How to Invest in the Stock Market
Most of us have heard a lot about the GameStop stock frenzy over the past few weeks. A group of individuals on Reddit banned together to put their money into GameStop and raised the price of the stock to historically high prices. This even got the attention of Congress, with executives from Robinhood and Reddit testifying in front of The House Financial Services Committee. The power of individual investors to influence stocks has gotten many young people interested in investing like never before. That includes me and my family and friends. But to be honest, we don’t know where to begin. So I sat down with Jasper Smith, the founder of the Build Wealth movement, to get advice on how young people can get started investing.
This interview has been edited for clarity and length.
Nina Roehl: Folks are still trying to wrap their heads around the GameStop story. Can you in simple terms explain what happened and why that story was so significant?
Jasper Smith: So there are people, almost two years ago, who were watching this GameStop story because of the numbers of the company. The financials looked like it shouldn’t be priced at such a low stock price. [Then] there’s this Reddit group who understands the market and what some of the bigger players do. And so they said, “You know what? Let’s try to use their game against them.” And it worked. They knew that all of these big hedge funds were shorting the stock, which meant if we can run up this price, it’s going to cost them a lot of money. But I think what it shows is that here’s what happens when people come together for a common cause or there’s strength in numbers. This was the prime example. We understand the game you’re trying to play with the stock market and this company. So we’re going to use your own tactics against you. And so that’s what happened. Enough people said this thing just might work, let’s throw some money at it.
NR: This story has gotten many young people interested in learning more about the stock market and investing. Can you walk me through what the first steps are to investing in the stock market?
JS: That’s always the biggest question that I receive. The first thing is identifying a company that you know. It doesn’t have to be some obscure company you’ve heard about in the news, but just think of stuff that you use currently in your house. Somebody or some company made it. That’s where I like to start for any novice investor, young, old or in-between. If you can identify a company that you know and already are spending money with, that could be the first investment that you decide to make.
So once you’ve identified what [you] want to buy, it’s a matter of you picking a platform. And the platform could be an app, it could be your bank. Most investment companies have a platform that allows the everyday person to either have the app or a web-based platform that makes it easy to make a trade.
NR: What kind of platform should people be looking for? Are there better ones for new investors?
JS: Knowing what type of investor you want to be will dictate which platform. There are some platforms where you’re going to do more of picking yourself, meaning you have to know going in, you want to buy that share of Apple. Or you may want to be on a platform that allows you to pick individual stocks.
But let’s say you want somebody else to do the heavy lifting, doing the research, there are algorithm-based type platforms where if you just open the account and put some money in. They’ll pick the investments on your behalf.
NR: How big of a risk can it be for first-time investors to try their luck on Wall Street?
JS: I’ll be candid, it could go to zero, that could happen. But if you’re a newer investor, I’m not going to allow you, as an adviser, to put your money into a company that hasn’t been proven. If I’m a novice investor, a younger investor, stick with companies that you know, that everybody talks about. Pick an individual company then you can pick an ETF, which is an exchange-traded fund or you pick a mutual fund. So now you’re allowing some manager to pick the investors that make up the fund, which helps to spread out a lot of your risk. So chances of that fund going to zero are pretty slim because you have experts watching the money.
NR: What are some things young investors should know once they’ve invested?
JS: Their time horizon, and this is a critical thing. How long do you plan on investing? Is it I’m trying to get in and get out? Are you going to buy and hold it for five years? For 10 years? You kind of need to make that decision before you get in.
Let’s say you had GameStop and you made a lot of money on that one day. Then when you sold out, whatever you profit, you’ve got to pay taxes on that growth, versus had you held that stock, at least one year plus one day, you get a completely different tax assessment when you sell it. So even if their stock doubled or tripled or whatever, if you had a lot of it and you sold out just now, the IRS is going to take a lot of that money at a higher rate as opposed to having held it for one year and one day. Because then you will get what’s called long-term capital gains, which is a lower rate.
NR: Where can teens and first-time investors go to get info on financial literacy, and how to invest smartly? What is your biggest advice for first-time investors?
JS: Don’t be afraid, sometimes you might have to be the first person in your family, in your friend group, in your community. There are still many people who do not invest in the stock market at all. The fear is what stops most people from doing anything. Don’t be afraid to try, you just might make some money and might be able to have some success at being an investor. We got to do it. The rest of the world is investing and making money and finding all of their dreams. I want that for everybody.