I don't know how to invest in the stock market or understand how it works or even who to seek to ask for advice where do I find information about this subject or
In terms of learning about the stock market, you're in the right place. All the articles in the tab "the rational investor" on the homepage of this publication are a dedicated resource to understand investing and the stock market: https://benlefort.substack.com/s/the-rational-investor
If you read the posts in the rational investor and ask a ton of questions in the comments, you will learn a ton about the stock market and investing (spoiler: It's a lot easier to invest than you probably think it is)
Also if you find the idea of investing on your own completely overwhelming you might want to consider a "robo advisor" which is basically an algorithm that can build and manage a portfolio for you at a low cost. Here's a list of some of the most popular robo advisors in the U.S: https://www.investopedia.com/best-robo-advisors-4693125
Hope this helps point you in the right direction. Again, keep asking questions is the best way to learn.
Let’s say you invest $25 per month for a few years and have $500 invested in the market. Then the market gets cut in half, and your $500 becomes $250. You just experienced the worst-case scenario that investors dread and you are only down $250— which is unlikely to impact your financial stability. --> What happens if this scenario hits you later, when you're almost ready to cash in? How can you protect yourself from that?
This is one of the most important questions/scenarios a long term investor needs to think about.
A lot of what to do depends on when and why you're cashing your investments out.
If you are cashing your investments for a non 'Retirement" reason like paying for a kids college or funding a big purchase that's something you can plan for in advance and take that money out of the market several years before you need it.
The stock market is a dangerous place to keep short term money, but an amazing place to keep long term money.
If you are starting to cash out because you are retiring, the risk that the stock market crashes in your first few years of retirement is very scary, financial planners refer to that as "sequence of return risk". A market crash is much more damaging in year 1 of retirement than year 15 of retirement.
A few actions to take to avoid that:
- Start "De-risking" your portfolio in advance of retirement. More bonds, less stocks in or near retirement compared to your prime working years.
- Evaluate your spending today and identify expenses you can cut if you need to. The lower your living expenses are, the less likely you'll be forced to withdraw from a portfolio after a crash. Financial planners refer to this as "variable spending" in retirement; which is the flexibility to adjust your spending in reaction to what's happening in the market.
- You could talk to a fiduciary financial advisor about the possibility of an annuity. An annuity can provide guaranteed income in the same way a pension does. If you have guaranteed income that can cover your basis living expenses, you are much more insulated from a market crash.
Are these ideas resonating with you?
These are just a few ideas to get the ball rolling. I have an entire section of my next book that will be focused on this "sequence of return risk". I will be releasing those chapters on this newsletter this summer so stay tuned!
I don't know how to invest in the stock market or understand how it works or even who to seek to ask for advice where do I find information about this subject or
In terms of learning about the stock market, you're in the right place. All the articles in the tab "the rational investor" on the homepage of this publication are a dedicated resource to understand investing and the stock market: https://benlefort.substack.com/s/the-rational-investor
If you read the posts in the rational investor and ask a ton of questions in the comments, you will learn a ton about the stock market and investing (spoiler: It's a lot easier to invest than you probably think it is)
In terms of where to start investing, the leader in index investing is Vanguard. Here is their website: https://investor.vanguard.com/corporate-portal/
Also if you find the idea of investing on your own completely overwhelming you might want to consider a "robo advisor" which is basically an algorithm that can build and manage a portfolio for you at a low cost. Here's a list of some of the most popular robo advisors in the U.S: https://www.investopedia.com/best-robo-advisors-4693125
Hope this helps point you in the right direction. Again, keep asking questions is the best way to learn.
Thank you for responding to my question I shall use this information as a starting point and began my study.
Let’s say you invest $25 per month for a few years and have $500 invested in the market. Then the market gets cut in half, and your $500 becomes $250. You just experienced the worst-case scenario that investors dread and you are only down $250— which is unlikely to impact your financial stability. --> What happens if this scenario hits you later, when you're almost ready to cash in? How can you protect yourself from that?
Hey Andrea,
This is one of the most important questions/scenarios a long term investor needs to think about.
A lot of what to do depends on when and why you're cashing your investments out.
If you are cashing your investments for a non 'Retirement" reason like paying for a kids college or funding a big purchase that's something you can plan for in advance and take that money out of the market several years before you need it.
The stock market is a dangerous place to keep short term money, but an amazing place to keep long term money.
If you are starting to cash out because you are retiring, the risk that the stock market crashes in your first few years of retirement is very scary, financial planners refer to that as "sequence of return risk". A market crash is much more damaging in year 1 of retirement than year 15 of retirement.
A few actions to take to avoid that:
- Start "De-risking" your portfolio in advance of retirement. More bonds, less stocks in or near retirement compared to your prime working years.
- Evaluate your spending today and identify expenses you can cut if you need to. The lower your living expenses are, the less likely you'll be forced to withdraw from a portfolio after a crash. Financial planners refer to this as "variable spending" in retirement; which is the flexibility to adjust your spending in reaction to what's happening in the market.
- You could talk to a fiduciary financial advisor about the possibility of an annuity. An annuity can provide guaranteed income in the same way a pension does. If you have guaranteed income that can cover your basis living expenses, you are much more insulated from a market crash.
Are these ideas resonating with you?
These are just a few ideas to get the ball rolling. I have an entire section of my next book that will be focused on this "sequence of return risk". I will be releasing those chapters on this newsletter this summer so stay tuned!
Really helpful pointers. Thank you for sharing!
No problem!