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Aug 21

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Invest in yourself

Every time the con­ver­sa­tion turns to invest­ing, it seems the ques­tion turns up…

What should I invest in?

The plain and sim­ple answer to that ques­tion is, yourself.

I don’t mean to be flip­pant about it, but let’s look at real­ity here…who knows you bet­ter than your­self? Even if you told me about your sav­ings, your job, what you think is your risk tol­er­ance, spend­ing needs, num­ber of kids, what your inter­ests are, etc. I still won’t be you. I don’t know you any­where close to how well you know you, and I never will…no one will, and each per­son is different.

When I looked into “invest­ment advi­sors” I see cookie cut­ters. If they answer “a” to ques­tion one, have them buy “XYZ”. I think it’s a good rea­son why peo­ple gen­er­ally get lousy invest­ment advice. Remem­ber, “invest­ment advi­sors” don’t get paid by per­for­mance, they are sales guys who get paid to get your money, and good sales guys will say any­thing. Every year I get “invest­ment advi­sors” telling me what I’m doing is wrong, but when they look at my returns com­pared to theirs, they can’t match them. Even still they want me to get them to take over my portfolio…like pay­ing some­one to do worse is a bet­ter option. They thrive on the lazy, scared investor.

I’m not an invest­ment advi­sor, legally I can’t give you rec­om­men­da­tions on where you should put your money, and I wouldn’t want to any­way, since I’m not you. Every­thing you buy has risk, some are larger and some are smaller, and no two peo­ple will every agree on the level of risk to begin with, only his­tory will bear it out.

When I started invest­ing, I knew noth­ing about stocks, bonds, mutual funds, real estate, run­ning a busi­ness, or even much about savings…spending I was quite good at though. What did I go out and do first? How did I start mak­ing money?

I started by read­ing. I read any­thing I could on dif­fer­ent types of invest­ing. Now, just because I read it, didn’t mean I believed it all. I started to think about what I read, com­pared it to what oth­ers had writ­ten on the sub­ject. Too many peo­ple tend to read just one book or arti­cle and think they’ve done enough research, don’t be one of them. Even­tu­ally, I started to form an opin­ion about my invest­ment strat­egy. I had an idea on what would work for me…it may have been wrong for oth­ers, but it felt right for me. At this point, you need to Pull the Trig­ger, and avoid Analy­sis Paral­y­sis.

This is the scary part, if things go wrong, it can turn you off invest­ing forever…There are mil­lions of US home­own­ers who bought before 2008, for exam­ple, who may never buy a house again. There are many “investors” who bought days before a melt­down who will never trust the mar­kets again…

How­ever, if things go right, you slowly build con­fi­dence. You’ll dis­cover that it’s not that hard. There will be bumps in the road, you may need to adjust your strat­egy, but since you are in con­trol, you can be sure you have your inter­ests at heart, unlike the “invest­ment advi­sors” who get paid regardless.

Funny, invest­ing isn’t all that dif­fi­cult, but we’ve been taught all our lives that there is some sort of voodoo involved, some “rocket sci­ence” that no mere mor­tal can mas­ter, yet the indus­try is mainly dom­i­nated by salesmen.

There are many areas in which you can invest, and not every­one is cut out to invest in all of them. Being a land­lord is not the same as own­ing stocks. Buy­ing high risk, is not the same as buy­ing con­ser­v­a­tive. If your net worth is low, invest­ing is dif­fer­ent than if your net worth is high. What works for me, may not work for you…

In gen­eral, here are things to consider:

  1. Earn­ing 6% return is the min­i­mum you need in inter­est income to keep up with the posted rate of infla­tion. Inter­est income is gen­er­ally taxed at about 50% which means you only get to keep 3%, the aver­age rate of infla­tion that the gov­ern­ment tells us is hap­pen­ing (per­son­ally, I think infla­tion is a lot higher based on the prices I actu­ally have been pay­ing over the years, but the gov­ern­ment keeps chang­ing the for­mula to keep the num­bers lower). If you earn less than 6%, you are los­ing money on a year over year basis, unless you can defer the taxes.
  2. You want to defer taxes as much as pos­si­ble. If you never sell an asset, you don’t have to pay taxes on it. If you want to “day trade” do it in a TFSA where you won’t be taxed. If you have a “buy and hold” strat­egy, it can be done out­side of a TFSA. One thing to remem­ber how­ever, until you sell, all your money is just on paper. Money in your pocket is some­times bet­ter than a piece of paper that says you have money.
  3. No one will ever care about your sit­u­a­tion more than you do. Hav­ing lost my income, and being broke was a great moti­va­tor for me to learn to make pas­sive income. It helped me develop my “no to low risk” strat­egy which has served me well over the years. Is it the best strat­egy out there? For me, it is, for oth­ers prob­a­bly not.
  4. Noth­ing in invest­ing is as hard as peo­ple make it out to be. When it comes down to it, invest­ing is just guess­ing what is good and what is not. The com­plex for­mu­las out there look­ing for pat­terns are just fancy ways of try­ing to guess bet­ter than oth­ers. No one knows the future, no one will be right all the time…but if you think a com­pany pro­duces crappy prod­ucts that no one uses, chances are oth­ers do as well and the com­pany will even­tu­ally go broke. That’s a good indi­ca­tion you shouldn’t invest in it. If the com­pany pro­duces good stuff, every­one likes, and isn’t expen­sive chances are it’s a good invest­ment. If a build­ing is falling down in a bad neigh­bour­hood. is expen­sive and you don’t have the money to fix it, it’s prob­a­bly not a good investment.
  5. Don’t become obsessed. When I first started learn­ing, I read a lot. Even­tu­ally, it got to the point where I was think­ing about it all the time, I even dreamed about it…that was a sign for me to stop for a while. I went cold turkey, didn’t read about finances or invest­ing for sev­eral months. Extreme behav­iours are never a good thing. If you catch your­self get­ting obsessed, walk away for a bit.
  6. Don’t spend money you need. Invest­ing, no mat­ter how you look at it is still a risk. Con­sider any money you invest as spent money, just like if you’d bought a meal. It’s gone. THat way, if it really does dis­ap­pear, you won’t be in trou­ble. If it does well, you’ll get a pleas­ant surprise.
  7. Don’t watch your invest­ment. This is a tough one for begin­ners, but once you buy some­thing don’t look at it’s “value” very often (unless you are day trad­ing). Invest­ing these days is like rid­ing a roller coaster, and invest­ing is not a place to be swayed by sud­den shifts.
  8. Don’t be lazy. No one else cares if you get rich, unless they want you to lend them money per­ma­nently. I write these arti­cles and my book to teach you how to invest, but I can’t make you do it, you have to be the one to pull the trig­ger. If you have some­one else invest for you, remem­ber they are inter­ested in mak­ing them­selves rich first, if you get money as well that’s nice, but not their motivation.
  9. Any­thing is possible.

Les­son: If you want to start invest­ing, start learn­ing about invest­ing. Read dif­fer­ent points of view and develop your own strat­egy. Adjust your strat­egy as required, and be com­fort­able with it. No one else can ever be you, so you need to set your own agenda.

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