Stock Market

Disclaimer: Sharon Winsmith is not a financial advisor and is not engaged in the business of providing financial investment advice. The information contained on this page includes details regarding Sharon Winsmith’s personal investments. Nothing contained on this page or elsewhere on this website constitutes investment advice. We encourage you to do your own independent research and consult with your personal advisors before making any investment decisions.

E*trade

My favorite online brokerage firm to use is E-Trade. I love how easy their platform is to use and they don’t have any fees for the types of trades I do. They are also good about not hassling me to try to sell me something (unlike many of their competitors).

You should always use a platform that allows you to buy and sell stocks without paying any fees. E-Trade charges fees when you trade options and futures (like most platforms), but I generally stay away from these types of trades.

The one downside to E-Trade is that their interest rates on margin loans are quite high. If you are looking to do any margin lending, there are platforms out there with much lower rates, such as Interactive Brokers.

Say No to Financial Advisors

I do not use a financial advisor for investments in the stock market. This should come as no surprise, as I am pretty vocal about how much disdain I have for the industry.

Low Cost Index Funds

I mostly invest by buying low-cost index funds. An index fund is a fund that is pegged to track a given benchmark, such as the S&P 500 Index.

You can buy index funds to track a number of different benchmarks, including the S&P 500, NASDAQ, large cap stocks, small cap stocks, or the total stock market as a whole.

This chart includes examples of low-cost index funds that I hold or have held in the past.

There are many other types of index funds out there. You can find an index fund that tracks almost anything you want, including very specific geographic sectors like Chinese tech stocks.

The key with index funds is to make sure you pick one with a low expense ratio. The expense ratio is the cost of owning the fund. I never invest in index funds with an expense ratio above 0.05%. As you can see, I like Vanguard funds as they generally have a low expense ratio.

You may also want to diversify your index funds. I’ve never thought it was a good idea to have all your money in one type of fund such as an S&P 500 index fund. There are a few stocks – Apple, Microsoft, and Amazon – that account for a large portion of the S&P 500 index weight. Therefore, it might not be a good idea to have all your money so heavily reliant on these three companies.

Index funds are to be distinguished from managed mutual funds. I never, ever buy managed mutual funds. Managed mutual funds are the worst type of investment you can make.

Stock Picking

I am generally not a fan of stock picking. In my mind, there is no way I am going to beat the professionals or the likes of someone like Warren Buffet. I just don’t have the time or intelligence.

However, in some cases, I do own stock in specific companies. Usually these companies are large and thought to be the best companies out there. If I think a company is just a darn good company, I will sometimes buy a few shares.

Examples of these types of companies include:

• Amazon – AMZN
• American Express – AXP
• Apple – AAPL
• Blackrock – BLK
• Coca-Cola – KO
• Coinbase – COIN
• McDonald’s – MCD
• Microsoft – MSFT
• Nike – NKE
• Tesla – TSLA
• Wal-Mart – WMT

I generally don’t do stock picking with small cap stocks. Small cap stocks are stocks of smaller public companies. Because these companies are smaller and have not been around as long as the larger ones, they are generally viewed as riskier investments.

I like a little risk, so I do invest in small cap index funds. These will generally be much more volatile and can have large swings in a relatively short period of time. You have to be prepared to stomach the wild ride before investing in small cap stocks.

When There is Blood on the Street

I never try to time the market. Pretty much every professional investor out there who I listen to, including the GOAT Warren Buffet, says you can never time the market. Timing the market means trying to guess when the market will decrease and when it will increase.

I have tried to do this with individual stocks, like buying a stock on a dip when there is a one-off bad event that caused the big decrease, but this has never gone well for me. I have tried this a handful of times and so far, my record has been 0.

The only time I go all in on buying is when there is “blood on the street” with respect to the market as a whole. This actually has worked well for me. A good example of this was when the market crashed temporarily because of the COVID-19 pandemic. I bought the low and waited for the market to recover.

This strategy works because if you study history and common sense, you will see that no matter how many times the stock market has crashed in history, one thing has always happened: it has always eventually recovered. Even during the worst recessions in history, the stock market has recovered and gone higher. Those are some odds I am willing to bet on.

What is Average Cost Investing?

Unless there is a great deal of blood on the street, I usually buy more shares by doing average cost investing. Average cost investing means you break up the money you want to invest and buy shares at different times through the year.

Let’s say I want to invest $100k in Apple shares this year. I might break that up and buy $25k of shares each quarter rather than buying it all in one lot.

There are pros and cons to buying through average cost investing as opposed to buying in a lump sum. As long as you are investing with a long-term mindset, either approach should be fine.

Never Sell

Investing in the stock market requires discipline and mental toughness. Trying to day trade (where you buy and sell shares over the course of a few days trying to make a quick buck) is basically the same as gambling. You might as well put that same amount of money on a blackjack table in Vegas because your odds are pretty similar.

The only way to invest successfully in the stock market is for the long term. You will be hard pressed to find any professional investors who will tell you otherwise. Before you invest, you have to be willing to put your money in and not see it again for years or even decades. If you do it correctly, you will never see that money again.

There will be days you will see the value of your investments decrease quite a bit. If you panic and sell, it can be disastrous. This is where mental toughness comes into play.

The right way to invest in the stock market is to invest with the intention that you will never sell those shares.

No matter what your CPA or financial advisor might tell you, investments in the stock market are not tax efficient. Yes, you pay a lower rate of tax on capital gains when you sell stock than you do on ordinary income. But you still pay tax. And we hate paying tax.

You know who else hates paying tax? The uber wealthy. That’s how the Buy, Borrow, Die strategy works. You buy an asset, hold it for the rest of your life, and die without ever selling it.

You should develop a strategy for building wealth that includes buying shares and holding them for the rest of your life. If you need liquidity and don’t want to sell the shares, you can always take a margin loan against a portion of your holdings. This is where the borrow part of the buy, borrow, die strategy comes into play.

Caution: Tread very carefully here. You should never do margin loans unless you have a full understanding of how they work, including all the risks associated with getting a margin loan and the issues around margin calls. People get into a lot of trouble with margin lending.

The last part of the buy, borrow, die strategy happens when, sadly, we die. When you die, your assets, like your shares of stock, pass to your heirs. Under current law, they can immediately sell those shares and likely recognize little to no gain for tax purposes. Or they can rinse and repeat the same buy, borrow, die strategy you did.

Stock Market Insurance

Several years ago I learned about an index called the “Fear Index.” The ticker is VIX and it is formally called the CBOE Volatility Index. The Fear Index tracks the volatility in the market based on how options against the S&P 500 index are trading.

It is generally thought that more volatility means more fear about stocks potentially falling. Fear that stocks will fall can alone cause stocks to fall.

As the stock market goes down as a whole, particularly if there are large dips, the VIX will increase. It basically has an inverse relationship to the stock market. There are a few indexes that track the VIX, including the IPath Series B S&P 500 VIX Short-Term Futures ETN (VXX) that you can buy.

The VXX is probably not a good long-term investment itself. However, I always hold shares in the VXX as a means of raising cash in times when the market falls. When the market falls, the VXX spikes. At that point, I can sell the VXX shares and use that cash to buy shares in the market while it is down.

When the market stabilizes again and prices return to normal, I usually buy more VXX and hold until the market dips again.

The VXX has a higher expense ratio than I typically like to see. However, I think of this as a cost of insurance against the market falling.

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