Beginner Investing Guide II: What to Do After Setting Up Your Brokerage Account
Congratulations on making your first deposit! Now comes the exciting part—deciding what to invest in and how to make decisions that can grow your wealth over time. In this guide, we’ll explore investment options available through your brokerage account and how to manage emotions like a pro.
Key Points:
How to use an investment journal to improve decision-making
Understanding stocks, bonds, mutual funds, and ETFs
Differences between mutual funds and ETFs
Tips to maintain discipline in investing
Before Making Your First Investment: Set Up an Investment Journal
A few months ago, I had an amazing opportunity to chat with a prominent money manager overseeing over $1 billion in various investments. I asked him, “If you were 20 years old again, what advice would you give yourself?” His answer: “Keep an investment journal.”
Here’s why this advice is golden:
Whenever you buy, sell, or even think about holding an investment, write down your reasoning. It doesn’t have to be a novel—a few sentences or even a keyword will do. Why does this matter? Because keeping a journal helps you separate rational decisions from emotional ones.
Example 1:
Let’s say you buy $1,000 worth of a stock because your best friend recommended it. A month later, it doubles, and you now have $2,000. You might think you have an edge or that your decision-making is flawless.
Example 2:
Now imagine the same situation, but instead of doubling, the stock tanks to $250. You’ll be tempted to blame your friend or the market.
The investment journal forces you to confront the real reasons behind your decisions. Over time, you’ll see patterns in your thinking—what works, what doesn’t, and how to stick to a strategy even when emotions run high.
Tip: Review your journal every few months to identify lessons and avoid repeating mistakes.
What Can You Invest In?
Your brokerage account opens the door to a wide range of investments, but we’ll focus on the basics: stocks, bonds, mutual funds, and ETFs.
1. Stocks
Definition: Stocks represent ownership in a company. When you buy shares, you own a small piece of that business.
Returns & Risk: Stocks generally offer higher potential returns but come with higher risk due to market fluctuations.
2. Bonds
Definition: Bonds are debt securities. When you buy a bond, you’re lending money to a company or government in exchange for interest payments and the return of principal at maturity.
Returns & Risk: Bonds offer lower returns than stocks but are generally considered safer investments, especially government bonds.
Quick Recap: Stocks = Higher risk, higher reward. Bonds = Lower risk, lower reward. A well-balanced portfolio often includes both.
If you would like more information about stocks and bonds, here is the link to a post where I break them both down my other post: Stocks vs. Bonds: What’s the Difference?
3. Mutual Funds
Definition: Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. They’re managed by professionals, so you don’t have to pick individual investments.
Why They’re Popular:
Automatic diversification
Professional management
Ideal for long-term investors who want broad exposure
Example: If you invest in a mutual fund focused on tech, you’ll own a portion of many tech stocks—without needing to buy shares of each company individually.
4. ETFs (Exchange-Traded Funds)
Definition: ETFs are similar to mutual funds in that they hold a basket of investments, but they trade on exchanges like individual stocks.
Key Benefits:
Lower expense ratios compared to mutual funds (especially passive ETFs)
Liquidity: You can buy or sell ETFs anytime during market hours
Flexibility: No minimum investment (you can start with a single share or even a fractional share)
Mutual Funds vs. ETFs: Key Differences
Management Style
→ Mutual funds are actively managed (higher expense ratio).
→ ETFs are primarily passive managed (lower expense ratio).
Liquidity
→ Mutual funds are bought/sold through the fund company and are settled at the end of the day.
→ ETFs can be traded like stocks during market hours.
Investment Minimum
→ Mutual funds usually require $1,000 or more.
→ ETFs allow you to buy as little as a share or fractional share depending on your broker.
Tax Efficiency
→ Mutual funds are less tax-efficient due to frequent distributions.
→ ETFs are more efficient due to their structure.
How to Stay Disciplined and Avoid Emotional Investing
Investing can trigger emotional highs and lows—especially when markets are volatile. Here are some tips to keep your cool:
Stick to a Plan: Set long-term goals and decide on an asset allocation strategy based on your risk tolerance.
Avoid Reacting to Headlines: Markets go up and down, and media outlets thrive on sensationalism. Don’t let short-term noise derail your plan.
Rebalance Periodically: If stocks outperform bonds in your portfolio, you might need to rebalance back to your original allocation.
Use Dollar-Cost Averaging: Invest a fixed amount regularly to reduce the impact of market volatility.
Final Thoughts: Take Control of Your Financial Future
Opening your brokerage account is just the first step. Now it’s time to choose investments that align with your goals, maintain discipline, and document your journey through an investment journal.
By understanding stocks, bonds, mutual funds, and ETFs—and knowing when to manage emotions—you’re setting yourself up for long-term success.
Are you ready to make your first investment?