MOST PEOPLE WHO INVEST LOSE MONEY
I first started learning about investing about 4 years ago, I didn’t have a clue what investing was or how people did it, it sounded extremely complicated and not worth my time. I thought it was a scam because the industry is full of people who try to make money off of other people, even worse, they make money off of other people’s ignorance. I thought “I know nothing about this subject, if I try to learn about it I will be scammed just like these poor people” and the thing is, all these people that have been scammed talk about how they were tricked and how the whole thing doesn’t work, they generalize it.
They were hurt, they gave up, and they don’t want other people to try. Maybe they want to prevent other people from getting hurt, or, maybe, they don’t want other people to succeed in an area where they failed. It was possible to win, but in the face of temporary defeat they gave up instead of trying again.
So there I was, in the midst of all these thoughts and other people’s opinions about investing, but I was lucky enough that at 18 years old I read a book called “Rich Dad Poor Dad” which opened my mind about the subject and got me in another mindset. It was convincing enough that it got my attention. I didn’t start investing immediately, I didn’t make any money or anything, I just kept my mind open on the subject and committed to learning more about it. The upside was too big to ignore.
They were selling a big promise – The promise of financial freedom. That is a big promise that will get everyone’s attention.
HOW I STARTED LEARNING ABOUT IT
I started watching YouTube videos about it, but more importantly, I bought 2 books about investing for beginners and that was when I realized investing smartly was something within my reach. I realized the upsides and the downsides of investing and I took 100% accountability for my actions, I realized that I was putting my hard-earned money at risk, but I also understood that by just sitting there and saving my money for eternity wasn’t going to get me anywhere. The two books I read that changed my financial education around where:
- Stop Saving Start Investing by Jonathan Hobbs
- The Little Book of Common Sense Investing by John Bogle
It is important to note that this promise of financial freedom is something that is sold constantly, we are always seeing ads or people on social media saying how they can make us rich if we buy their programme or whatever thing they are selling. It is a big promise, that’s why we all, at some point, pay some attention to it. However, instead of learning about it and getting educated on the subject, we simply put our trust on some random person on the internet to make us rich. This has nothing to do with the benefits of long-term investing in the stock market.
LONG-TERM INVESTING SIMPLIFIED IN 3 STEPS
- At the start of every month, get 5-10% of your salary and buy an index fund (make a quick Google search about it if you don’t know what they are, it’s worth it)
- Do this repeatedly for 30/40 years straight.
- Don’t sell.
This is it. This is long-term investing in a very tiny nutshell. If you are a beginner this is all you need to know to start, then, as time goes on, you will hopefully learn more things about it and find ways of maximizing returns and protecting your portfolio. Successful investors like Warren Buffet and others always say that index fund investing isn’t sexy, it’s boring and tedious, and most people don’t succeed in it exactly because they can’t stand the boredom. They keep looking for the next shiny thing instead of focusing on the boring thing that works.
Doing this boring thing will give us an average return of 7-10% per year, that is something I will gladly take with no second-thoughts whatsoever. Yes I could be making 20% per year on average if I had invested in a company like Apple or Facebook, but I could also lose everything if they had gone bankrupt, you have to be aware of your risk tolerance. I thought about this a lot and concluded that, as I’m doing this for my pension, I will gladly take those safe 8% per year for the next 35 years.
WHAT WILL YOUR PENSION LOOK LIKE?
We all get a pension from the government, but I think we all know how rubbish it is. We all know how much our grandparents get every month and it is not pretty. Instead of complaining about it and blaming the government for my poor pension, I will make my pension myself. Investing only £300 per month for 40 years at 8% return will give me just over £1 million at retirement age (in theory). That’s plenty of money to retire with.
Now, I want to make something clear, I’m not relying on it, I’m not depending on that sum to make a living and survive. On the other hand, if I just put those £300 to the side and simply save it I will have £144K in 40 years time. 144K vs 1M (that is the power of compounded interest). If you take 20K per year out of your pension your money-pot can only last for about 6 years until it runs out. That means you worked 40 years only to afford 6 years without having to work (assuming you can live on 20K per year).
These are things we don’t think about when we are young but it is precisely now that we should be thinking about them because the earlier we start the longer that money can compound and the bigger the final sum gets. If we start thinking of our retirement only when we reach 50 years old, we will not have a comfortable retirement and will most likely struggle. That was something I was terrified of, I didn’t want to imagine what it would be like to run out of money and to be incapable of paying rent. You work hard your whole life, you live a good life, only to spend your last 10/20 years counting pennies? Obviously your pension will vary according to your wages but it is nowhere near what it could be if we invest it in index funds.
At least that is the conclusion I have come to after spending countless hours learning about this and hearing successful investors talking about it. Not only successful investors, but high middle-class people who live good lives, all of them either have money in the stock market or have their own company. Either way, they are smart about money and realize you can’t just rely on the government and live your life without any worry or consideration about the future.
THE FUTURE WILL COME, WE MUST PREPARE TODAY.
That choice is ours to take and it really troubles me that we don’t learn about these things in school. It troubles me that we don’t get any information about the wealth-making tool the stock market is. It looks like you have to come across the idea randomly and luckily have the interest to learn about it and then dedicate to learning about it. That is why I am talking about it. I once stumbled on this idea and now I want to be the vehicle that makes you take that first step and get educated on the subject.
Now I invest every single month and I have been doing so for the past 2 years. I am still learning about it, and I still get confused every now and then. This is important to note – before I put £1 in my portfolio, I did 50+ hours of online research and I read 4 books about it over 2 years. I listened to a lot of successful investors like Warren Buffet, Ray Dalio and Charlie Munger, I also followed a lot of investing Instagram pages and watched several YouTube videos about long-term investing.
Don’t get ahead of yourself, don’t rush into it, but I would urge you to grab a book about investing and read it carefully. It changed my perspective about wealth and money, and hope it does the same for you.
Hope you enjoyed reading this so far!
Best wishes,
Martim