Investing is complicated…
Or, like gambling right?
This is what I used to believe. But, the truth is I didn’t know much about investing back then. And, while I’m no financial expert, I took time to learn the basics.
Maybe you’ve decided you’ve had enough with postponing planning for your financial future. And now you want to take charge of your retirement. But, the moment you picture yourself as an investor you face imposter syndrome and ask “why me?”
It’s time to flip things around and ask “why not you?”
Investing is all about working smarter, not harder. Here’s your guide to investing as a beginner. Take action on this advice and secure your financial future.
Before you invest your first dollar realize you’re in this journey alone.
Don’t compare yourself with others. If you do you’ll sabotage yourself from the start.
Because there are people who’ll always be ahead of you. They either started investing earlier or are smarter investors (sad but true.) Instead, focus only on yourself.
In the investing world, the earlier you start the better. But, this is rarely the case. It’s not until it’s too late when people start investing.
The average annual return of the money you invest in the stock market is 7%. According to the rule of 72, it’d take about 7 years to double your money in the stock market. So, the best time to invest your money is today if you haven’t already started.
Investments and portfolio are fancy terms used by investors.
But, they aren’t complicated to understand.
An investment is an asset you buy with hopes of generating higher returns in the future. A portfolio is a group of assets (i.e. bonds, stock, etc.) To build sustainable wealth you’ll have to invest in many assets.
Assets include stocks, bonds, and real estate to name a few. The most common thing people invest in the stock market. This is good but a better investment is yourself. Before you dismiss this as cliche advice, hear me out.
Investing in yourself makes you capable to earn a higher income. Essentially, you’re betting in yourself generating a higher return in the future.
You can’t invest little and hope for a great return.
You need to invest as much as possible to build true wealth. But, what if you have little to no money? Unfortunately, there’s not much you can do with investing small amounts.
But, don’t dismiss the small amount you’re able to contribute. Invest anything you can into ETFs or index funds. But, a bigger problem is not having enough money.
This can be for several reasons. Your income is low or you can’t manage your money. First start with what you can control, managing your money. Once you’re managing your money well, focus on growing your income.
Neither managing your money nor growing your income is easy. But, if you master both of these tasks you’ll be a better investor.
There’s no hard rule for how much money you need to invest.
Everyone has a reason to invest their money. To save for a wedding, retirement, or for business reasons. Regardless for why you decide to invest, figure out how much money you’d need.
Use Personal Capital’s retirement planner to set your retirement goals.
Anyone can invest.
You don’t need to be a financial expert or watch the stock market each day to be a successful investor. There’s people who play hard and those who play smart. If you have dozens of other important tasks to worry about, you won’t have time to watch the stock market.
Even people who invest for a living aren’t always able to beat the market. Beating the market means investing in a stock (company) and making a profit. An investor’s goal is to buy low and sell high.
So how do you invest smartly?
Investing in ETFs or index funds. Doing this enables you to invest in many markets (i.e. S&P 500) instead of individual stocks. The end result is taking an average ROI (return on investment) from many companies instead of one.
The average ROI on index funds is 7%+ after several years. The best part is not having to track the stock market nor worry about paying high fees. In the end, no one will care about your money more than you.
Keep it simple and invest in index funds or ETFs.
Here are some good practices to follow as you invest:
You may have head the term of never putting all your eggs in one basket.
With investing it’s no different.
As mentioned before, an index fund captures an entire market, such as the S&P500. But, the S&P500 makes up of only US companies. What if there’s another recession?
After all, recessions are cyclical (repeat) after a certain number of years. To hedge (protect yourself) against this inevitable downturn, invest overseas (outside the US.) You have many options, but common international index funds include VTMGX.
The percentage of stocks you’d have for international versus US-based index funds varies. But, having US and international index funds prepares you for inevitable market downturns.
“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”–Warren Buffet
The most challenging part of investing is thinking long-term.
Most investors panic when the market experiences a downturn. Although losing money is never good, losing money in the market is normal.
The graph above shows the market’s performance during the last 14+ years. Notice how in 2008 there’s a dip due to the recession. But, after 4 years the market recovers and continues to grow.
Instead of viewing your investments in the short-term, understand the bigger picture. In the short-term, you may lose but if you continue investing despite the market’s performance, you’ll win in the long-term.
The beauty of investing in index funds is not having to track them often.
With investing don’t make financial decisions based on your emotions. If you do you’ll end with little returns or worse, lose money. Research top index funds and create your portfolio. Then, review it twice per year.
The reality is you will lose money throughout the year. But, this is only a short-term loss. Your net return will be higher after 10–20 years.
Once you’ve adopted the “set it and forget it” mentality, contribute each month.
Whether it’s $50 or $500, contribute something towards retirement. At the least, contribute the amount your company is willing to match. Take advantage of compound interest.
Forget about letting someone completely manage your money.
Even if you decide to let someone manage your money you need to understand how investing works. Instead of searching the web for the best advice learn from the experts themselves. Here are some of the best investing books you should read to learn more about investing:
Turn your car rides into educational lessons. Here are some of the best podcasts to learn more about investing:
By now you have an idea on why investing your money is important. But, how do you go about starting today? Here are some ways to get started:
401K is the best way to start investing because odds are you already have this account.
If you’re currently employed check if your employer offers a 401k. Then, check for up to how much they’ll match your contribution. For example, some companies will match up to 5% of the money you contribute.
Don’t settle for the default investment options your company has selected for you. Research all your available investment options and invest in index funds.
If you’re clueless about where to start to hire a fiduciary advisor. These type of advisors choose your investments without any conflict of interest.
The easiest option is to let a robo-advisor handle all your money.
Because all you need to do is contribute each month and your robo-advisor will do the rest.
As your money earns interest your initial portfolio’s ratio split will be off. This is because your money will grow more in different ETFs/Index funds. A robo-advisor chooses your best investment options and manages your portfolio.
Some of the best robo-advisors include:
You already know that index funds are a powerful investment option.
They have low fees and track entire markets. This is why building your own portfolio isn’t complicated. First, determine your risk tolerance.
Then, build your portfolio. Here are some portfolio examples to help you get started.
Investing in the stock market is a great option to build wealth.
But, there’s a better investment…
If you continuously invest in yourself your income will grow with you. You’ll build better businesses and be knowledgeable in many key areas. Like investing in the stock market you have to diversify how you invest in yourself.
For example, read books, listen to podcasts, buy courses, and hire a coach. Doing this will you grow and improve the quality of your life.
At this point you know investing is far from gambling.
If you’re starting to invest late in the game, don’t worry. Remember, don’t compare yourself with no one except yourself.
Keep it simple and invest in index funds. Manage them yourself or let a robo-advisor do it for you. But, don’t let your money sit in a regular savings account.
Imagine not having to go into debt and having your financial future secured. It may be hard to believe depending on where you are in your financial journey, but it’s possible. Currently, you’re not the person who’s capable to make this happen.
This is why you need to continuously invest in yourself. Grow and one day you’ll have your financial future secured. Now go invest your money–a brighter financial future awaits.
Chris writes personal finance and productivity articles for software companies. He gets fresh ideas through continuously investing in himself and interviewing successful entrepreneurs.