What Should You Invest In? The Clue Is Closer Than You Think
If you’re new to investing, the stock market can feel really intimidating and unfamiliar. But the truth is, investing is closer to home than you might think. Literally. If you look around right now at the things you have lying around your house, you can probably invest in most of the companies behind those products. Do you have a Mac laptop? You can invest in Apple. More of a Dell person? No sweat – you can invest in Dell, too. If you have a car in your garage, snacks in your cabinet, soda in your fridge, a cellphone in your hand— you’re already investing as a consumer, but you can invest as an investor as well— which will allow you to reap the benefits of the success of your favorite companies.
I recommend people do this exercise if they’re trying to figure out where to start investing: look around at the things you touch every day. I’m going to walk you through this exercise using a recent conversation I had on my podcast Money Assistant, a show where I talk to listeners with investing questions, and answer them with the help of Magnifi, an AI-powered investing assistant. In this episode, I talked a listener (John) through determining whether he could— or even should— invest in some of his favorite brands. We broke this down in three steps that you can try at home.
Step 1: Find Your Favs
John and I started his investing journey by brainstorming some of his favorite brands. When I asked him about his favorite apparel brands, the shoe brand HOKA came to mind immediately. Our first step was to determine if he even could invest in HOKA, because not every brand is publicly traded. To find whether a company is publicly traded, you can simply Google it, or look it up on Magnifi— which is what John and I did. We discovered that HOKA is owned by a publicly traded company, Decker Outdoor, with the ticker symbol DECK. So John can invest in DECK ✅
… but should he?
Step 2: Evaluate The Track Record
Let’s get a reality check out of the way: just because you love a brand doesn’t mean it’s a good investment. So in order to test whether it’s a good candidate for your portfolio, you have to look at the data. A good starting point is looking at the company’s volatility and return over a five year period. Again, I’ll use DECK as an example, but many apparel brands are publicly traded like Nike, Gap, Nordstrom, H&M, Victoria’s Secret… you get it, there’s a lot, so you should look at the companies you’re most stoked about.
To dig deeper into DECK’s track record, John and I used the AI money assistant Magnifi (for more about Magnifi and how it can help you reach your financial goals, click here).
First, we checked DECK’s volatility and return over the last five years and what we found was that DECK has returned a whopping 350%, with slightly above average volatility (see below). We also looked at the returns for DECK over the last year and found it is up 37%.
The track record of success, with somewhat average volatility, made DECK a good candidate for John. But if you’re going to get into the world of picking individual stocks to invest in, looking at return and volatility is just the beginning. Which leads me to…
Step 3: Have Some Fun(ds)
As you know if you’ve been reading The Money Minute for a while, investing in individual stocks is a high-risk-high-reward move. The basic rationale is the same as the one behind the old expression, “don’t put all your eggs in one basket.” If you invested all of your money in one company— and say that company was Apple in 1981, sure, that was a good move and you would have made bank. But if that one company was, say, Enron in 2000— you lost it all. That’s why in Step 2, I said looking at return and volatility is really just the beginning if you’re looking at investing in individual stocks. There are a ton of factors that can influence the financial success of a company— legislation, the economy, interest rates, inflation, the time of year, corporate leadership, world events, fickle trends of Gen Z… it’s a lot. And so in order to make a smart investment into an individual stock, it’s important to know the company and the industry really well.
This is the reason many investors recommend investing in funds instead of individual stocks; funds are pretty much what they sound like, a collection of stocks lumped together in one group. So if you invest in a fund, instead of investing in one company, you’re investing in all of the companies within that fund. Now all of a sudden there’s less pressure for one individual company to perform well, because the success of the fund is dependent on the collective performance of all of the companies in the fund. So, I told John another option for him would be to find funds that contain DECK stock. Magnifi found us a bunch of options, but we narrowed in on three: ICFSX, QCGDX and TAAGX (see below). Then, similar to what we did when we were looking at DECK individually, we looked at return and volatility scores for ICFSX, QCGDX and TAAGX and found that TAAGX had the best return at 7.57% (see below). As a side-note, this is another reason I love this exercise: it perfectly illustrates the high-risk-high-reward nature of stock picking versus investing in funds. TAAGX is up 7.57% over the last year. Remember how much DECK was up? 37%! So how you choose to invest is really a question of your risk tolerance and your time horizon.
And there you have it! After going through this exercise, you’ll be able to assess two ways to invest in your favorite brands— as individual stocks, or as part of a larger fund.
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