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:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.