How To Invest: Intro (Or Why You SHOULD Invest)
Hello dear,
Gee, it is SCORCHING HOT outside!!!
As you know, I’m not a big fan of using the AC all day.
However, the heat gets very annoying when I try to sleep at night (covered in sweat, yuk).
Unfortunately, my AC happened to break during the hottest week of the year (and won’t be fixed until next week).
I ordered a small fan. But better yet, a friend of mine gave me a great tip! Which I decided to share for those of you in my predicament.
If you don’t want to/ can’t use the AC, here’s a handy tip:
Soak a cotton shirt in cold water and wear it.
I did it yesterday during the day, I did it last night before sleeping.
It works amazingly well (and, due to the current inferno, the shirt will be completely dry after a few hours).
You’re welcome!
Anyways, onto today’s letter.
This is the first letter where I’ll talk about investing.
I’ll focus on why you should invest.
If you’re someone who’s afraid of investing or doesn’t trust the stock market, it’s understandable.
However, that can be a very costly mistake. Hopefully, this letter will help you change your mind.
Onward.
Why Don’t You Invest?
If you were born between the years 1980 to 2000, the word in vogue for you (well, us) is millennial.
As it turns out, according to this Harris poll, 4 in 5 (79%) of millennials are not currently investing in the stock market.
What?! That’s a huge number!
“Oh that’s because they have a lot of student debt.”
Nope. Only 13% said the reason is because they’re still paying off student debt.
So, what are some reasons people wouldn’t invest in the stock market? Let’s look at five possibilities and address them:
1. I don’t trust Wall Street
This is probably the most understandable reason of all.
It is no wonder most millennials don’t trust Wall Street. Not only have they watched Scorsese’s movie “Wolf of Wall Street,” they also had a first-class seat to the debacle that was the 2008 financial crisis.
Still, not investing is a big mistake.
Even more, it’s a mistake we’ve seen before. Chances are your great grandparents did the same thing.
After WWI, the stock market roared during the 1920's and people were making a lot of money (if you’ve read Fitzgerald’s “The Great Gatsby”, you know what I’m talking about). That was until the 1930's brought the Great Depression, followed by WWII.
If you made a lot of money during the 1920’s, you lost it all during the 1930's.
It is no wonder most people back then (like today), didn’t want to go anywhere near stocks!
“Why is this a mistake?”
Because they missed out on huge opportunities.
Even so, a small group took advantage of those opportunities and became extremely rich.
Take the example of Sir John Templeton. During the Great Depression, most people were selling their stocks. Going against the grain, he decided to buy! To be exact, he bought 100 shares of each NYSE (New York Stock Exchange) listed company which was selling for less than $1 a share.
“Did he make his money back?”
Many times over. Not only that, later on he became a billionaire.
“The best opportunities come in times of maximum pessimism.” — Sir John Templeton
Meanwhile, all the people who decided to stay away from stocks missed out on the huge opportunities right in front of them!
Nowadays, 79% of millennials are probably committing the same mistake.
Remember, if you decide not to think about investing, that is a decision in investing.
It doesn’t matter whether you trust Wall Street or not. The economy is a machine, you need to learn to take advantage of it.
2. I don’t know how to invest
Luckily for you, that is what this series is for!
Investing is simply allocating resources to improve your quality of life.
There is no magic formula (and anyone selling you one is likely a charlatan). It simply takes time.
The best way to invest is to be in it for the long-run. This will greatly reduce risk and increase your chances of having a great retirement.
We’ll talk about it more in the upcoming weeks.
“Risk comes from not knowing what you’re doing.” — Warren Buffett
3. I’d rather keep it all in cash
This is a terrible, terrible strategy for the long-run.
Why? Inflation.
Don’t forget, in the US inflation rate averaged 3.28% every year from 1914 to 2017.
A $5 cup of coffee today cost $0.20 in 1913 (you can play with the numbers here).
Please, don’t stuff all your money under your mattress. That is a terrible decision.
4. I don’t have enough money
Well, if you’re one of the Americans who spends (on average) $300 on lottery tickets, you’re not helping yourself.
Luckily, we’ve talked about all this before.
If you don’t have enough money to invest, pay off your debt and start saving (luckily, I wrote a whole series talking about just that).
5. Life is short, I’d rather spend my money (#yolo)
Precisely because life is so short, it is a terrible mistake to instantly spend the money you earn.
Why? It’s the surest way to guarantee you’ll never stop working.
A much better strategy is to have the money you earn multiply. That way, you can spend more in the future (without having to work for it, your money will work for you).
Remember, one of the things most millionaires have in common is several streams of income.
If you want to be wealthy during this short life, your best bet is to become an owner, not a consumer (stop buying the company products, own their stocks).
Besides, investments are a better source of income than a job.
“Huh? That makes no sense.”
Sure it does. If for some reason you need to change anything, it is much easier to change investments than it is to change jobs.
And that’s it for today!
Today, we learned why it’s a terrible idea not to invest. We took the most common excuses and saw why none of them are good.
Sidenote: If you have any other reason why you’re not investing, I’d love to hear it. Maybe I missed something. After all, 79% of millennials not investing is a big number. It is very likely five reasons isn’t enough to explain this phenomenon.
See you next week (follow the series here to be notified).
Be well.
R
Since I write about finance, legal jargon is obligatory (because the guys in suits made me). Before following any of my advice, read this disclaimer.
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