Investing is not hard. It requires confidence and a willingness and ability to take some risk, because investing in stocks is risky. But you also help yourself if you know or understand what you don’t know, because you can then take the time to educate yourself. This holds true in all areas of life, and especially when you invest.
Know what you don’t know … and keep learning
Learning to invest can involve learning the language of investing, keeping a track of your emotions when markets are volatile, and keeping the long-term view in mind. When you invest, you can make it as complicated as you want, or as simple as you want. Because you are a beginner, it is always better to keep investing simple.
KEEP IT SIMPLE
Investing can be simple. You need to figure out your goals when you invest. For the non-professional investor, the main goal is simple. You want to grow your wealth and beat inflation. See “Why do you want to invest in the stock market?” and “Inflation is the silent killer of your financial wealth.” You might have specific goals, but basically you want to grow your wealth. There is no benchmark for you to beat, nor do you have to pick individual stocks. See “You can try to beat the market, but do you really want to?”
You can grow your wealth and beat inflation simply by investing in a broad-based market index, like the S&P500 Index, saving you lots of time in the process. See “No time for research? Invest in an index.” You simply invest a set amount of funds every month into the stock market, via the index. See “Investing in ETFs and Index Funds,” “Set it and forget it” and “invest a set amount every month. This is called dollar-cost averaging.” And don’t interrupt the magic of compounding, as it does its work. See “Compounding is magical.” You can also elect to reinvest the dividends, which gives your wealth growth a boost. See “The components of stock market returns are two-fold” and “Putting your money in the stock market and reinvesting the dividends.” Check with a tax professional on the tax implications of doing so.
Once you do the above steps, that is it. You are on your way to growing your wealth. Also, it is very important that you have an investor mentality, see “I AM AN INVESTOR. Make it your mantra” and that you master your investing mindset “Master fear and greed and you are 90% there” and “the right mindset is the most important piece of the investing puzzle” because the stock market will be volatile in the short-term and it can be hard to ignore the news. See “You will be bombarded by news… take a step back.” Keep the long-term focus always. See “Overlook short-term volatility in favor of the long-term trend.”
That is it. And for the majority of beginners, this is all you need to grow your wealth. Of course, you should still educate yourself and know what you own. See “Keep learning even when you are invested” and “What is financial literacy?”
IF YOU WANT TO DELVE DEEPER, YOU CAN
That being said, you can also delve deeper into investing. There are other asset classes you can invest in, such as bonds, commodities, cryptocurrencies, real estate, etc. You can also invest in specific stocks, which involves a deeper and more detailed analysis of that company’s prospects and more active monitoring of that investment. Single stock investing is also riskier than index investing.
Of course, you can also have an additional portfolio of small bets in areas that you are thinking about investing in. See “If you are unsure about investing… have a portfolio of small bets that you can increase over time.” Any investment requires research, and while even index investing requires some research (which index will you invest in? One index or several?), the time needed for research increases substantially if you decide to invest in other asset classes and/or individual stocks. Especially for individual stocks, because there is a risk that investment could go to zero. After all, companies do go bankrupt. See “Do your research before you invest” and remember that “It is ok to say no to an investment.”
You have to “know what you own… so you can sleep soundly at night.” And if you “like a company’s product or service… see if it is public. Consider investing in it once you do the research.” And while “it is ok to have a portion of your portfolio “pie” in “fun” investments,” you must know what you are investing in. After all, would you buy a car or home without doing the research on it?
KNOW WHAT YOU DON’T KNOW
In both simple and more complex investing, you should know what you don’t know. That will make it easier and more efficient for you to learn more. Of course, this is easier said than done. Life is uncertain and you have to be comfortable with discomfort and facing the truth, however harsh it may be. You also have to stop procrastinating and you must ask yourself the hard questions. And be comfortable with the fact that it is ok not to know everything. It is far better to ask questions than pretend you know what you are doing.
“Asking questions is the first way to begin to change.” –unknown.
“To know what you know and what you do not know, that is true knowledge” –Confucius
“Knowing what you don’t know is more useful than being brilliant.” –Charlie Munger
“He who asks a question remains a fool for five minutes, he who does not ask remains a fool forever.” –unknown
“Successful people ask better questions, and as a result, they get better answers.” –Tony Robbins
“Better to ask a question than to remain ignorant.” -unknown
Key: Know what you don’t know … and keep learning
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Nothing in this email is intended to serve as financial or investment advice and you should do your own research and consult with appropriate advisors.