It can be really scary to start investing especially when you don’t have a lot of knowledge of how it all works. However, investing doesn’t have to be that scary, or even that complicated. Investing can be however simple or complicated you want it to be. Yet, in most cases it typically pays off to have a simple approach.
When I started investing I didn’t know much, if anything, at all other than what I could pick up from a few Google searches. Over a year later and I feel very confident in investing and how my strategy will work for me. Here are the three things to know to start investing.
1. Save Money First
This tip might seem obvious but let me explain. Saving money is the first step towards investing. A lot of people will get their paycheck and pay for their expenses along with other miscellaneous goods such as clothes, a new phone, etc. New clothes and a new phone are great but a lot of times they aren’t needed and your money can be put to better use. Then after is all said and done, people will save what is leftover ….. which usually isn’t as much as they’d like.
Here’s a better idea. Come up with a monthly budget of all of your income and expenses and determine how much you CAN contribute to your savings each month. Now, when you receive your paycheck save that amount first and then spend what is left. This ensures you are contributing to your savings so that your paycheck doesn’t always evaporate and transform into new clothes and the latest iPhone.
Once you have this habit of saving you can easily start taking a portion of your savings to invest regularly and begin growing your investment account.
2. Pick a strategy and stick with it
A lot of times, people struggle to decide on what to invest in. It can certainly be a daunting task with all of the stock, funds and cryptocurrencies that are out there these days.
When it comes to investing, it seems that in most cases it’s best to form a simple strategy and stick with it. For example, if you started investing right now and decided that you were going to invest $100 each month in the S&P 500 ETF and stick with that, you’d end up having $210,000 after 30 years.
That sounds great but you may wonder how that’s possible considering that contributing $100 a month for 30 years only gets you to $36,000. This is because, historically, the S&P 500 has had an average annualized return of 10.49% over the past 95 years. Having your money invested gives it the opportunity to grow and, according to historical trends, if you invest in the S&P 500 your money will grow by 10% each year on average. This results in the additional $174,000 of interest you would earn in the above scenario.
As you can see, investing can be simple. In the above scenario all we needed to do was regularly invest in one ETF and we could earn $174,000 worth of passive income over 30 years. Plus, investing in the S&P 500 ETF is great because it automatically diversifies your investments. The S&P 500 is comprised of the largest 500 companies on the United States Stock Exchange. So when you invest $100 each month into the S&P 500 ETF you are actually investing in 500 different companies which can help mitigate a lot of risk. This reinforces my point. Pick a strategy and stick with it.
3. Let. It. Grow.
The last, yet most important thing to know. Let. It. Grow. If you think this motto is a play on words from the hit song from Disney’s Frozen, you may be right. Jokes aside, successful investing is a long game. Investing isn’t meant to be a quick and easy way to get rich. It is meant to be an amazing way to build long term wealth. The sooner you can start investing, the better.
In our S&P 500 investing strategy, if you take the same strategy but invest for 40 years instead of 30, you’d end up with $564,000 instead of $210,000. You only will have contributed another $12,000 but you will gained an additional $342,000 of passive income over those extra ten years.
Better yet, if you can invest for 50 years instead of 30, you’d end up with $1,483,000. You’d be a millionaire!
Let me reiterate once more. Let. It. Grow. Your future self will thank you.
Thanks for reading! Please feel free to leave a comment or reach out if you have questions, critiques or just want to connect!
-Cam
