Investing
"Someone is sitting in the shade today because someone planted a tree a long time ago." - Warren Buffett
MAKE YOUR MONEY GROW
It's one thing to save, build an emergency fund, and get out of debt, but it's another thing to invest. Learning how to invest your money can be fun and motivating as you start on the path to Your Financial Happiness. The sooner you start investing the stronger you'll be in the long run.
A question I get asked often by those getting started is what is the difference between saving and investing. Well, there is a BIG difference. Saving is great and everyone should be saving, but if you are keeping that saved money in your checking account, savings account or under your mattress, due to inflation, you are actually losing money as the purchasing power is reduced. Instead of letting your savings (beyond an emergency fund that you can keep in a savings or money-market account for quick liquidity) just sit there, you are better off investing.
Investing can be a scary subject and may be overwhelming at first not knowing where to start or not understanding what to do. First off know you are not alone. We are here to provide you with the tools and resources you need to win with money.
Investing is simply buying an asset that generates interest and grows over time.
Don't fall victim to people who are out to make a quick buck day trading. Investing is for the long term. While there are obvious risks with investing (as with everything in life), the more you know, the more you can mitigate those risks. We aren't here to educate you about the ins and outs of risky investments, but rather to provide you with a safe path to long-term wealth. You don't need a fancy-pants money manager with fees out the wazoo, but rather a common sense investment strategy that will protect you and your family for years to come.
Compound Interest is one of the most critically important things to understand regarding investing. Albert Einstein is quoted as saying "Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it." The video below explains the basic concept. Once you grasp the concept you'll find it motivates you to keep saving and investing. The snowball effect is powerful.
"The big money is not in the buying and the selling, but in the waiting." - Charlie Munger
What is investing?
- Investing IS purchasing assets that will increase over time.
- Investing IS for the long-term as you work to build a snowball and watch the snowball grow over time
- Investing IS NOT a short-term get rich quick deal.
- Investing DOES NOT require daily interaction and management
- The ultimate goal of investing should be to build a passive cash flow that provides you with an additional income stream on your path to wealth.
Good investors buy and hold for the long-term. The best investors are those who set it and forget it.
Who should invest?
- Everyone! Regardless of age, if you have:
- A fully-funded emergency fund with 3-6 months expenses,
- Paid off debt,
- and extra capital/savings/money on hand....
- YOU CAN START INVESTING! The sooner you start the better off you'll be with time on your side.
How do I get started?
- Educate yourself by learning about the different investment account options available to you and open an account. For example:
- Does your company offer a matching 401k or 403b? If so taking advantage of that match is clutch and start by investing to reach the match.
- Is your income such that you're bordering a higher tax bracket?
- Understand the tax advantages of a Roth IRA vs. Traditional IRA
- Which brokerage is best for you? Merrill Edge, TD Ameritrade, Fidelity, E-Trade, Ally?
- Learn about the different types of equity investment options (individual stocks, index funds, mutual funds, ETFs, bonds, annuities, etc.)
- While our investment strategy only includes low-cost index funds and individual stocks (businesses), having a general understanding of the other options will give you a better understanding overall.
- Keep in mind there are other investment options as well such as real estate, REITS, crypto, etc. and while we are supportive of the first two mentioned, we DO NOT support anyone gambling with cryptocurrencies such as bitcoin. It's a bad idea and don't believe the hype.
- Choose how much you can comfortably invest keeping in mind your risk preference. ONLY invest money for the long-term, such as funds you don't plan to need on hand for the next 5-10 years. Short-term investing in the stock market is volatile and you don't want to get stuck having to sell in a down-market. If you want to invest money short-term your best bet is to find a high interest money market account. While you won't earn as much long-term with this option, in the short-term it is a safe option that is easy to access whenever you need it.
- Transfer the funds to the account and invest in low-cost index funds or solid dividend growth stocks. Be consistent, the more regular you can be with your savings and investing the better off you'll be. Challenge yourself to increase your investment contributions by x% per year.
- Set it and FORGET IT! (see Fidelity Study)
- Work to train your mind to be more concerned with the cash flow generated by the asset vs. the actual share price. Share prices fluctuate, but if the underlying asset is solid and generating a decent cash flow there is no need to panic. If a man knocked on your door everyday telling you what he would pay you for your house, would you listen to him? If you're happy with your house and it provides the benefits you want you shouldn't care what the man says.
