stock/security after selling for a loss within 30 days of selling the stock. It means you won’t be able to claim the tax benefit for selling (which of course you want to).
- Making Sure Your Trade Has Gone Through
Now after placing the trade, we want to make sure that the trade has actually gone through. Easiest way is to refresh by clicking the refresh icon. If the trade has gone through, you’ll see a yellow highlighted row indicating that the trade has gone through.
That's too much work, how can I automate all of this?
Fidelity has an option where you can automatically invest your money in a security by default.
References
https://www.reddit.com/r/personalfinance/wiki/index/
https://www.fidelity.com/learning-center/events/virtual-classrooms
https://stockanalysis.com/etf/compare/schg-vs-qqq-vs-spy-vs-voo/?r=ALL