How to win with investing… 5 quick tips that would have helped me make thousands of extra dollars throughout my investing journey these first 5 years.
Saving a few grand seems like a good time to me.
1. Be Consistent
This is slightly cliche, but it’s critical. Just like working out, leaning a new skill, or making good friendships, you need to be consistent with investing.
Investing rarely works if you don’t have a constant cycle for purchasing stocks. If you don’t find constancy many people, including myself, will come up with reasons not to do it this paycheck and to wait until the ‘next paycheck’. They will find other things that are “more important” at the time.
All of us have something we want to spend our money on. The NHL Ice Hockey finals tickets, Ice Cubes’ album, an ice bath for your house, iced coffee, ice skates, or just ice.
Humans love to collect more and more things. Even ‘minimalists’ want to buy a “more minimal” closet full of black t-shirts and blue jeans. Apparently, humans find a way to buy more stuff in order to have less…
I’m joking of course, but the point is that we love to buy things, so finding a consistent schedule, even if it’s just $25 bucks a week, is a great start and there should be no excuse to not doing some form of saving. Even if it’s just cash while you learn about investing.
How do we make this easy? Bring on the robots.
2. Automate EVERYTHING!
Automation is very underrated. Robots make life easier. 401k’s are one of the few places Americans succeed in investing with. The primary reason many people succeed with their 401k is because it is typically automated. A portion of your check goes into this 401k, maybe your company matches a certain percentage, and you forget about it until you either retire or change jobs.
BONUS TIP: Don’t sell your 401k when you change jobs!!!!!! Just transfer it to your next company or into an IRA (Individual Retirement Account) and keep it stacking until you’re ready to retire.
It’s something you don’t need to think about at all. Each paycheck money automatically goes into your 401k investments which are relatively low risk and after months, years, or decades you come out the other side with hundreds of thousands of dollars in stock. Doesn’t that sound like a blast!?!? 30 years of doing nothing special in order to make a lot of money!
Most good investing is boring. Sorry folks.
Automating savings for vacations, automate investments, automate bills, then when all of this is automatically removed from your account you can evaluate how much money you have left over to spend on eating out and buying the latest and greatest clothing, technology, car, etc.
Automate! Make your life easy. Let the robot’s win!
3. Control your emotions
When I first started investing, I was extremely emotional. I would literally lose .50 cents on $100 and would panic and sell my stock. I’ll blame this on me being 18 years old, but the truth is that when you buy a stock your money is now not under you control. The market now decides if you chose right or wrong and coping with the ups and downs is a MAJOR skill that takes time and conscious effort to control.
I like to tell people to start with $5 per week so they can begin to control their emotions and learn how the market dips and rises over time. Low risk investments are also ideal when learning, or forever to be honest.
Between buying random stocks that carried extreme risk and having a hard time seeing my account have a red day (losing money for that single day) I had a really difficult time leaving it alone and letting everything automate and stack up over time.
Automate and forget is my new, primary method.
You NEED a plan BEFORE you start investing. Decide when you are going to sell BEFORE you buy. Decide when you are going to double down BEFORE you buy.
Don’t ever panic sell or panic buy. Panic selling during a crash is almost always a huge mistake. Panic buying during a FOMO (fear of missing out) craze is equally as bad.
Examples include Dogecoin in 2020/2021, GameStop stock, and AMC stock. All of these were just ‘get rich quick’ gambles that paid off for some, but many people lost great sums of money or even had to file bankruptcy. Investing shouldn’t be a sad time. It shouldn’t be a ‘make or break’ for you financially. It should be a long-term plan to gain control of your future financial life.
99% of people should diversify, and that includes me. It is true that if you want to make the most amount of money you should only buy a few stocks. People like Warren Buffet only have a couple stocks and make all of their money off of them.
Unless you truly believe you are the next Warren, and you spend 16 hours per day reading, studying material, charts, and financial statements, I would stick with diversifying.
Risk is what creates financial gains. Too much risk creates gamblers. Figuring out where you stand in that metric is the difficult part of investing. Many people convince themselves that they know what they’re doing because they are currently winning, until they end up losing it all.
Like I said earlier, if I were to restart, I’d probably just buy an index fund, like VOO, VTI, or SPY which track the U.S stock market.
10% returns on average for almost a century is hard to beat. I’d much rather have an extremely high chance at gaining 10% returns on average than a very low chance at gaining 25% per year.
Consistency beats luck.
The best investors in the world can barely beat 20% per year over a long period of time, so if you are currently getting more than 20% just remember that you’re probably riding the wave of the market and its less skill and more luck. At least that’s the case for me when I was making 50% per year the last few years. It was luck and good timing.
The last thing you want to do is make a horrible error in investing and then never want to ‘risk’ any money again because of that one bad decision.
If you are ‘investing’ with the thought that you are going to make 10x or 100x your money very quickly, 1 year is quick, it’s probably a gamble.
If you’re going to gamble, go gamble. If you’re going to prepare for your future, invest.
If you want to get rich with a near certainty, it will take lots of time. Warren Buffet’s greatest asset was TIME. He returned about 20% per year and he is one of the greatest investors of all time. If you think you can double your money (100% return) in a few weeks, on a consistent basis, with your random stock pick, I’m sorry to say you’re probably wrong.
Most people lose the most money when they don’t realize that it takes time to build wealth in stock investing. Once you realize this you can start building a real stock portfolio and build true wealth.
If you want to make millions quickly, you’re probably not going to do that by picking stocks. You may want to start a business, become an executive, or become a professional athlete if you want to make millions in a short period of time.
If you want to be a high-risk investor that’s great, for some people it works. Just don’t fool yourself, are you lucky? or are you a world class investor?
5. Have an end goal/plan
Why are you investing in the first place?
I like to ask people I meet the question of “How much money do you think you would need to never work again?” and some of these people answer with “15 million dollars” even though they are currently living off of an average or low paying career.
If you do some simple math (BORING) it turns out that most of us can live off WAY less money than we think. Find that number for yourself and then figure out what it would take to get there. You DON’T need to be realistic, that’s not what I’m saying. You can be as wild as you like with your personal goals and dreams. But find that number and figure out if it’s possible, or even if it’s the right goal.
I’m sorry to tell you but if you make 40k per year, you’re not going to become a billionaire without changing something drastic. But, if you like your standard of living then you can come up with a goal to get there.
One quick example would be if you want to be very wealthy and own a private jet. To own one, it can cost about $500k on the low end annually. BUT, if you rent one and purchase one flight at a time, it can cost as little as $10k per flight for your entire family. (still pretty dang expensive)
If you want a round trip once per month that would be only $240k for per year, which is nearly half the cost, and by the way that’s A LOT of flying and vacations for the average person.
I personally take a flight only a few times per year, many of my vacations are within driving distance. If this was one of my goals (it’s fortunately not) it would cost about 40-80k per year to fly private every single time. There’s no reason for me to even consider owning a private jet at that point.
There’s likely a way to do any “crazy” financial goal much cheaper than you’d expect. Renting mansions on vacation, Airbnb has you covered for a low cost all things considered. Want to own super cars? If you plan correctly, you can own them for free by getting a good deal and then selling it after a few months or years and breaking even. Get creative.
If you are a more modest person, which is where I find myself, what is a reasonable retirement?
In most of the US, a house will cost between 300-500k. Let’s say you buy your house for 500k and pay it off at retirement. Naturally that would cost 500k, but that would bring your monthly expenses way down, you no longer have a mortgage or rent.
Now let’s pay off your cars. If you have nice vehicles, you may owe between 40-80k. That will take you to a total of 580k before retirement.
If you’re like the average American, you can live off 3k per month with ease if you have NO car payment or mortgage. Using the 4% rule that would mean you need about $900,000 of additional investments in order to live forever on that money. That’s a total of $1.48 million. That’s a lot of money, of course, but at least now we have a goal to reach, and we can figure out how to get to that goal.
*To be clear, you don’t need to pay off your house or your cars before you retire. You can instead save a bit more money and just pay them monthly which is a better option for many people. *
How to reach this goal
Doing some basic calculation.
Investing $1,000 per month.
Return of 10% per year.
For a length of 27 years investing. (Age 18-45)
Total investments after that time period = $1,518,658.26
10% is a reasonable return over that period if investing in an S&P index fund like VOO, or SPY.
Let’s do one more.
Investing $2,000 per month
For a length of 20 years (age 18-38)
Return of 10% per year
Total investments after that time period = $1,436,518.46
Investing an extra $1,000 per month can save you 7 years of working and could allow you to retire BEFORE the age of 40 (18-38 years old).
*Another thing to note is that you could be paying off your house during this time you are saving, so that will require you to have MUCH LESS money to retire.
*There are hundreds of different things that can reduce or change the amount you personally require to retire. I’d highly recommend reaching out to a professional and finding your retirement number. Even college students can do this, it’s so important to know.
*You can retire in less than 10 years if you make certain choices. You may also never can retire. Choose your own adventure.
*I personally like doing work and trying to add to society, but the last thing I want is to put myself in a position where I NEED TO work for the rest of my life. You can both ‘want to work forever’ and plan to retire young. Making work a choice and not a necessity is true freedom.
Here are some things that can change this equation to retire earlier:
-Are you going to house hack and not need to even pay off your house before retirement? (you can google house hacking or check out my article on the topic)
-Can you spend less than $3,000 per month?
-Can you save more than $2,000 per month?
-Do you plan to continue to work a part time job that you enjoy and use that money to help live? (Every additional $100 you make changes your retirement needs greatly)
-Do you plan to have other investments, like real estate, you can get income from? (a single rental property can potentially save you a decade of savings)
These are just a few of the things you can consider when making this plan.
Like I said, there are infinite ways to plan your financial future. You can decide you want to spend as much money or as little money as you’d like.
You just need to make a plan and figure out what it takes to succeed.
I hope you enjoyed this article. I’m looking forward to another 5 years of investing and maybe I’ll be close to my own financial goals at that point. I plan to be at least.
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