It’s 2021, almost 2022, and we have a monetary system that is FAILING. In the last 12-18 months more than 40% of all dollars were created. Yes, you read that correctly… Everything that you want to eat, drive, buy, or live in is becoming so expensive most people are not going to be able to afford them.
Things like housing (+21% nationwide), beef (+24% according to Forbes), cars (used cars and tricks up 45% according to NY Times), and many other products are so outrageous that when the government says “inflation is only 6%” it’s clear some mischief is going on and somebody is lying or being misleading.
Let me give an extremely brief history on money.
World Failure of Money
Welcome to the WORLD of investing. In the 21st century if you are not investing, or at least purchasing something other than dollars you WILL NOT RETIRE. Depending on how you do the math, and what age you would like to retire, you would likely need to save MORE THAN 60-80% of your income if you DON’T INVEST and instead save cash! Cash is trash.
We live in a world of inflation; we live in a fiat money world where if you don’t invest you will never get ahead. You will never build wealth for yourself or your children. At any moment the government could start printing massive sums of money and in a matter of months make your entire cash savings worth NOTHING. We have been reletively lucky in the western world.
If you don’t think this is possible, or if you don’t understand what I’m saying, look at Germany after WW1, look at Venezuela from 2000 – 2020, look at Turkey in 2021, look at most of Africa, and even look at the housing market in the United States from 2019-2021.
Brazil has had nearly 10 currencies in the last 80 years. All fiat, backed by nothing other than their government. Many other countries have also failed greatly with their praise of fiat and the power it gives them.
Fiat money is money that has no backing other than government decree. Before the 20th century almost all money was backed by gold or silver. Now all fiat is backed by nothing and the government controls the amount of paper that they have with a central bank and its cronies.
How did we allow ourselves to go from having a gold and silver backed society, to one that magically believes in their government paper?
We were fooled into believing that it would only be temporary. Governments would give out loans that they didn’t have enough gold for, which inflated the money supply without the gold to back up the loan (this is lying about the amount of money the bank had, also known as fractional reserve banking), and once they were called out and were told to pay the gold they owed, they didn’t have it.
Many governments had to default on their gold loans, many governments had banks that were failing, so they decided “hey, if we get rid of gold altogether it’s impossible to default because we can print infinite money with a central bank”.
The United States did this in 1971, when President Nixon declared that the US would no longer exchange government dollars for gold.
They believed somehow that this ability to print infinite money would mean that there would never be a depression or recession ever again, and we could solve all those problems by just adding more money to the supply. Add more money, but don’t produce anything extra. That’s totally going to work…
Adding money to the supply creates a Cantillon Effect, which means the first people to touch the money get the most benefit from it, and the last people get the least benefit (even a negative benefit in most cases). So, who benefits from money printing? First the government, then the ultra-wealthy, then anyone who owns property other than dollars (houses, stocks, companies, etc.), then the middle class, last the poor.
If you ever wonder why the rich get richer and the poor are getting more poor, this is why. The Cantillon Effect.
This is because as the money trickles down it lands in the poor’s hands last. At this point everyone has benefited by being able to use this printed money to accrue extra loans, to make business deals, and to buy products. By the time the middle class and the lower class touch this money, inflation has already happened, and they see no benefits, only more expensive steaks, cars, and houses.
I would highly recommend looking more into inflation, the FED, and the Cantillon Effect but I will leave you there so we can continue to talk about why you should invest when you’re poor.
Start when you have no money
–Build the Consistency Habit:
If decide to hop onto the wealth train, it’s very easy to start by purchasing $5 per week of a low-risk index fund. There are very few people in the western world that cannot afford $5 per week. This is one Starbucks coffee, one burger, or even your monthly Netflix subscription.
$5 per week is not a lot of money to invest. You will not become a millionaire from investing this much money. But, $5 per week from age 20 to age 60 will become over $110,000 at 10% returns, which is a lot of money for such a small amount invested. The total you would have invested is $9,600 over 40 years.
Building this habit of automatically taking money out of your check is much easier to learn while you are making minimum wage instead of when you are making 6 figures. When you’re making 6 figures, investing $5 will feel like a waste of time. It will also feel like you’re making no progress. Of course, if you are making 6 figures you could probably invest $100 per week or hopefully even more.
As you build up from making minimum wage, to a low tier job, to a middle-income career, and eventually high income, you can slowly increase the amount you invest. This eventually leads to having a large investment portfolio which may be growing faster than you’re adding to it.
The goal should be to invest at a MINIUMUM 10% of your income, and there is no maximum. The maximum is what you want to do to reach your goals. If you never want to retire and enjoy working, stick with 10%, having money set aside for emergencies or injuries is always smart. You may want to work forever but that doesn’t mean you’ll be able to.
If you want to retire in 10 years, you may have to do 50% or more of your income. You’ll have to figure out how much you need to retire, and you can check out my other blog post about this.
That leads me to the next point.
If you wait to invest until you have $20,000 you may never even start because that may never happen, and if you do start it will be way more intimidating to lose 20% of $20,000 versus 20% of $100 if a major crash happens.
The way you save lots of money is by investing. So, waiting to invest until you have lots of money is usually some kind of paradox.
Emotion is one of the biggest reasons people lose money while investing. People don’t have a concrete plan, and when it gets rocky, they panic. Usually because they also lack knowledge of what they’re investing in or don’t know what their goal is.
Imagine you start investing today with $5 per week. In 12 months, you will have around $250 depending on where you invest. Now, let’s say you experience your very first pullback/ bear market, meaning the market crashes at least 20% or so. You would go from $250, to $200. Your account would be down $50 from it’s all time high, and you would experience your first rush of emotion and panic.
Will this go to $0? Did I pick the wrong investment? Am I going to lose all my money? I should have listened to all the people who told me investing was risky and just saved money in cash….
Tons of things rush to your mind because this is the first time you’ve experienced such a large loss, 20% is a big dip for someone who’s never felt that before and has been making money for the last year.
Learning to control your mind, and it’s doubt while you’re investing small amounts of money is much better than large amounts. These mistakes can be expensive…
What are the common mistakes that investors make?
Selling early. This happens when you make a huge return on a stock and sell it because you don’t want to lose out on your gains. My personal example of this was when I bought AMD stock at around $10 per share, it went up to about $40 per share and I sold it because I thought that it was growing too fast and didn’t make sense. Of course, because I was new to investing, I never did any in depth research on why it was growing and instead just sold and took my gains. The stock ended up going to around $90 per share shortly after and I missed out on a lot more money.
With that said, it is better to sell early and take profits than to panic sell or never sell, or even get distracted. Selling early means that you are selling just because a stock is going up. Not because of any other reason.
Don’t sell. This happens when someone buys a stock and it keeps crashing, and everything in the market is saying this stock is now worthless and the company may go out of business, but you refuse to sell because you don’t want to take a loss on your money.
I will admit it is usually better to never sell than to sell early.
Panic sell. This is the most common and the most devastating thing out of all these examples. Panic selling happens during an economic crisis. Examples are the 2008 housing crisis, and the 2020 Covid-19 pandemic. This is selling because the market is crashing and for no other reason. This is where people lose a ton of money, and never want to buy back into the market because they’re scared and had a bad experience.
During these situations I always BUY MORE. The reason I’ve been so fortunate in my investing journey is because I have experienced multiple 20%+ dips in the market and have used those opportunities to buy a TON MORE stock. This is normally a mistake people have to learn for themselves but if you take one thing from this article it is that you should be to never sell during an economic crisis unless you are investing in individual stocks and those companies are going out of business or if you have a good reason to sell, panic is not a good reason.
This is one of the reasons index funds are so powerful, because they invest in many companies and an index fund like VOO has 500 of the top companies. It is extremely unlikely that all of them would end up going out of business, so selling an index fund because you are panicing is probably not a good idea.
Panic buy. A great example of this is Game Stop or AMC or even Dogecoin. This happens when someone buys a stock or another investment just because it is going up like crazy. You end up buying something for the sole reason of “it’s doubled in the past 2 hours, so I need to buy it and make a ton of money.”
This is known as investing without any fundamentals, and while it will occasionally work, most of the time you will end up losing a ton of money in the process.
This is not investing, it is gambling. It’s ok to gamble, just know you’re gambling, don’t tell yourself this is a good investment when you’re really just flipping a coin.
-Build knowledge: read books, watch videos, learn the basics, understand it’s nearly impossible to beat the market.
You don’t need to be an expert BEFORE you start investing. You can start simple with a basic dividend index fund, like VOO, VTI, or SCHD, for example.
Once you start your $5 per week, or whatever amount you decide, you can start learning about other options if you please.
Starting to invest with a little bit of money allows you to take this time to learn and educate yourself about different investing possibilities. Do you want to learn more about Bitcoin? Do you want to learn about investing in wine? Investing in individual stocks, or IRAs, or your 401k?
There are so many investing options that starting simple with an index fund, and automating your investments is usually a great place to begin while you’re taking the time to learn more and more about the world of investing.
This knowledge can take years or even decades to acquire. Nobody knows everything about investing because there are simply too many things to learn about. Find the experts in each field and try and absorb as much as you can from each person in that world. Bonds, stocks, index funds, wine, Bitcoin, and the list goes on and on.
Here is a quick example of the returns you could receive by auto investing in an index fund:
$5 per week for 10 years, with a 10% return = ~$4,000;
20 years = $14,300;
30 years = $41,000
$25 per week for 10 years, with a 10% return = ~$20,000;
20 years = $71,800;
30 years = $206,000
$100 per week for 10 years, with a 10% return = ~$80,000;
20 years = $287,000;
30 years = $825,000
You can see from these two examples that the longer you invest, the more that compounding matters. So, starting today is the most important thing you can do. It’s not about investing thousands of dollars per month, it’s about investing consistently for a long period of time.
If you’re making $50,000 per year. 10% would be around the $100 per week range. Most people who make that much money can typically find a way to save $100 per week, but at a minimum save something, and begin your investment journey!
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🔎Disclaimer🔎 All content in this video is for entertainment purposes only. I am not a professional financial advisor and my statements are not to be taken as instructions or directions. In no event will I be liable for any losses or damages arising from the use of content from any of my platforms, including, but not limited to, YouTube, Blog, and Instagram. I reserve the right to change my opinions and entertainment content at any time. Please be sure to do your own due diligence!
🔎Disclaimer🔎 All content in this blog is for entertainment purposes only. I am not a professional financial advisor and my statements are not to be taken as instructions or directions. In no event will I be liable for any losses or damages arising from the use of content from any of my platforms, including, but not limited to YouTube, Blog, or any other social media. I reserve the right to change my opinions and entertainment content at any time. Please be sure to do your own due diligence!