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Investing secrets you can’t learn from books: Truth and wisdom made simple

Investing secrets you can’t learn from books: Truth and wisdom made simple 


What you need to know before you start investing

There’s a lot of investment advice out there.

Your friend telling you their “foolproof” strategy. Your parents sharing their old school approach. Or any of the 1.34 billion blog posts claiming to have unearthed secrets untold.

Point being, there’s a lot of information out there. Our guide will answer common investing questions and share advice to get you started.

Quickly, a large make-up of investing is compound interest. Put simply, it’s interest earning interest. Even more, it’s how you put your money to work to make more money.  

Today, by the help of technology, investing is no longer reserved for Wall Street insiders with pinstripe suits. You can start investing with the help of a low-fee advisory service. Or you can go the DIY route and make investing a personal project. 

No matter how you do it, you can do it.

We’re here to help you find the confidence you need to do investing your way.

 

Beginner? Join the crowd

More than 100 million households have no investments.

Likewise, only about one-third of U.S. adults personally own stocks outside of a retirement account. That means that two-thirds of U.S. adults have no personal stocks outside of a work retirement account.

Getting started is often the hardest part. But it doesn’t have to be.

Have courage. You’re smart. You can do this.

 

Is now a good time?

You have questions. For starters, you want to know: When should I invest?

It’s basic human nature to plan for the perfect moment. But with investing, there’s never a perfect moment.

Today the stock market is up. Tomorrow it may be down. Trying to keep up with the ebb and flow of the market is challenging, if not impossible. Following day-to-day market fluctuations can feel like riding a roller coaster. Quick dips and winding turns aren’t as fun when they involve your money.

But it’s hard to win the game when you’re constantly watching the scoreboard.

Investing is not about getting rich quick. Your focus should be to grow your money long term.

So, when is the right time to invest? 

There’s no time like the present. 

 

Combating a fear of messing up 

Researching this article, I found something interesting. You’ve heard before that public speaking tops the list of things people fear the most. But do you know what follows?

Take a look at the list of America’s biggest fears:

  1. Public speaking
  2. Heights
  3. Investing in a stock portfolio

OK, so that last one is a lie. But first-time investors often feel overwhelming pressure of too many voices calling out advice. Likewise, beginners have a fear of messing up. 

Start slow and recognize you don’t have to do everything at once. It bears repeating — investing is not a get-rich-quick movement. Slow and steady wins the race.

With more experience, you will feel more comfortable investing.

 

Basic? That's cool. 

Here’s a time when being basic is actually a good thing.

Technology has made investing more accessible than ever. It means you don’t have to rely on a complicated strategy, nor be a math wiz to start making money. With oodles of investing options, you can create an investment plan that matches your risk and skill level.

Rather than making detailed plans, your goal is to create a basic plan. Investing today can be as hands-on or hands-off as you wish. However you decide to go, it’s crucial you have a plan. You don’t need to have the perfect plan. But you do need to have a plan.

Listen, investing is volatile. Your goal with investing is not to outsmart the market or predict the future. Develop an investment plan built on a well-defined and solid foundation.

In the end, your investment plan should break down to three basic objectives.

  • Set clear goals  
  • Seek smart advice
  • Know your limits

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Hold on tight 

Up and down, fast and slow, exhilarating and scary — all at the same time.

Did I describe Kingda Ka — the tallest roller coaster in the U.S. — or someone’s stock market experience?

Experiencing a stock market crash is just as spine-chilling as Kingda Ka’s 418-foot drop.

Playing the stock market is a lot like riding a roller coaster. At some point, there’s bound to be a drop. My advice to you: hold on tight.

Kingda Ka’s fast and twisty turns are enough to make you second guess. Likewise, so too might a down day in the market. In either sense, there’s no reason you should jump ship.

Everyone who invests in the stock market has experienced one or more downturns in their time. They all made it out the other side, and you will, too. 

Hold on tight (and close your eyes if you need to).

Simply put, staying the course is the simplest path.

Your best bet is to set clear goals and have a plan. Once you have a plan, stay the course.

A down day or up day shouldn’t phase you. Just because the world has changed, your plan should not.

 

Don't watch the grass grow 

With investing, it’s easy to overcrowd your mind with information. To ease decision-making pressures, we tend to collect more information than we need.

My advice: know when to stop.

More often than not, success in investing is linked to choices you don’t make.

Above all, make a plan and stick to it. Yes, research is an important element in investment strategy. Just know when to stop. And then stop.

Once you’re investing, take a back seat and let your investments work. Your investments won’t perform any better the closer you follow them. 

Stressing over market fluctuations will only increase your blood pressure.

 

Too much? Not enough? Just right.

Young and without a lot of money to invest? Older and with deep pockets and a rock-solid nest egg? You don’t need to have a lot of money to be an investor. You can thank technology — and a few nice companies (s/o Robinhood) — for that.

With fractional trading, you can invest in basically anything. Why hello, Tesla. Fractional trading means you can say hello to stocks like Tesla, without saying hello to its $400-plus price tag. With fractional trading, you’re not governed by the sale price.

With a little more money, you might buy a low fee index fund — which is a diversified basket of securities designed to deliver returns over time. With a lot, you may wish to buy larger shares of your favorite companies.

Point being, the possibilities are endless. Furthermore, anyone — yes, even you — can be an investor.

But at some point, you will need to decide how much to invest. Financial advisors suggest a number between 10% and 15% of your annual income. But I’ll leave it up to you to decide what you’re comfortable with. 

However, let me offer a little guidance.

  • Don’t invest so much that it risks your financial future
  • Don’t invest so much that you can’t sleep at night
  • Don’t invest money you need in the near future

 

Time to get personal

There’s a lot to learn about investing.

It’s good to experience those lessons early when less money is involved.

You don’t need to focus on how much money you put in today. Instead, focus on how much you add over time. Steadily adding to your investments is the best strategy to boost your long-term wealth.

Your investment strategy will be unique to you. It will change as you learn more and discover what works best for you.

Developing your first investment strategy starts with a question: Who are you?

Who’s asking? Well, it could be a financial advisor, a robo-advisor, or … you (if you’re investing DIY). 

This breaks down into four questions.

  • How old are you?
  • How long before you plan to retire?
  • How much do you earn?
  • How much do you save?

Answers to these questions help outline your goals and your risk tolerance. 

Pro tip: Let someone else do this work for you. One of the best ways to ease into investing is to set up an automatic investment program. These programs direct a fixed amount that you set into an index fund or an Exchange Traded Fund, better known as ETFs. These programs deploy what’s known as robo-investors. I’ll explain more about this in the next section.

 

Domo arigato. Mr. Robo-Advisor 

It’s your money. So it’s understandable that you want to DIY.

But there’s guesswork that goes into investing. Maybe you only want to DIY a little. 

Investment services take away the guesswork. Thank you, 21st Century. 

Intuitively, online investment services get to know you by learning your goals, your timeline, and your risk tolerance. These are the same questions a human financial advisor would ask.

Then, the service may deploy a robo-advisor. 

This helps the service automate the investing process.

Is it risky? Quite the contrary.

Humans are working behind-the-scenes, teaching the robo-advisor best practices.

Anyways, the robo-advisor builds a personalized portfolio. It uses an algorithm to select investments for you. Likewise, it monitors your portfolio and looks for opportunities to buy or sell assets. It adjusts so that you stay on track to meet your goals.

Robo-advisors build portfolios on index funds and ETFs, rather than investing your money all in one fund. ETFs are diversified stock groupings, which are less risky and tend to increase returns over time.

Robo-advisor services come without the costly management fees and trepidation of a human advisor. Similarly, they require less money to start than traditional services.

There are a number of options in this space. Our personal favorites are Betterment and Wealthfront. (Quick note: We’re not affiliated with any service in this space. Recommendations are all our own). 

Furthermore, these services make starting an investment portfolio simple. Plus, the cost is minimal. Typically, management fees are less than 1% of the amount you invest.

That is to say, procrastination will cost you. Waiting may cost more than your advisory fee.

Put simply, longer investment plans are less risky and tend to yield better returns. Even more, those who start investing earlier are more likely to make more money than those who wait to start.

Pro tip: Everyone has a fear of mistiming the market. It’s hard not to watch the scoreboard. Dollar-cost averaging is an investment technique where you invest a fixed amount on a regular schedule, regardless of market price. It evens out the price you pay. Dollar-cost averaging doesn’t lower your risk investing. But it does lower the perceived risk, and makes it emotionally easier to invest.

 

Advice for the DIY master. 

OK, but what if you have your PhD in DIY.

You assemble an Ikea dresser without instructions no problem (wow, nice!). If that’s you, you may be looking for a more hands-on approach to investing.

Might I suggest Robinhood? Consider this a playground where research is the swing and portfolio building is the slide.

Robinhood is a no-fee trading app, designed to level the financial playing field. Free trading, once Robinhood’s calling card, is now basically the norm. Still, Robinhood is a favorite for its simplicity and ease of use.

Today, Robinhood has over 50% of the market share of new brokerage accounts. That’s more than all of the legacy providers put together. There’s a good chance your friends have Robinhood. Ask them about it.

Robinhood is a great entryway for everyday people to make the step into investing. But remember, trading and investing are not one of the same.

Investing is a long-term strategy. Robinhood is not a replacement for an investment plan. Remember the fundamentals. (Oh, and btw, we’re not affiliated with Robinhood. This recommendation is our own).

Pro tip: Consider a mix of strategies. Investment services like Betterment and Wealthfront direct funds to index funds and ETFs. Trading applications, like Robinhood, focus on individual stocks. Building a strategy that includes a mix of both gives you more freedom to control your investments. That’s a good thing.

 

Bears and bulls?

Investors are associated with two animals — bears and bulls.

Bulls are investors who think the market is headed up. Bears are investors who think the market is headed down. Both are in it for the long run, and they both make money over time.

Treat investing like the game Risk. Don’t expect to finish any time quickly.

Use strategy, have a plan, and stick to it. You never know what might happen.

Be confident and have courage.

I believe in you. 

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Wednesday, November 25, 2020
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