Starting From Scratch (Stocks)

June 3, 2024

Sometimes the most boring questions are still actually good ones.

“Where do you see yourself in five years?” is definitely a question that gets exasperated sighs.

Good grief, not that again. 

But there’s no denying that having a five-year plan would be a good thing. And is something worth thinking about.

The trading equivalent to that question is, “If you had to start all over tomorrow, what would you do?”

Yes, that question is annoyingly on every YouTube video and every trading podcast.

Yes, it’s tired and almost certainly is a boring crutch interviewers try to skate by on.

But what if you’re just starting out?

If that’s the case, what advice could be more important?

The hardest step is the first one.

Answering this question might help someone with the first step.

To that end, I’m going to try to answer that question this week. And we’ll just focus on stocks.

Keep in mind, this is a dangerous and impossible question to answer. Everyone’s personal finance situation is different in every possible way.

Buy-and-hold for Mark Minervini is like an alien talking to a houseplant. Those two styles aren’t even in the same universe.

And there are dozens and dozens of different styles and holding periods to choose from.

So the first (and probably best) answer to the starting from scratch question is, “It depends.”

But that’s an awful answer that helps nobody.

How about this?

IF I had no time to spend on the market and IF I wanted something I could easily automate and IF I didn’t want to look at my account more than a couple times a year and IF I didn’t want to analyze individual companies and IF I didn’t like or trust trading systems, then here’s what I would do.

[This is what I would do. It’s not what anyone else should do. It’s just my opinion for my specific situation that’s made up.]

I would choose two ETFs: SCHD and SCHG.

I’d put half of my money into each and I’d add to my account over time if I could.

Why those two? They’re very diversified when used together. Plus, they have small expense ratios. Plus, you get a dividend higher than SPY.

And you beat the market over the past ten years.

Here are the stats from 2015-2024:

That simple portfolio makes over 1% more than just the market and I’d have a bigger dividend payment at the end (a few decades down the line).

So take that for what it’s worth.

But in this absolute beginner situation, that’s what I would do.

We’ll look at a different way to answer in the next Newsletters.

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.