Adviso Wealth

How to Start Investing

How to Start Investing

Too much choice leads to confusion.

Today the investment industry is outrageously competitive and there are so many investment options. No wonder it’s become more difficult for people to know how and what to invest in.

Are these some of the questions you have:

  • Do I pick individual stocks, ETFs or Mutual Funds? (We’ll explain what these are below)

  • What about other asset classes like bonds, real estate, commodities?

  • Everyone’s talking about cryptocurrency and blockchain – what’s that?

  • I want to make sure that I don’t invest in companies involved in guns and smoking? How do I do that?


Investing in single stocks

Picking individual stocks has potentially high returns and comes with risk. When successful investors such as Warren Buffet and Benjamin Graham started to invest, information was much harder to discover and there were no computers or spreadsheets to process the data which now takes milliseconds. Buffet would peruse the back pages of newspapers and sift through Moody’s Manual for hours, just to find companies that had cheaper valuations. The investment process of how to identify worthy stocks to buy was not classified and taught as it is now by finance schools and twitter gurus. Today we are overwhelmed by the volume of information and opinions available. We can get access to investment ideas and processes of some of the best minds in the industry, with just a few clicks on our phones. If someone does have time to study a balance sheet and find a discrepancy to monetize from, it would be unwise to think that it has not been already discovered by an analyst, algorithm, or AI system. So if you don’t want to do it yourself what are your options?

Use an actively managed fund – alpha investors

In an active mutual fund, an investment manager is professionally managing a selection of stocks. The manager charges a fee to pick stocks he or she thinks will perform well. You can only buy mutual funds at the close of business despite the prices fluctuating throughout the day. Mutual funds only publish their holdings every quarter, even though they can rebalance their composition as often as they want.

It is much harder for investment managers who pick stocks to outperform the market. That’s why it is imperative to research an investment manager and understand their suitability in your strategy. This initial due diligence is crucial to identify the right managers for you. When managers trained in selecting stocks and spending all their time doing it, underperform, it’s much harder for you to find success if you pick stocks yourself, especially if you have less time to study the fundamentals of stocks.

Use a passive fund – beta investors

Passive investing is exposure to the market return for a few basis points through index funds. This fund holds a basket of stocks that tracks very closely the performance of the market index. The popular indexes are the S&P 500 and the Dow Jones Industrial Average. The fund buys stocks when it qualifies in the index as Tesla did in December 2020 and sells any that fall out of the top 500 list. Otherwise, it simply holds them.

How did it start?

In the ’70s, an article in the Journal of Portfolio Management argued that most mutual-fund managers could not beat market returns and if they did it was difficult to predict whether their success would be repeated. Jack Bogle, who founded Vanguard in 1975 decided to take up the challenge to create a low-cost, low-turnover fund that would track the S&P 500. Initially, this index fund was shunned by Wall Street and now Vanguard is one of the world’s largest asset managers. Currently, 25-30% of the U.S. stock market is held in index trackers.

Smart-beta investing

Since then a number of firms have evolved to adopt passive investing as their primary investment product. If investors want to add some sprinkles to their strategy, there are “smart-beta” strategies that use computers to sort stocks by certain characteristics such a value and quality. These have been shown to beat market averages in the long run.

Exchange-Traded Fund (ETF)

ETFs trade on an exchange all day, just like any other stock. ETFs were traditionally based on an index but now there are many more variations including ETFs focused on specific sectors or countries. When there is a change made in an ETF you will know the next day.

When we have so much information what should we follow?

What is successful investing?

Successful investing is about having access to information and also using qualitative judgment to recognize that there are so many unique nuances to creating the right investment strategy for each person. What’s the right allocation for you? If cost isn’t the only factor for you, how do you intentionally invest to create a strategy true to your values? What about real estate investing or blockchain? It’s not as simple as completing a risk tolerance questionnaire, ranking your preferences in a finite manner and receiving a score between one and ten. Only ten models? We could place ten physicians in a room and they’d all be different; some may have children, be a carer for their mom with a long-term illness, be a couple with the burden of two student loans, or be a strong advocate for climate change and prison reform. A successful investment strategy can and should reflect these different circumstances. Does yours?

Adviso Wealth is dedicated to working with people just like you. We want to give you the clarity and confidence you need to achieve your personal and financial goals.

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