Everyone’s guide to investing

” I want to create generational wealth; how do I get started?” A simple question. Still, I struggled to give a simple answer to people asking.

This post is my first attempt. Feel free to comment, ask questions or criticise. We need to make it sound for the benefit of all.

Before jumping in, let’s cover a few basics:

  • How to have a relevant guide for all, when we are all in different situations?  I’ll focus on key guidelines that should give everyone enough information to ask themselves the right questions to start investing. I am using a conservative scenario where you become a millionaire in 30 years, investing $80 per month initially.
  • This post is not financial advice. At best, it is a kick in the butt to get everyone in the right mindset to build wealth. I am not a financial advisor, I do not sell anything. Heck, I do not even pretend to be more intelligent than the average. And the great news is that average intelligence is all it takes to build wealth. You won’t become Warren Buffet rich, but you will become a millionaire.
  • Golden rule #1: Spend less than what you earn. Sounds obvious… but the stats do not lie… many people are in debt.
  • Golden rule #2: Maintain the same lifestyle even if your salary increases. I was not good at this rule initially. I failed any times at this rule. Every time I would make $1,000 more I would spend $1,500 more.

With this said. Let’s look at the steps:

  1. Save your first $1000
    • If you are in bad debt: Change your lifestyle! No point in making money through investments if you are spending more than you are earning. Making it real: if you save $80 per month, you will have $1000 in a year. At the same time, I recognize that this is not possible for everyone worldwide, but many could. Do whatever it takes. Move back in with your parents, cancel your Netflix subscription, listen to music with ads, stop buying Starbucks, cook instead of eating out, drive a Uber once a month, deliver food. You must first put money aside, forget about it, and spend only what is left.
    • Use the money to learn & invest. You need skin in the game. This is the best way to learn. Some may say, “I do not know what I am doing, I may lose the $1,000”. Well, you better figure out what you are doing soon, pay attention, and ensure you do not make twice the same mistakes.
      • I did something similar about 15 years ago. I invested in gold and silver. Here are the lessons I learned:
        • It is one thing to buy at the right time, but you are still losing if you do not sell at the right time.
        • Looking at the stock market every day, reading an article here and there, and making trading decisions based on that, is not a strategy. I would typically lose money on this type of move. Moreover, it took time, and it was stressful. 
        • Pay attention to fees. While there was some appreciation for the gold I owned, the service provider charged me a monthly fee. And it all adds up.
        • When something is hyped in the mainstream media, it is probably a bit late to invest. It certainly was the case with gold and silver when everyone started talking about it; soon after, the prices went down.
    • Before you can invest, you need a brokerage accountGoogle which one is best for you. Set it up, deposit the $1,000 on it. You will see a lot of terms that you do not understand. It is normal. Google all of them, and start learning!
    • What to invest in? My suggestion is to focus on a niche. Find something you know well, or you are interested in, or is aligned with your values. With $1,000, you do not need to diversify, you need to zoom in and learn about investing.
  2. Continue to save so you have $10,000. You could do it in 5 years. Continue investing, and while you are making more money, stick to rule #2, do not increase your spending.
    • Continue your learning and appreciate the power of diversification. Split the $10,000 between a few types of investments. Watch over time what happens. Which one went up, or down. Invest in multiple things to accelerate your learning.
    • After a few years, you will realize that some investments went down, while others went up. You may see that overall you have more money now than initially invested. You should know more about the type of investor you are. Can you sleep well at night when one of your investments is down 40%? Can you follow your strategy no matter what? No right or wrong here. Just be honest with what type of investor you are and adjust your plan.
  3. Save $100,000. If you follow the golden rule not to increase your spending while increasing your income, you could get there in 10 years by saving $375 per month. This is more savings than the majority of the population.
    • You may consider putting a deposit towards a property you will live in or that you want to rent. You may want to start a side hustle. You now have more options to invest in. Focus on learning and what passionates you.
  4. Another 10 years, and you have saved and invested $500,000. Do you notice how much quicker your money is working for you? It took 5 years to get from 0 to $10,000; 10 years to go from $10,000 to $100,000; and 10 years to go from $100,000 to half a million. You probably did not see it coming. By now, you may have a savings account, some passive income coming from a side hustle, your property increased in value, and the stock market probably has delivered on average 8% interest over the past 30 years.
    • If you have not been careful, like I was, you have too much of your wealth concentrated in 1 thing. Time to rebalance or ensure that you are still tracking against your strategy. One aspect I did not understand is if you had $50,000 invested in stocks and $50,000 invested in bonds, and that stocks increased fast over 10 years, you may end up with the majority of your wealth being over-concentrated in stocks even if you started with a well-balanced 50/50.
  5. Congratulations, you are now a millionaire. It took only 5 years from you half a million to get here. In 30 years you are a millionaire. This is what most people will never manage to achieve. You did it by starting to save $80 per month 😎. 
    • What is new? Nothing. By now, you know yourself. You are disciplined. You educated yourself over decades. You know what to do. You know that pundits on TV talking about recessions do not know much more than you… and even if they are right and the market dips, you know this is an opportunity to invest more and make even more money over the next few years.
    • One difference is where you are on your journey. Are you close to your set retirement age? If you want to retire at 50, and you are 47, and your target was to save $1M, it is time to slow down and invest your money in more conservative ways. Your goal should be to maintain your wealth, not aggressively building it. Are you ten years from your goal, and you want to retire with $3M? You have enough experience to understand if you should 1. stay the course 2. increase your return on investment 3. or already start to slow down.

Typical comments I hear from people:

  1. The market will go down soon. I will buy at the bottom. These people usually buy high and sell low. Nobody can time the market. Get this idea out of your head.
  2. Where do you find investments returning 8% to 10%? I was one of these people. It just seemed too good to be true. Well, it is true, and it is not that good. Some investors would prefer to pass on an 8% return on investment because there is much more to make. Basic assets tracking the US economy such as SPY500 has returned 15% over the past 10 years (it was an great 10 years period). This is available to everyone. There are no secrets to access it.
  3. I do not want to lose money. I prefer to put the money in a savings account. Understand that you are losing money when you set aside your savings at a 0.2% interest rate with your bank. You need to at least match the inflation rate to not lose money (it was 1.4% in the US in 2020)
  4. I heard that [insert name of an IG influencer] made [insert crazy high %] by investing in [insert latest online craze/scam]. All I would say is that even a broken clock gives the right time twice a day. Also, you may have found the next big thing. But do your research first. Educate yourself on the basics of investing, which have not changed in 100’s of years. Use that knowledge to drive your decision and understand how much risk you are ready to sign up for.

My goal is not to convince everyone. And I do not know what the future holds. I am sharing my experiences and want to debunk the ideas that building wealth is complicated or for others. I am sure that your average financial advisor will know less than you if you spend half a day googling the topic. It is all about consistency and not making the same mistake twice.