Today we have Garrett Philbin joining us. He’s a Money Coach at Be Awesome, Not Broke and he’s here to give us investment tips. Enjoy this advice and if you have any questions please feel free to leave them in the comments section below. Garrett will be happy to answer any questions you have about investing or money management.
What if I told you that you could be a better investor than approximately 99% of “professionals” that get paid to invest your money?
Would that blow your mind? Would that leave you incredulous? Would you call me a liar? Well, it’s true. So get over it sour-puss.
“How the heck is that possible” say you? Isn’t investing supposed to be hard? Isn’t that why we pay people to do it for us?
Nope, that’s just BS that we’ve been lead to believe by the financial industry. Yes – investing back 30 years ago used to be hard for an individual. But we now have all of the tools we need at our disposal to be as good OR BETTER than people who say they should be paid to manage your money.
So – how do you “not suck at investing”, and be better than almost every professional investor out there? Here are three tips to get it done:
#1 Don’t try and beat the market – BE the market
When a lot of normal people think about investing, they think about picking individual stocks. You may have bought apple stock 8 years ago and made a killing. Or you may think “Netflix is killing it right now, I should invest in them because streaming is only going to get bigger!”
The problem with this approach is that it’s a losing one. You may think that you can pick a winner, but science shows that you can’t. Nobody can. If you want proof, please read this article. Or this one. Trust me (and science) on this one – do not pick individual stocks unless you are using money you don’t care to lose.
What can you do if you shouldn’t buy individual stocks? Well, thanks to technology, you can now invest in the entire stock market using Index funds. These are funds that allow you to own an entire section of either an industry or the actual stock market!
Why is this a good thing? Because it helps to spread out your risk. if you put all your money in Apple and it suddenly tanks, then that was a very poor decision. But if you have money in every stock in the stock market and Apple goes down, then only your little bit of Apple is in trouble. And you don’t have a heart attack
While not picking individual stocks and spreading out your risk is super important, there is another piece that is EQUALLY as important. It’s going to test your emotional resolve, but you will have to stay strong! It’s the idea of Set it & forget it.
Set it & forget it – don’t time the market
Human beings are confident beasts. To a fault we naturally believe that as individuals, we are better than other people at most things. For example, a survey showed that 93% of American drivers thought themselves to be in the top 50% for driving ability. I’m no math whiz, but I don’t think 93% of people can actually be in the top 50%. Maybe that’s why we as Americans are ranked 31st in the world in Math (Damn you Estonia and Hungary).
This sense of overconfidence also translates to investing, where people think they can “time the market”, and pick the right stock at the right time.
The problem with this approach is unfortunately that it’s wrong. Thinking that you can time the market is the same as believing that you can predict the future. And unless you have special powers that I don’t know about, that ain’t going to happen.
Here’s what it costs us. Over the past 30 years the S&P 500 has averaged 11%. However, individual investors have averaged just 3.7% over that same time! The reason? People taking out their money when they shouldn’t, because they think they can time the market. Which they can’t.
So please do yourself a favor and don’t try and outsmart the market. Future you will thank you.
Fees are for suckers
The third and final tip for “How To Not Suck at Investing” is that fees are for suckers. Seriously.
They may not seem like a big deal, but the difference between paying a 1% fee, 2% fee or NO FEE on your investments is huge over a long period of time.
For example, let’s pretend we start with $20k to invest, it grows over 40 years at an interest rate of 8%. You know what the difference would be between paying no fees, a 1% fee and a 2% fee?
Let me save you the math trouble. If you paid no fees on the $20k over 40 years, you’d end up with $905,000 dollars! Otherwise known as a fair amount of money. You retire happily and do lots of things on beaches and boats.
Now what happens if you were to pay one little percentage point in fees? That $900k becomes $628k – a $270,000 difference! Fewer beaches and fewer boats.
And if you paid 2% in fees? You don’t even want to know. But as your financial friend, I’ll tell you anyway. You would have $470,000 fewer dollars compared to paying no fees. WHAT THE FRENCH TOAST?! That’s insane! Here you would end up with just $434,000 – half of what you would have made in the zero fee scenario.
If there’s one thing for you to take away, let it be this – FEES ARE FOR SUCKERS! And only by keeping them low can you not suck at investing.
So, if you remember those three things – Don’t beat the market – BE the market, Set it & forget it, and that Fees are for suckers – you will be better off than 99% of people out there. You can be the 1%. Boom!