For this week’s podcast, I talk about some of the biggest mistakes that I have made in my investing career and how you can avoid them. Making mistakes in investing will happen and it would be wrong to assume that you are the perfect investor and will never mess up. The goal is to learn from those mistakes so that you don’t make them over and over again. I hope that you can learn from some of the mistakes that I’ve made so you can avoid them for yourself. If you like the podcast make sure to subscribe and leave a review!
If you’ve been following this blog for the last few posts, you’re probably fired up to start investing. You’re probably saying to yourself “Jesus Christ man enough with this shit, teach me how to invest already.” I WILL! But if we are going to do this, we are going to do it right. Once you invest, you will probably not be touching that money for the next 5-10 years. This isn’t an ATM. Investing is something you need to put a lot of thought and effort into to be successful.
Because of this, you NEED to make sure that your finances are in check before putting any money into a long term investment. Warren Buffet is one of the greatest investors of all time and the investing strategies you will learn here, come from the lessons that he taught me (not like personally…but I read a lot). When it comes to long term investing, Buffet is king. When asked about his investment horizon Buffet said, “Our favorite holding period is forever”. You need to be okay with letting this money sit forever. That means when your ’09 Civic blows a tranny, you better not be in a position where you need to sell an investment to pay for it.
Saving will always beat investing until you really start stacking up cash. Investment returns start to get juicy the more GREEN you can put into them. Please refer to my previous post on saving tips to help you cut out unnecessary expenses which will help get the first part of your finances in order.
This is probably the most important thing to get in order before investing. It’s going to be really annoying, but I’m going to keep beating this into your head. Until you have a boatload of money, saving money will always beat investing money. Look at it this way:
How much should I save?
A lot of experts recommend saving up 3-6 months of expenses. This is a great opportunity to take a deep dive into what your expenses are. If you’re thinking to yourself “fuck me… how am I going to save $15,000 as a cushion” you might be spending too much money. I’m telling you, cutting out stupid purchases and paying yourself first is where you need to start.
This is also great practice for what it takes to be a great investor. When we start investing in businesses, there is going to be a great deal of thought and analysis that goes into it before pulling the trigger. You need to put the same kind of thought into any financial decision you make, even something as small as buying that coffee every morning before work.
The emergency fund that you are going to create is for emergencies ONLY.
What is an emergency?
Let us define what an emergency is NOT – An emergency is not your friends hitting you up for a “once in a lifetime” trip to Cancun that will set you back $1,500. FOMO is a real thing but it’s not an emergency. An emergency is not the new iPhone coming out, and you upgrading even though your iPhone 7 is working perfectly fine because the new one has three fucking cameras. THREE!
An emergency is something that is unexpected, necessary, and urgent.
Please, please, please work on creating an emergency fund before putting any money into an investment of any kind. At the same time, don’t let this stop you from continuing to invest in knowledge. Knowledge is free.
Clear Out Debt
Debt is a baby back bitch. Always has been, always will be. If you’ve already built a solid emergency fund, then I don’t think it’s necessary to eliminate debt entirely before investing, but let’s focus on high-interest debt. In one of my previous posts, I have my weird orgy analogy of how compound interest is the shit. Guess who else knows that compounding interest is dope??? Your credit card company. When you let your credit card debt build-up, you have to start paying interest on that. Then, you gotta pay interest on the interest and this continues on and on until you are living on the street.
If you have unpaid credit cards, then pay that shit off before even thinking about investing. What the hell is the point of getting awesome returns in the stock market if you have the same power of compound interest working against you at the same time?
If you have crippling credit card debt you are by no means in the minority:
Just because you are in the majority doesn’t mean you’re right. A lot of people just see that little minimum payment and think “okay cool I paid it, now it says there’s no payment due”. Uhhh yeah, no shit bro there’s nothing “due”. Banks love this shit. They will keep collecting interest on that new flat-screen TV you bought. Don’t just pay the minimum. Pay the entire statement balance on your card at the end of each billing cycle. If you can’t pay the statement balance, then you are doing something wrong and can’t handle a credit card. If something comes up where you have to put a lot of money on your credit card, then paying that off moves to the top of your list.
Not all debt is bad.
Some debt is just a necessary evil, such as a 4% school loan, which is not as much of a concern. Make your payments, but don’t feel like you need to pay off a $30,000 school loan before you can put any money into the stock market. Debt like this is very easy to factor into your budget.
When taking on debt, always ask yourself if what you are purchasing with that debt will decrease in value. For example, let’s look at a car loan. A new car loses it’s value as soon as you drive it off the lot, then continues to lose value at about 15% a year.
You will still be paying for the full price of the car plus interest even though the car is now worth half of what you paid for it. Taking on debt to cover the cost of liability is never a good idea. On the contrary, a college diploma will still have value for the rest of your life. Yes, college is expensive and the debt is probably killing you, but hopefully, that degree increased your value as an employee.
The same thing goes for mortgage payments. You will be paying off the purchase price of your home for 30 years, however, more often than not, the price of your home will appreciate in value. You are paying for something that is actually increasing in value the more time passes.
Debt for assets = Good ι Debt for liabilities = Bad
Do you know what else is a baby back bitch? Taxes. Luckily, Uncle Sam created a few loopholes to help us finesse the system. Basically, you get taxes taken directly out of each paycheck, which sucks ass, but it is what it is. If you were then to invest that pre-taxed money into the stock market with a traditional brokerage account, you would eventually have to pay additional taxes on any money that you gain once you sell the asset. This is called the capital gains tax.
The US government never wants you to make money without them getting a little piece of the pie. We’ll discuss how to limit your tax liability in a later posts but a Roth IRA is probably the most important weapon in fighting the war against taxes.
The cool thing is… A ROTH IRA IS INVESTING! Finally, we can hop into the markets in the easiest and smartest way possible.
A Roth IRA retirement account allows you to invest money without ever paying federal taxes. You can put money in every single year while you wait for the freedom of retirement and when you take the money out, YOU GET TO KEEP ALL OF IT. All of those sweet and delicious capital gains are all yours. Obviously, the government doesn’t want you to get too carried away with this loophole, so they limit contributions to $5,500 per year.
How much can I make with a Roth IRA?
Let’s take a look at the benefit of the Roth IRA account. If we break down the max contribution into monthly investments, it comes out to $458 per month. This may not be possible for everyone, but this is your goal. The average return for a Roth IRA account is 7-10%. The chart below shows how your money will compound over time if you maxed out your Roth IRA account from age 25 to 65 (assuming 7% return).
After 40 years, your $458 monthly investments come out to 1.2 MILLION DOLLARS, all yours. Nothing to the government. If you simply put that into a savings account every year, you wouldn’t even get a quarter of that.
I personally use Vanguard, but there are tons of different options out there for opening your very own Roth IRA account. So do your research and pick which one is best for you. I really think it’s bananas to open up a personal trading account before having your Roth IRA locked down. So get that done. Even if you can’t hit the maximum, please just open the account and start contributing what you can.
This one should be common sense, but I feel like a ton of people focus too much on the “get rich quick” aspect without properly educating themselves. As I said before, knowledge is free and it’s also what will pay off the most long term. It’s important that you know what you are doing before you make an investment.
I’ll be honest, I didn’t follow this advice when I first started and it bit me right in the dick. I had an account when I was in college and just watched The Wolf of Wall Street. I found some hot stock pick from a guy on Reddit, I believe it was a company called Amtrust Financial. I tossed a ton of money into it without knowing anything about the company…legit nothing. I sorta forgot about it for a while and checked my account and was down $6,000. Because I didn’t know anything about the company or investing, I had no idea why this had happened. Should I sell? Should I buy more? Should I just keep holding? I didn’t know the answer. So as any panicked newbie would do, I sold and took the loss.
The more knowledge you have, the more confident you become. Now, it’s easy for me to look for buying opportunities and I know the difference between a solid company and a sketchy one.
Remember when you were in chemistry class in high school thinking why the fuck am I learning this? I’m never going to use this in real life. Well, whenever you are learning about investing it’s the complete opposite. I mean what better way to spend your time than learning skills that will actually make you money, right? You already found yourself at Invest for the Rest so you are on the right path!
Investing is the act of allocating funds to an asset or committing capital to an endeavor (a business, project, real estate, etc.), with the expectation of generating an income or profit. –Investopedia
Investing is a part of every financially successful person’s life. Everyone wants to invest in stocks or real estate right off the bat, but I encourage you to broaden your view on investing. Start thinking about how you invest your time and energy before you even think about investing money.
The fact that you stumbled across this blog, shows that you are an investor–even if you’ve never bought a stock or property. You are investing in yourself through knowledge which is one of the most powerful investments of all. Unfortunately, knowledge alone won’t make you money. You need to take that knowledge and turn it into action.
Almost everyone and their grandma are aware of what investing in the stock market is… buy shares low, sell high. It gets a wee bit more complicated than that, but if you are able to buy great companies at a discount, then you will make money.
Invest for the Rest’s Money Orgy
What if I told you I had a magical money love machine? You put some money in the magic machine and forget about it. The money in the machine has a money orgy. Everyone’s bangin’ each other left in right, just absolutely wild unprotected coitus day in day out. Then all your money gets pregnant and has little money babies who also bang each other and repeat the process. Now the babies are smashin’ and making more little babies. This goes on for the next 30 years and every month you toss more of your hard earned cash into the sex machine.
When you go to retire, there’s a big ass money family. All grown up and ready for spending.
That’s investing. So why the hell aren’t you doing it?
Excuses for Not Investing
1. I don’t have enough money to invest. You need money to make money right???
Right and wrong. Yes, to start a money orgy of your own you do need money. If you followed my saving advice from my previous post, you should already be growing your bank account. If you don’t have your saving habits down, then I suggest starting there. Don’t use your rent money for the orgy.
In the past, maybe people had a point saying, “how can I afford to invest when amazon is $2000 a share?”, but a lot of brokerage accounts offer fractional share investing now. This allows you to invest any amount of money in any company. Instead of spending money on that funny shower curtain that has a sloth dancing in the rain on it, you can profit off the stupid people that bought it.
I mean honestly, you’ve been saying you don’t have enough money to invest for the past 5 years when your money could have been smashing and making money kids. If you still don’t have money after all of this time of saying you can’t afford it, then obviously whatever you’re doing isn’t working.
You can’t afford to invest??? Bitch, you can’t afford to NOT invest.
2. Investing is risky. I don’t wanna lose all my money.
I’d be lying if I said there weren’t risks to investing. Of course there are risks. Sorry to break it to you but anything that’s good in life has some sort of risk. Not investing because you are worried about risk is like saying “oh well I’d better not go to college because there’s a risk of not getting a job after”. Or oh maybe I shouldn’t get married because there’s the risk of a messy divorce if things don’t go well. You make those decisions based on the proven track record of college grads making more money than those with just a high school education and the fact that there are happy marriages.
The historical return on the stock market is 10%. You can’t argue that. That’s just a fact. There were down years, and there were up years but the average is 10 percent. Ten times the average high yield saving account. In later blog posts I’ll teach you how to be smart and safe when entering the markets and we will match or beat this return over the long haul.
Success comes from taking smart calculated risks.
I’ll say this once and I’ll say it again…THINK LONG TERM. Just like life, there are ups and down to investing but if you put in the work, you will end up on top.
3. Investing is complicated and I don’t understand it. That’s why I haven’t been investing.
This might be the dumbest one of all. With this mindset you’re basically saying that you have reached the peak of your life. Anything that you don’t understand in your 20s and 30s, you will never understand. BIG DUMB.
That being said, the fact you are reading this blog shows that you are willing to learn something new. WOW what a novel concept.
Learning something that you don’t understand is how you got to where ever you are right now. “Hey we are going to promote you to manager because you are doing so well how does that sound?” Uhhhh well… I actually don’t understand management, so I’d rather not, thank you though.
Commit to growing as a person and welcoming new opportunities.
4. I will get around to it eventually. I’m just really busy right now. I’ll get around to it once XYZ happens.
If there is one thing you shouldn’t procrastinate on its saving and investing. When it comes to these two things, time is your best friend The more time you have in the market, the more money you will make and the less “risky” things become.
It’s really funny what people prioritize over investing. There are 168 hours in every week. For the average person, 40 of those hours are spent working and 96 of those hours are spent sleeping (if you get 8 hours a night). That leaves 32 hours left of free time. I get it, life can get hectic. But to sit here and tell me you can’t find 30 minutes a day to learn a skill that will help set up not only your future, but your kid’s futures? That’s just a lie. The only person that gets hurt by this lie is you.
The best part about investing is that once you learn the skills, you never have to learn them again and the time that needs to be put in reduces dramatically.
Everyone always thinks that they are busier than everyone else and that they for some reason, have less hours in the day then other people. That’s the great thing about time; it’s a level playing field. Warren Buffet, Elon Musk, and Bill Gates all are given the same hours in the day that you have. They just choose how they use those hours differently than you do.
This is the exact reason I’m making this blog. There are aspects of investing that are confusing, no doubt. But the general principle is something everyone should be able to understand. We aren’t going to be diving into PE ratios and EPS any time soon, but you don’t need that right now. I promise this will not be as painful or confusing as you think it will be.
Stay tuned for future posts where we will actually start learning the first steps, but in the meantime, please just take a good hard look at your life and what you spend time on. I guarantee you are not as busy as you think you are.