Your Zero-to-Hero Investment Guide VIEW IN BROWSER  | BY KEITH KAPLAN
CEO, TRADESMITH |
Today, I want to share with you the bedrock of my investment approach. And like all fundamental principles, it didn’t come from a college course or a textbook. It came from how I was raised… My parents grew up in Baltimore City. While it wasn’t as dangerous in the ’40s and ’50s as it is today, it was still riddled with poverty and crime. They had a dream to get educated, get out of the city, and move to the county. The problem was … they were poor. No one in their families had gone to college and they couldn’t afford it. But they caught a lucky break. At the time, Baltimore City ran a program in which they paid for higher learning… as long as participants committed to teaching in the city for 10 years. My parents would eventually become the first in their families to graduate from college… and they went for free. It didn’t come easy, though. As they served their time in the inner city, they had to break up fights with knives and guns, putting their lives on the line every day. They had to appear in court numerous times for their students. The stories they told us were nuts. As soon as they could, they moved on from working in the inner city and got teaching jobs outside the city. My parents were two of the most incredible people anyone could ask to have in their life. They’re my heroes. And they taught me valuable lessons that I never even realized I’d learned until later. For example, I never even realized how poor we were. No one ever talked about it growing up. And we were never made to feel like we were a financial burden. We just never had much, and I didn’t even realize it until I reflected on what we had growing up – later in life. You see, we rarely got out of Maryland for a vacation, typically landing at Ocean City, Maryland, in a dumpy motel. But one time, we trekked 17 hours by car to Orlando. There we stayed in a run-down Econo Lodge Motel where my sister and I were locked in our room until 10 a.m. every day so my parents could go to timeshare presentations to get us free Disney World tickets. It was the vacation of a lifetime. I felt like royalty that week… Things are much different today. My parents are in their late 70s, have zero debt … two homes … two cars … and a nice nest egg. They have a comfortable retirement. So how did they do it? And, most important, what can we all learn from them? The key to being a great investor comes down to what I call the three core pillars of wealth… Debt… Savings… Investment These three factors are what separate those who struggle financially with those who thrive. The “zeroes” from the “heroes.” And the order is just as important as the pillars themselves. My parents followed these three principles throughout their life. And while it took some time, it got them to where they are now. Step one on your wealth journey, no matter your situation, is to have little to no debt. The more debt you take on, the more you are someone else’s investment. You’re just part of the system. So kill all debt before you ever try to “make it big” in the stock market (not to mention the options or crypto markets). We reach hundreds of thousands of people at TradeSmith. Some of you have no money… And some have tens of millions of dollars to your name. Heck, I’m sure we have a billionaire reading this article right now. But the most important thing that applies to people of all wealth levels… debt is someone else’s investment in your financial struggle. We can easily see how much those people make on our struggle, too. Mortgages are running at 6% to 7% depending on your credit score right now, and you often pay more in interest on the life of that loan compared to the cost of your house. Car loans are running around 6%… and your car depreciates with every single payment! Then there’s student loans, lines of credit, and everything in between. Credit cards, in particular, can charge over 20% on any balance that you carry past its due date. These are the absolute worst of the worst forms of debt – the kind that cause people to spiral and hold them back. Lenders everywhere are making loads of money off people who needlessly hold on to debt. The more debt you have, the more of your future you’re handing over to them. When you think of it that way, you realize you’ll never be financially free while holding significant debt. So if you’re in this situation, this has to be your primary and sole focus. You have to dramatically reduce your cost of living and pay down that debt so you can be the financier in the relationship – making money as the investor! If you’re in the throes of debt, it may seem like you just can’t get ahead. But I promise you, it’s a long-term game that has to be played strategically, one day at a time. Discipline always pays off. When dealing with debt, start with the highest interest burdens first – in most cases, credit cards. Then move on to student loans, car loans, and other debt as you move to the interest burden ladder. If you have a low-interest mortgage like most Americans do, that’s the bottom of the list. And you can absolutely hold a mortgage while also saving and investing – as long as you don’t struggle to make payments. Step two is to have at least a year’s worth of savings to help you get through unplanned and unwanted emergencies. While you’re paying off your debt, don’t ignore that savings account. Unexpected things happen all the time in life, whether it’s your refrigerator breaking down, a car accident, or losing your job. You don’t want to be one of more than half of Americans who say they can’t afford an unexpected $1,000 expense. That’s a dangerous place to be. In some cases, it may even make sense to generate a savings cushion before paying off your debt, in case you lose your job or have a major financial hardship. One way to ensure you’ll get there is to always live well below your means. Make more than you spend, and your wealth line will move up and to the right. And you should always hang onto this mindset – even after you’ve “made it.” As for what savings account to use, we’re in a unique and beneficial moment in time. Right now, a lot of high-yield savings accounts are paying out a risk-free rate of close to 4% annually. Even a balance of just $10,000 will pay out $400 a year in income. That’s where your long-term savings should be, full stop. Don’t keep it in a bank savings account earning you pennies and definitely don’t keep it in cash. If you want to really make your money work for you, look into buying Treasury bills from the Fed or holding a Treasury bill ETF like SGOV or BIL. That’s where you’ll get the best, lowest-risk rate right now. So to recap, your first steps are to get out of debt and build up the savings you don’t touch. These are non-negotiables. Only once you have these first steps sorted can you start investing for the long term. If you’re not there yet, I’d advise you to save this article and return to it once you do. Because it really is important to get those two factors settled before you move on. Your Long-Term Investing Blueprint Now that you’ve shored up your financial life, it’s time to take the next steps. You have no short-term debt in credit cards or student loans, and you have a healthy balance in a savings account earning a decent yield. You can handle that $1,000 emergency without breaking a sweat. Congratulations… you’re already ahead of more than half of everyday Americans. Seriously, it’s a huge feat. So now let’s talk about growing your wealth even more: with investing. I’ll say right at the top that your goal should be to get rich slowly. You won’t hear about any get-rich-quick schemes here – because they never work in any sustainable way. Easy come, easy go, as they say. What you need instead, at least to start, is a portfolio of quality, dividend-paying stocks. I recommend buying individual stocks over something like a mutual fund or ETF for two reasons: - Funds tend to carry management fees, which eat into your returns.
- Individual stock investing helps diversify your portfolio and helps you focus on building an army of dividend-generating names.
Dividends, too, are incredibly powerful. If you reinvest dividends into great stocks, your positions will build over time. By the time you retire, you’ll have a substantial income stream, even if you start today with just a couple hundred bucks. Here at TradeSmith, we have an incredible set of tools to help you invest. Today, we’ll be using our Screener to help uncover a few stocks to get started on your investment journey. For our screen, I’ve searched our database for stocks in the Green Zone – our algorithmic measure of an uptrend. I’ve also made sure to include only stocks in the major benchmarks like the S&P 500, the Nasdaq 100, and the Dow. All the stocks in this screener have a forward dividend yield of 0.5% or higher to get you started with some solid dividends. And one other filter I’ve added is a Quantum Edge Fundamental Score of 70 or higher. This is the quantitative ranking system designed by our own Jason Bodner. This score measures a company’s history of earnings, revenue, and profit margin growth. The higher the score, the faster the company is growing. Looking for stocks like these, especially those that are dividend payers, is a great way to build a portfolio that has the capacity to beat the market and pay you income at the same time. There are only 23 stocks across the large-cap benchmarks that meet this criteria. Here are the top 10 results sorted by each stock’s Fundamental Score: 
There are some good picks in here across multiple sectors. You have Raymond James Financial (RJF) in the financial services sector – with a rock-solid 75 Fundamental Score and a 1.17% dividend yield. You also have Broadcom (AVGO), a 75-rated tech stock that pays a 0.79% dividend yield. And there’s Royal Caribbean Cruises (RCL) – a strong Discretionary mid-cap stock that rates a 79.2 on Jason’s Fundamental score and pays a 0.79% dividend yield. Now, understand that this is the beginning of your investing journey – not the end. There are plenty of stocks out there that all suit different needs. There will be bumps along the way, big wins and losses, and a lot of lessons learned. But what’s so critically important is to ensure steps one and two are always complete. If you fall back into debt or run through your savings, your priorities need to shift back there – even if that means selling stocks to do it. I hope this selection is enough to get you started building a high-quality portfolio of stocks. For more, stay tuned to TradeSmith Daily – where we’ll keep sharing our best ideas to help you get ahead in your financial journey. All the best, 
Keith Kaplan
CEO, TradeSmith | 
Post a Comment
Post a Comment