Investing in the Stock Market? I Never Learned About This in Medical School!

How Can I Start Investing if I Don’t Even Know What the Terms Mean?

People have different opinions on how, when, and what to invest in.  A good rule of thumb is to SAVE (emergency fund and college funds for kids), PAY OFF DEBT, and INVEST all at the same time.  This means you do not have to wait until all debt is gone to start investing (you will have missed the potential for large profits during this time through compounding).  Most can consolidate medical student loan debt at reasonable rates.

However, in order to do all 3 of the above, you might have to cut back on spending and most likely live below your means. If you use the example of living off half your salary, or on the salary of one person (if married and both are working), you can do all 3.  However, the point of this article is not to preach about how you decide to manage your money but how to actually invest.

What even makes up the Stock Market?  What do these numbers mean?

If you pick up the Wall Street Journal, watch CNBC, or look to any source for information about the stock market you will find three things mentioned when tracking how things are going.  What if you don’t even know what these terms/numbers represent?

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S & P 500: Tracks the price of 500 large US stocks (account for more than 70% of total value of the market despite tens of thousands of stocks).  This is a broad representative index of large US stocks.

Dow Jones Industrial Average “the Dow”: Tracks 30 companies in US that are thought to represent the diversity of the economy of the US.  The stocks included change over time.

NASDAQ: This is an index focused on technology stocks

Why do you care about these indexes and why do they talk about them on the news every day?  It gives you a general idea overall how the stock market is doing (percentage gains or losses).  You can also compare your stock market investments to these indexes based on the types of stock you invest in.  If you own facebook (FB) or Google (GOOG) you may be interested in the NASDAQ numbers.

Mutual fund:

Contains many securities (stocks, bonds, etc) in one “investment portfolio” and is actively managed for you.

– automatically provides you with diversification (and therefore decreased risk) by owning many different stocks

– no time investment is needed for you to research stocks, determine which stocks to buy- but you should spend some time researching the actual mutual fund

-small fee associated (these fees have come down quite a bit in recent years and some mutual funds can have very low costs)

-may be a minimum amount necessary to invest

You can pull up your brokerage account website, select “mutual fund”, choose to invest in a diversified mutual fund yourself and call it a day.  Alternatively, you can have a financial advisor do it for you as well.  Just remember, you will not only be paying the fee for the mutual fund management but if you have an advisor you will also be paying a fee to them as well.   I’m not saying having an advisor is a bad thing- for some people really feeling overwhelmed, a good advisor can really get you on the right track.  However, I also think if you are motivated with just a little time commitment you can put money into a mutual fund and invest on your own too.

How do I pick a mutual fund?

You can google some top mutual funds; take a look at the performance over 10 years (including recent data too) and the fees with each.  Pick one.  If you are paralyzed by indecision, it may be worth your time to get an advisor.

Find a good finance app to help you look at these charts quickly and for brief summaries of the important info you need.

Download one today (they are free)- I use yahoo finance; Charles schwab, and cnbc.  You may need to try a few to find one that works well for you.

One particular mutual fund over different time frames (Vanguard 500 index Fund):

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3 months

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1 year

IMG_162910 years

Mutual funds (namely index funds comprised of stocks) are often more likely to mirror the overall stock market trend than an individual stock given its diversification.  Luckily, the overall trend in the market is typically UP.  Your mutual fund will not guarantee the typical 8% yearly return of the stock market, but may be closer than if you bought an individual stock.

Remember, I am not a financial advisor.  I have no crystal ball.  I don’t know which mutual fund will do better than another.  However, I do know that people who have invested long term in the stock market have done well and will continue to do well.  You can decrease your risk with diversification (owning more than one stock as in a mutual fund).  There is minimal time commitment (which is a plus for busy physicians).  You can build wealth if you invest in the stock market early in your career and leave the money alone.  Put the money in and let it grow for you over the years- no need to check back too frequently or you will just make yourself panic when the stock market dips down occasionally, as it always does.  Even if we hit a Bear market or serious downturn in the coming years, it will be important to keep invested as the market will eventually recover.

By this point, seasoned investors will be rolling their eyes at me for the basic nature of this post.  On the other hand, I am certain some readers will be feeling overwhelmed with information overload on pretty boring and dry topics.  It’s not as exciting as learning a medical procedure, as gratifying as building a lasting relationship with a patient, or as rewarding as delivering a baby.  However, you owe it to yourself and your family to develop a basic understanding of finances.  It’s not selfish to invest and maximize your potential earnings.  Doing so will provide you a future with more control over your life (when to retire), be able to handle an emergency (unexpected health bills, loss of job), and have the ability to give more generously through charity and donations.

Again, I am not endorsing any particular mutual fund.  Don’t make financial decisions from me, but your own research.  A mutual fund is a nice place to start, but if you are ready to try buying individual stocks stay tuned for the next article.

 

 

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