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How to invest FAQ's

When should I invest?

Generally, sooner is better. Historically, the longer you invest, the less impact the short-term ups and downs of the market have on your return. 

Many investors sit on the sidelines, waiting for the “right” time to invest. Unfortunately, timing the market is virtually impossible. Instead, consider just getting started and remember this old investing adage: Time in the market is more important than timing the market.

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How to invest FAQ's

Why should I invest?

Investing can help you achieve financial goals, like buying a home or funding your retirement. By investing, you’re putting your money to work to reach these goals. Let’s see how it works.

The power of compounding: A little goes a long way

Alexis invests $3,000 a year for 40 years and receives an average annual return of 6%. At the end of 40 years, her portfolio is worth $492,143. This amount consists of $372,143 in total earnings and her principal investment of $120,000. How did her portfolio grow so much? It’s because every year, Alexis’s 6% return is on a new, larger balance (made up of her initial investment, her subsequent yearly investments, and the money she’s earned from dividends/interest and capital appreciation on the investment). That’s the power of “compound returns.”

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How to invest FAQ's

What is the difference between saving and investing?

Saving is putting money aside for future use. It’s important to save so you can cover fixed expenses, like mortgage or rent payments, and to make sure you’re prepared for emergencies. Generally, people put their savings in bank accounts, where up to $250,000 is insured by the Federal Deposit Insurance Corporation (FDIC).


Investing is when you put your money to work for you. You buy an investment, like a stock or bond, with the hope that its value will increase over time. Although investing comes with the risk of losing money, should a stock or bond decrease in value, it also has the potential for greater returns than you’d receive by putting your money in a bank account. 

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How to invest FAQ's

How do I set up a brokerage account ?

  • There are some regulatory requirements in setting up an account
  • In order to set up a brokerage account, you will need to provide some basic information and answer some questions about your finances.
  • International investors may need to do some research into their own tax situation.

Setting up a brokerage account is similar to setting up a bank account. However, the world of investing is a highly regulated one and brokers are required to gather a little more information than a bank.

Before you begin, you may want to do some research on what kind of brokerage you want. Brokers differentiate themselves by offering different fee structures or services. Some will allow you to invest in foreign companies, some will only permit you to invest in U.S. listed companies. Some will allow you to set up certain tax-efficient accounts like Roth IRAs.

We have a close and deeply integrated relationship with the broker DriveWealth and recommend them to our users. However, the decision is yours.

In order to set up an account, you will need certain personal information like your name, address, and date of birth. Following this, you will be required to answer some simple questions regarding your employment status, income level, and investing experience.

While some people may find these questions slightly intrusive, it’s an important element of the brokerage setup process. Brokers are required by law to “know their customer”, meaning they have to ensure that the products and services being offered are suitable to you.

Finally, you’ll be asked to provide some documentation in order to prove who you are. This will vary depending on where you live. A U.S. user might only be required to provide their social security number. An international user might be required to provide a photo of government-issued ID and proof of address.

International investors must also complete a separate form called the W-8BEN, which is used to calculate what tax if any, you will have to pay in the U.S. on your gains. Many countries have a tax treaty with the US when it comes to this, but you should take the time to research your own situation.

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How to invest FAQ's

Do I need a broker to start investing ?

  • You need a broker to buy and sell shares on your behalf.
  • A brokerage account is like a bank account for investing.
  • Discount brokers provide cheap trading, but without the advice.

So you’ve decided to become an investor, but how do you go about actually buying shares? Actually, legally, you can’t.

Shares can only be purchased by a licensed professional called a stockbroker. These are licensed and accredited professionals who ensure that trades are conducted with all the necessary legal and regulatory procedures. A stockbroker will buy and sell shares on your behalf in exchange for a fee.

Stockbrokers, therefore, act as a middleman between investors and the market. Much like if you’re feeling unwell, a doctor provides you a prescription, and the pharmacist fulfills that prescription. This is essentially the function of the stockbroker.

In the past, stockbrokers charged high fees and usually insisted on minimum deposits that were outside the realm of the average worker. These days, the internet has given birth to discount brokers that compete on pricing and usually have no minimum deposit restrictions. This has opened up investing to the masses.

However, it comes with a downside.

Brokers in the past also provided advice as part of their fee. Discount brokers provide no such service, which means that investing is very much a do-it-yourself endeavor.

That’s where MyWallSt comes in. We want to help educate and guide users throughout their investing life, giving them the tools to invest with confidence. However, the fact remains, you still need to engage a broker in order to buy and sell shares.

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How to invest FAQ's

What’s market cap and why does it matter ?

  • To determine the size of a company, look at “market capitalization” (market cap, for short).
  • Market Cap = Number of shares outstanding multiplied by share price.
  • Market cap sizes range from nano, micro, small, mid, large and mega.

New investors often fall into the trap of equating share price with value. In reality, the two are completely independent of each other. The share price is actually of very little consequence. As we will see later with stock splits, a company’s share price is dependent on how many shares are in the market at any given time.

Let’s take the example of McDonald’s (NYSE:MCD) and Chipotle Mexican Grill (NYSE:CMG). A stock in Chipotle currently costs around five times that of McDonald’s. So which is the bigger company?

Chipotle is a great company that has been expanding rapidly, but it’s nowhere near competing at McDonalds’ level just yet. To get the figures, we look at the market capitalization of each company.

Chipotle is currently valued at around $22 billion. McDonald’s, on the other hand, has a market cap of over $150 billion.

So what does this mean for investors? Shouldn’t you just invest in the most valuable companies?

It all depends on what your goal is as an investor. The more valuable companies are much safer investments. Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG), and Disney (NYSE:DIS) aren’t going anywhere anytime soon. You’re pretty much guaranteed that you won’t lose all your money on these guys.

The flip side is that these companies aren’t going to grow as fast as smaller companies like Chipotle or iRobot (NASDAQ:IRBT). These companies have more room to expand and therefore could see huge rises over the next few years. Of course, that also makes them riskier investments.

So you’re making a trade-off between risk and reward. The more volatile a company, the greater the potential for growth. The more secure a company, the less the chance of quadrupling your money.

There are six levels of market capitalization:

  1. Mega Cap (least risk/slowest growth): $200 billion and greater
  2. Large Cap: $10-$200 billion
  3. Mid Cap: $2 billion to $10 billion
  4. Small Cap: $300 million to $2 billion
  5. Micro Cap: $50 million to $300 million
  6. Nano Cap (most risk/fastest growth): Under $50 million
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How to invest FAQ's

What is the S&P 500 ?

Turn on any financial television network and you’ll almost certainly hear someone mention “The S&P” within 5 minutes. You’ll also hear professional investors talk about “beating the market.”

So what are they talking about?

The S&P 500, or Standard & Poor’s 500, is a selection (aka index) of 500 stocks that are a microcosm of the entire stock market. It is the most commonly followed index and is considered a good indicator of the health of the U.S. economy. It’s been around since 1923, but the 500 companies have changed since then.

You’ll often hear people talking about “beating the market.” “The market” in this case means the S&P 500. For example, if the S&P rose 13% in one year, but your stock portfolio went up 17% that same year, you beat the market by 4%. Good job!

Beating the market is seen as the holy grail of stock investing. There are plenty of other indexes that track various sections of the stock market both in the States and worldwide. The Dow Jones Industrial Average is similar to the S&P 500 except it focusses on 30 companies. The FTSE 100 tracks the UK stock market, while the Nikkei 250 tracks Japan.

There are indexes for specific industries and even very specialized indexes to track things like “ethical companies.”

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How to invest FAQ's

How much money should I keep in a savings account and how much should I invest ?

  • If you need money in the next year, it should be in cash.
  • Any money that you don’t need in the next year should be invested.
  • You should invest with a 5-10 year timeline in mind.

When choosing how much money to invest in the stock market, it’s important to consider how long it will be before you need that cash.

Here are two rules of thumb to follow when deciding the smartest, safest and most profitable place for your savings.

Rule 1

“If you need your money in the next year, it should be in cash.”

The stock market can fluctuate greatly. It’s no fun to need cash for, say, a down payment on your first home and find that your stocks are down 50%. If you’re house shopping, wedding planning or car buying within the next year, keep those necessary funds in a savings or money market account (double-check that it’s FDIC-insured too.)

Rule 2

“Any money you don’t need within the next year is a candidate for the stock market.”

This is where the fun begins. And it’s why we encourage you to get saving now! Any cash you don’t need in the coming year can go to work for you every day in the stock market… taking bigger risks and affording you larger profits.

When you invest with funds that you have no immediate need for, you protect yourself from the short term fluctuations of the stock market. Over the course of a year or two, you could see your investment suffer a loss, but on a longer timeline, the stock market and great companies get bigger and more profitable. That’s why you should invest with a 5-10 year timeline in mind. This will prevent you from pulling your funds out in a downturn and incurring a loss.

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How to invest FAQ's

How does compound interest work ?

  • Compound interest is when the money you earn starts earning money.
  • Compounding is the easiest way to become wealthy.
  • The sooner you begin investing, the more time your earnings have to compound.

Compound interest is an investor’s best friend. Compounding is simply when the money you earn starts earning money. This means your stash is growing faster than if you were simply adding a lump sum every month.

So many people say “I can’t afford to start investing.” The truth is, you can’t afford not to start investing, because time is the issue here, not money. Compound interest is the real silver bullet when it comes to growing your wealth and the earlier you start, the more powerful it becomes.

A certificate of deposit (CD) or a government bond over time might give you 5% per year. A 10% annual return is the historical average for the stock market. And 15% is what you could get if you learn how to pick your own stocks and take advantage of the skills MyWallSt teaches.

The majority of people subscribe to some form of online entertainment service like Spotify (NYSE:SPOT) Premium or Netflix (NASDAQ:NFLX) – a lot subscribe to both. The $18 leaves our bank accounts every month and we hardly even notice.

Let’s say at 18 years old, you subscribe to both services and remain a loyal customer for the next 50 years. You’ll end up retiring $10,800 down. “Small price to pay for being able to binge-watch Breaking Bad,” I hear you say.

Had you stuck that $18 into a savings account instead you’d have that $10,800 when it comes to retiring, plus some interest. Of course, inflation will have eaten up a huge chunk of that, so it’s hardly worth giving up the comfort and convenience of your subscription accounts.

Had you invested that money, after year one, on average, you’re up 10% on your original investment. The year after, you make interest on your interest and so on. It’s like adding successive layers to a cake with each a little larger than the last.

So if you’d consistently invested that money, after 50 years it would be worth over $300,000.

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How to invest FAQ's

How are public companies identified ?

  • A ticker symbol is a 3, 4 or 5 letter abbreviation that easily identifies every public company.
  • Stocks traded on the NYSE have symbols with up to 3 letters, like MA (Mastercard).
  • Stocks traded on the NASDAQ have symbols with 4 letters, like MSFT (Microsoft).

A ticker, or stock symbol, is a unique 3, 4 or 5 letter abbreviation assigned to every public company for identification purposes. All tickers use only capital letters.

Think of tickers as nicknames. Sometimes, they can be exactly the same as the brand name – like IBM (NYSE:IBM).

Stocks traded on the New York Stock Exchange have symbols with up to three letters – like T (AT&T), DO (Diamond Offshore Drilling) and LUV (Southwest Airlines).

Stocks traded on the NASDAQ usually have four-letter symbols – like MSFT (Microsoft).

If you see a five-letter ticker symbol that ends with the letter X, that is how you can automatically recognize a mutual fund – like UUPIX (for Profunds UltraEmerging Markets). Beware that mutual funds don’t actually trade on any exchange the way stocks do, though.