Investing in a nutshell at Vest
At Vest, when we use the term “invest,” we are referring to the practice of buying something today that has a chance of…
- Becoming more valuable in the future,
- And/or providing you with the potential for passive income.
Instead of consuming your money, you are putting it to work so that you can have greater financial independence tomorrow. This is what we mean by building your financial future.
Here are the main types of public equities that you can invest in:
- Public companies’ stocks: Stocks are a security that represents the ownership of a fraction of a company, its performance relies on how the company is doing and other external factors. You can choose either growth stocks, where the company is still growing and the owner profits on buying them at low cost and selling if they rise, or dividend stocks, where the company makes more money than it spends and chooses to pay back this profit (dividends) to the owners.
- Real estate investment trusts (REITs): Entities that buy real estate and pay the rents to their owners. Participating in a REIT is like being a landlord, except that you pay someone else to do the work of managing the properties for you.
- Exchange-traded funds (ETFS): An ETF tracks an index, sector, commodity, or other asset, but which can be purchased or sold on a stock exchange the same way a regular stock can.
Compounding is what happens when you re-invest the earnings from an asset into buying more assets. When you consistently reinvest dividends into buying more equities that pay more dividends, the results can be remarkable. For example, if you invested $100 in the S&P 500, reinvesting all dividends, that investment would be worth $4,674.60 today, a total investment return of 4,574.6%, or 11.38% per year. It would not have made you rich overnight, but after 34 years, it would have made you more money than cash. In fact, had you stayed in cash, you may have actually lost money due to inflation, the rate at which prices rise and your money becomes relatively less valuable.
Markets go up and down, and particularly over a short period of time it’s possible to lose money. In most major economies, though, if you saved in cash and didn’t put your money to work, you would have steadily lost a lot of value over the past 30 years.
This brings us to our next point, “time in the market beats timing the market”. Rather than chasing perfect timing, much of the time, the answer is to invest consistently and hang in there through the hard times, provided that your investment horizon is long enough.
Finally, what if you do want to make bets to increase your money soon? That’s called trading and at Vest we think that this is OK, too, but that you need to keep things in perspective. Making bold trades is fun: it’s thrilling to be right and make money. It also sucks to be wrong and lose. If you decide to make riskier bets on Vest, here are some guidelines:
- Do the hard work of careful research
- Don’t bet more than you are willing to lose
- Make sure you know how your trade works, and what the risks are
We make more money from payment for order flow when you trade frequently, but we still recommend that you be very cautious in the extent to which you actively trade. As much as we want to build an amazing business, it’s even more important to us that you win financially. If you choose to use Vest to trade actively please, for your own well-being, keep in mind the disciplines that we’ve mentioned here that are most likely to contribute to your financial success.
Hopefully you feel better prepared to get started now than you did before reading this. For the purposes of illustration, we’ve provided statistics for a few different equities from the three categories described above. Examples are for illustrative purposes only and are not a recommendation. Past performance is no guarantee of future results.
Examples of Dividend-paying stocks
Examples of REITs
Examples of ETFs