Before starting investing you have to be clear on why, how and how long you want to invest. Do you want to spend hours a week watching the news and trends, do you want to actively trade or do you want to set and forget? Put everything in at once or rather invest some every month?
How will you react when there is a recession or a crisis? Will you panic? Will you sell everything at the lowest point out of panic and buy back when it is higher? You have to be clear on that. It makes all the difference.
What can I say, I can put a picture of Wallstreet or whatever here but look at him! It’s Vladimir but two years ago!
Why do you want to invest? Some answers here could be: For my (early) retirement, for my kids, for rainy days, buying a house etcetera. Get really clear on why you want to invest. This way you have more focus on actually doing it. For me the answer is to save up for early retirement and to buy a homestead just outside the city.
How long do you want to invest? Don’t invest money you need soon. Only invest with money you don’t need. Yes I say that double because it is important. There will be times when the market goes up for a couple of years in a row but there will always be crisis waiting. We just don’t know when. If you need your investments when the market is very low, you have to sell when you are in loss. That would be sad and is not the point. Wait the crisis out. As long as you stay in the market your assets will go up again. Sometimes you have to sit it out a couple of years. Investing is for the long run. In 10, 15 or 20 years you will always be at a win if you invest in Exchange Traded Funds (ETFs). More on that later.
‘Compound interest is the eight wonder of the world. He who understands it, earns it… He who doesn’t, pays it.’
How much time do you want to spend investigating the market? This is a very personal thing. You can be an active trader. Beating the market would be cool and if you look at some forums it is achievable. It is persuasive but remember: people tell everybody about their wins but rarely about the losses. If you want to be an active trader, make sure to watch the world news, watch the different companies and read a lot of books about the topic. If you invest in companies, you have to get to know the company very well. Have an opinion and be prepared to win more than average, but at a greater risk to lose more than average as well. Active trading is time consuming.
Another option is to ‘set and forget’. Meaning you will put money in an index fund regularly (every month for example) and not look to time the market. I choose ETFs (index funds) with low fees and wide coverage of the market and I know my assets will go up with the market at the same pace (or down). This requires a lot less time, effort and knowledge. Average returns will be between 5-8% annually. This will vary every year but talking about the long run.
Do you put your money in all at once or over time? For me I do it over time. Every month I put what I have left in an index fund. I try and make that the same amount every month. This way I don’t need to time the market (although I try and look for the lowest point in that month). Remember: Time in the market beats timing the market. The earlier you are in, the better the results will be over time. Compound interest is real and you should let it work in your favor. Maybe if you inherited or otherwise found a large sum of money you would like to invest, you could do it at once but most people don’t regularly find themselves in that situation so we will go with every month.
Panic selling at a loss? If you panic sell because the digit turned red for you, maybe investing isn’t for you. The market is volatile, meaning it is going up and down all the time. You have to get used to it if you want to be an investor. This is why it is so important to only invest money you don’t need in the short term. If you need the money in the short term to pay bills and the numbers are down, you will panic. That is normal. We are investors because we don’t want to live paycheck to paycheck and we want to not worry about money anymore. We want to sleep safe and sound, doesn’t matter what the market is up to.
Conclusion: We want to invest for the future. This is personal but we all have dreams don’t we? So we invest for the long run and we don’t want to be on top of the economic news 24/7. Just set and forget. Ideal is putting money in every month and hold. That is what I will focus on here.
Till Next Time,
I am not a Financial advisor nor am I YOUR financial advisor. I am not a trained financial professional. This blog is for entertainment purposes only.