Investing is a major part of leading a healthy financial life.
It also should be the easiest part.
Despite all the attention, news, and marketing, investing doesn’t have to be complicated.
Investing simply means committing money now to earn a financial return later. This is why I refer to money I invest as Later Money.
To be honest, the most difficult part of investing is continuously generating money to invest in the first place.
The actual investing part is pretty easy.
That’s because when you invest the right way, your money should earn more money without much additional effort from you.
This is the best part about investing. Your money can (and should) grow over time without your active participation. This is why investment gains are often referred to as “passive income.”
If you are on a journey towards financial independence, you know how important passive income is. The best way to get your time back is to earn money passively through investments while you’re off doing something else.
We’ll soon learn why investing does not have to be complicated. If you can drown out the noise, all you’ll really need to do is regularly fund your investment accounts and watch your net worth slowly grow.
This is when personal finance starts to get really fun.
Investing is when personal finance starts getting really fun.
When you’ve invested the right way, your wealth will slowly multiply. You won’t notice it at first. Trust me, give it time.
You’ll soon see that all the effort you put into educating yourself about money was more than worth it.
No, you won’t be immune from market swings like the one we’re in right now.
But, you’ll be educated enough to not panic. You’ll know that time is on your side.
Have you noticed that we’re now 50 posts in and have hardly talked about investing?
There’s a reason we’ve hardly talked about investing in the first 50 posts of Think and Talk Money.
In order to get the benefits of investing, you need to have the right money mindset. That means knowing why you’re investing in the first place. Without the right motivation, you will struggle to consistently fund your accounts.
After all, when you invest, you are sacrificing money you could spend right now for the opportunity to spend even more later on. Without the right motivation, too many people put off, or give up on, investing altogether.
When they do that, they have a little more money to spend today. But, years from now, they will wonder why they’re still working so hard and don’t see an end it sight.
What is your motivation to invest?
Your motivation may be to reach financial independence so you can pivot directions in life. This is known as FIPE (Financial Independence, Pivot Early).
Your goal may be to pay for your kids’ college. One way to do that is to take advantage of 529 college savings plans.
You may not know exactly what you want down the road. That’s OK, too. Whatever it is, investing now will make it easier to pursue whatever that thing ends up being.
Once your mindset is in the right place, you’ll be more determined to craft a budget that consistently creates money to invest.
Think about it: would you rather be someone who invests $1,000 one time or someone who invests $1,000 every month?
If you practice solid personal finance fundamentals, you can be the person consistently investing to accomplish your ultimate life goals.
Too many people think personal finance is only about investing.
Too many people skip over the part where we learn strong personal finance habits. These people think that personal finance is only about investing.
I’m guessing you’re going to get a response like:
“Personal finance? Oh, yes. I need to learn that. I don’t know anything about the stock market.”
If I’m right, leave a comment below. This should be fun.
By the way, people that assume personal finance is only about investing are not bad people. They just haven’t been properly educated. Just like me when I set $93,000 on fire.
By now, you know that personal finance is about so much more than investing. You know that you need to develop strong habits so you constantly have money to invest in the first place.
And, you’ll soon learn that investing is really the easy part.
When you learn basic investing principles, like minimizing fees and playing the long game, your money can slowly grow over time.
As that happens, you move closer and closer to financial independence without much effort at all.
It’s actually pretty easy.
We’ll cover these basic principles in upcoming posts.
One thing we won’t discuss at Think and Talk Money is the latest hot stock tip.
If you want to study P/E ratios and company balance sheets in a quest for the best individual stocks, I won’t stop you.
I just won’t be joining you.
That’s because it’s very hard to pick winning stocks. Even the “experts” have a very hard time doing it consistently.
You don’t believe me, do you?
What if I told you that the vast majority of investment pros underperform the S&P 500?
Check this out from Yahoo! Finance:
Making matters worse is that the professionals, who the average investor might turn to for guidance, have poor track records. In the past decade, an alarming 85% of U.S.-based active fund managers underperformed the broader S&P 500. Those who invest in these funds are essentially paying for unsatisfactory results.
If the “pros” can’t beat typical market returns that are available on the cheap for all of us… why even play that game?
Why overcomplicate things?
Sure, maybe you’ll get lucky and your investment pro is one of the few who can beat the market. Odds are that if your pro beat the market one year, he probably won’t the next year.
If that’s your game, I wish you nothing but good fortune.
Personally, I’d rather do things the easy way. I’d rather focus on what I can control, like how much money I’m contributing to my investment accounts each month.
And, that brings us to an interesting point.
Even if you are working with a professional, you are not excused from participating in your investment journey. You still need to understand the basics.
Plus, while you may not be watching your portfolio closely, your job is always to make sure there is consistent money to be invested.
My guess (or is it hope?) is that your advisor has told you as much.
Investing is a major component of financial independence.
Whether you are striving for financial independence, or hoping to maintain it, investing is a major component.
To be a successful investor, you first need to practice strong financial habits.
Don’t worry. If your mind is in the right place, the investing part is actually pretty easy.
Leave a Reply