George Kamel - Why Beginners Lose Money In The Stock Market

Episode Date: December 11, 2024

💵 Start your free budget today. Download the EveryDollar app!  One minute you’re watching The Wolf of Wall Street, and suddenly you think you’re Leonardo DiCaprio—easy there, investing newbie. In this episode, you’ll learn common mistakes new investors make and how to invest the right way.  Next Steps:  🎥 Watch my video Why Your Net Worth Explodes at $100K.  🎥 Watch Tortoise vs. Hare – Who Wins?  📘 Read Ramsey’s Investing Philosophy.  💸 Find out how much your investments could be worth with the Retirement Calculator.  Connect With Our Sponsors:  🔒 Get 20% off when you join DeleteMe.  💸 Learn more about opening a high-yield savings account with Laurel Road.  📲 Get $5 OFF Tello's Unlimited Plan and enjoy great nationwide coverage for only $20 at https://www.tello.com/George Explore More From Ramsey Network:  🎙️ The Ramsey Show  🍸 Smart Money Happy Hour  💸 The Ramsey Show Highlights  🧠 The Dr. John Delony Show  💡 The Rachel Cruze Show  💼 The Ken Coleman Show  📈 EntreLeadership    Ramsey Solutions Privacy Policy  Learn more about your ad choices. Visit megaphone.fm/adchoices

Investing is one of the absolute best ways to build a seven-figure net worth, which is why investing mistakes have some serious consequences. And I find that a lot of new investors make the same mistakes and wind up losing money. But even if you're just starting to dip your toes in the investing waters, I want you to win big with your money. So today, we're covering the most common mistakes that investing beginners make. And beginner or not, you'll learn how to invest a right way and become a net worth millionaire. But first things first, invest in this channel by tapping that like and subscribe.

Trust me. It's the only investment with immediate ROI other than an employer match. Raise your hand if you want to get rich. One of the biggest ways I see investing beginners lose money is by following advice they saw on Reddit or TikTok and just jumping into something with a lot of risk, like penny stocks, day trading, or crypto. And if you don't know what penny stocks are,

these are super cheap shares of small companies that people think will make them rich overnight, a la Wolf of Wall Street. But in reality, they're risky because these companies are usually unstable and the stocks can skyrocket or crash in the blink of an eye. Spoiler alert, this is a terrible idea. So mistake number one is not understanding what you're investing in. And I get that following trends can seem super tempting,

especially when Reddit user OK Salad 81 swears it's like shooting fish in a whiskey barrel. Side note, who's keeping fish in a whiskey barrel? And second, that fish must be lit. I mean, it's dead, so no, but still. Can you keep your thoughts to yourself? Anyways, here's the truth. Penny stocks, stay trading, crypto, this is speculation and gambling, not investing. And beginners who jump into speculative investments like these often lose big, especially if they don't really understand and are just there for the hype. Having the gist is not enough. If you can't explain the investment to a friend, you should not put your money there. Another investing beginner mistake I see is not diversifying

your portfolio. They invest all their money in one thing or a singular company, and it's like putting all of your eggs in one basket. And guess what happens with that basket drops? Egg on your face and your hands and the floor. Eggs everywhere. They're just eggs everywhere. It's a nightmare. Oh, this is quickly getting out of hay on. So don't do this, okay? Diversification is a $10 word that means to spread out your investments to protect yourself against a single point of failure. And it's smart to diversify across four types of growth stock mutual funds, which include growth, growth, growth, and international. And you might see these listed as small cap, mid cap, large cap, and international. So if you do 25% in each, you will lower your risk. Next mistake, jumping in a

of the market. You see, when the market takes a dip, which it does from time to time, it is a ripe opportunity for fear to kick in, making you suddenly want to sell everything, especially if you're new to the game. On the flip side, when it skyrockets, greed makes you want to throw more money into the hottest stock. Or maybe you're tempted to be clever and try to time the market, but you're not going to crack the code because the truth is, even people who eat, sleep, and breathe stocks get this wrong a lot of the time. But look at this. If you zoom in on the market day by day, yes, it's going to feel like you're riding a wild roller coaster a la iron guise. But if you

step back and look at the market over time, its trajectory is consistently up and to the right and looks a whole lot smoother. In fact, the stock market has been up 31 out of the last 40 years. That's amazing. So instead of jumping in and out because you get freaked out or greedy, just feel your emotions rather than act on them. Slow down, stick to your plan, and avoid those knee-jerk reactions. If the market is down, keep investing. If the market is up, keep investing. Because most millionaires don't become wealthy overnight. It takes the average millionaire around 25 to 30 years of consistent, stable investing to reach millionaire status. Think of it like the tortoise and the hair.

The tortoise, slow and steady, wins the race every time. So be the tortoise. Invest steadily and write out the markets ups and downs. It is I who am the tortoise. And if you think the tortoise and hair is just a kid story, check out this video of a real-life tortoise and hair race. Look at them go! And while you're watching this adorable video,

let's talk about something less adorable, paying way too much for your cell phone plan. And that's why I love Tello, a sponsor of today's video. They've got plans as low as $5.00. And it's just $25 a month for the Unlimited Everything plan. And unlike the big guys, there's no contracts, no sneaky fees, and you can fully customize your plan so that you're only paying for what you actually need.

And you can get $5 off your first month of the Unlimited plan by going to tello.com slash George, or just click the link in the description. All right, let's catch up with our animal athletes here. There he goes. And the tortoise is victorious. See what I did there? I'll see myself out.

You will never be able to delete that from your memory. But you can delete your personal info from scummy data broker sites out there by using our sponsor, Delete Me. Once you sign up, Delete Me scans the internet for all of your personal information, and they find it and remove it from thousands of these data broker sites, and it keeps your info from falling into the hands of creepy creepers, and it keeps you from getting spam text messages and phone calls and getting into data breaches. And Delete Me will send you a report outlining exactly what they did. And you can get 20% off any of their plans by going to Join deleteme.com slash George or just click the link in the description.

Okay, here's something you may not know as an investing beginner. When it comes to investing, there are fees you're going to have to pay. So the next mistake is this, not understanding or ignoring fees. If you're working with an investment pro, you need to understand how they're getting paid. And there's some common ways they do this. Some financial advisors are fee only, meaning they take a percentage of the assets they manage for you, typically a half percent to two percent. So if you're investing 100 grand, a 1% fee would cost you $1,000 a year.

Then there's fee-based, where they charge you a management fee, and they might earn commissions on certain products they recommend and sell to you. This can work well if they're offering you solid options that align with your goals, but always ask about any commission structure. And then there's a flat rate fee where you pay a set amount for their services regardless of your portfolio size. So the big question is, are the fees worth it? Well, according to a Vanguard study, working with a financial advisor can increase your net returns by about 3% thanks to their guidance and their management strategies. So yes, I think a great advisor can add some real value. Now, keep in mind, regardless if you're working with a pro or investing on your own, investing does have costs.

And those are called expense ratios. And this happens with your mutual funds and your index funds. How much should these expense ratios be? Well, to give you a ballpark, a 2023 study from Morningstar found that actively managed funds had an asset weighted average of about 0.59% while passive funds were around 0.11%. So if you're paying a 1% advisor fee and a 0.6% expense ratio, you're looking at 1.1.4% in total annual fees, meaning $1,600 a year on $100,000 portfolio. Now, don't get spooked by the fees.

Just make sure you understand how it all works so you're not caught off guard. And if there's anything more exciting than fees, it's got to be taxes. Oh, wow. And just like fees, taxes can ship away your investments with more of your money ending up in the government's hands than necessary, which is the next way I see beginners lose money by ignoring taxes. The key is knowing how investment accounts are taxed because some are taxed differently. than others. Now, a financial advisor or tax pro can help you understand what taxes will be for your specific situation. But if you want to learn more about the types of tax implications,

there's a great article explaining it that I will link in the description below. What I will tell you is what I found to be the best approach for long-term retirement investing, and that is to take advantage of Roth accounts first. With a Roth IRA or Roth 401k, you're investing after-tax dollars. So you get no tax deduction like you would with a traditional account. But that money grows tax-free, and when you take it out and retirement, you keep every penny, including all the growth, tax-free, baby. With a traditional IRA, you don't pay taxes initially, so the full amount goes in to grow. But here's the catch. When you take it out in retirement, you, of course, pay taxes on the money you put in plus the

growth. Now, if this is apples-to-apples and tax rates stay the same, both methods would give you the same after-tax amount in retirement. But in my opinion, the Roth strategy wins for a few reasons. Obviously, the tax-free withdrawals. But also, no required minimum distributions in retirement, you've got tax certainty. I like knowing how much taxes I'll pay now versus the unknowns of the future. All right, for the next mistake beginners make, imagine hopping in the car, full tank of gas, ready to hit the road, but you don't know where you're going. No map, no GPS, just vibes, bruh. And if you don't know what you're working toward, you're left driving in aimless random circles and wasting time. And that's the next mistake, not having a clear investing goal or strategy.

You've got to think, what am I investing for? Is it a down payment? Is it retirement? Is it kids college? Is it startup money to start that Dolly Parton-themed fried pickle food truck called Gurkin 9 to 5? You tell me, bud. You tell me. I'll never tell! Once you have a clear goal, that's when the magic happens. For example, if your goal was to retire with a $2 million nest egg, plan out how much you need to save each month in order to get there, and for how long. Because having a plan is not just throwing money into the stock market and crossing your fingers.

It's about making intentional, calculated moves. And that's where an investment calculator comes in handy. You plug in your numbers, how much you're investing per month, how much time, what the estimate of return will be, and bada bing, bada boom, it'll show you how close you are to your goal. So play around with these numbers for yourself and see what could happen. I'll drop a link to my favorite calculator in the description below. And once you have that roadmap, what do you do next? Well, here's a rundown of what you should do instead of getting caught up in all those mistakes. First, be patient.

Building wealth isn't like microwaving a hot pocket. It's more like slow cooking a brisket. You gotta wait if you want the good stuff. No shade to Hot Pocket. Italian-style meatballs and mozzarella still fire. Great. Now I'm starving. But before you even think about investing,

make sure you're out of debt and have three to six months of expenses saved in an emergency fund. Why? So when life hits you with an unexpected surprise, like when your toddler flushes your car keys down the toilet, again, you don't have to cash out your investments like a desperate gambler in Vegas to cover the plumber fee.

The next thing you should do is be consistent. Invest 15% of your household income every month without fail into those tax advantage retirement accounts. Because if you do this over time, your money starts making more money through the magic of compound growth. It's like a snowball rolling downhill, gathering more and more as it goes. But it only works if you stay invested and let time do its thing. Don't believe me, here's some quick math.

If you invest just 500 bucks a month starting at age 25 with an average return of 10%, by the time you're 65, you could have over $3 million. And that number is 15% of a $40,000 income. where you never got a raise for 40 years. So I am way underestimating here. And most of that isn't even what you put in. In fact, 92% of that $3 million is compound growth. Only 8% was your contributions that you put in.

And look, I know it can feel like it takes forever to get traction with your investments. But once you hit that first $100,000, you are on the fast track to becoming a multimillionaire. And if you don't believe me, keep watching this next video to see why your net worth explodes after $100,000. Or click the link in the description below. Thanks for watching. We'll see you next time.