One of the greatest things about investing is that no matter your prior experience, track record, performance, or stellar on-the-ball predictions, everything can and most likely will go out the window in the future. It wonât matter.
The markets arenât a formula or have 1 solution. They are unpredictable. As investors, we all sign up for this. Itâs called volatility, riding the waves.
Every day in the markets is a new day. Prior experience does not indicate future results. Fortunately or unfortunately you must digest whatâs out there at the moment since yesterdayâs performance, earrings results, and news reports may be irrelevant compared to the stories that come out today. You can make it grueling or enjoyable all dependent on your level of patience.
As a rule of thumb, sticking to fundamentals and earnings reports will put you in the safe park with defensible blue-chip large caps, but as always, thereâs no guarantee. Welcome to the school of life.
For investment sake, a prudent investor always keeps these in mind:
-Past performance is not indicative of future results
-Risk whatever you are willing to loose
-Sleep on it
-Never fight the Fed
-Donât confuse brains with a bull market
-Plan for the worst, hope for the best
-Nothing lasts forever
-Never equate emotions to decisions
-Read less and predict more or the other way around
I made up the last one. Sometimes too much information can actually derail you from thinking clearly i.e. information overload. Ever study too hard for a test and remember less?
Observe Chris Camilloâs genius strategy (link article) who simply observes teenagers and the next generaiton of investors and world leaders, my generation on what they enjoy, use, and are obsessed with. By observing everyday peopleâs habits, it will provide you a pretty decent indicator on the next revolutionary initiative and booming asset class that will âshoot to the moonâ and actually stay there, better than anything the WSJ can report on. Strong valuations, moderate P/E earnings, balanced profit margin, and earnings estimates are vital but if you donât know what you are investing in or venturing out, then you are missing out. The great news is that listening to what consumers cling to can be done all for free and investing only requires a few dollars on the side.
It is recommended to hold onto an individual stock or diversified low-cost ETF, which is much easier to do for at least 5 years, otherwise dealing with the tax liability of short-term income tax is not worth it. Sadly, most investors, especially newcomers whoâre witnessing a bear market for the first time in 2022, engage in panic selling with their short-term gratification get rich quick scheme mentality. Too bad since they can profit the most following the long-term approach with the longest time horizon. Good things come to those who wait especially since the markets go up over time!
In a sense, it is an entirely emotional game but utilizing your own emotions will make it a pit fire. Currently, as we speak, this has been the worst start to the new year for markets EVER. Major indexes such as the Dow to Nasdaq-100 and S&P 500 are down collectively 7â17%. Mortgage rates are at their highest point since pre-pandemic at roughly ~3.7% for a 30-year mortgage and the 10 year Treasury yield rose to ~1.7%. Markets specifically volatile assets from crypto to high flying tech and meme stocks have been on a rollercoaster ride attempting to unpack the latest uncertainty with geopolitical tensions between Russia and NATO, hyperinflation, interest rates, supply chain constraints, Chinaâs control over Taiwan, and Iâll just put it in here since it must be affecting someone, Tom Bradyâs retirement announced today. Emotions are a natural part of investing but we want to let them go when it comes to our money moves.
101000
Since the institutional education system doesnât seem to prioritize personal finance or mental health, as much as students would like them to, I needed to teach myself investing 101 and personal finance as soon as I could in middle school. I was fortunate enough to have my parents who immigrated from Poland open up a Roth IRA and 529 College Savings as soon as I was born so I could contribute my earned income to my Roth as soon as 15 when I started working as a tennis coach, model, and tutor. It was worthwhile, certainly not worth my time for $10 an hour at minimum wage but it was understood since I was below the working-age anyway. Getting out there and experiencing real life was taught me the best lessons, especially money-wise.
Until I started investing and keeping up with the markets I learned it is an extremely macho-dominated opaque confusing world. Itâs hard to trust anyone since everyone will only state their wins never losses! No wonder half of America isnât financially literate nor can handle their finances properly. There was a study that came out the other day that found 90% of Americans surveyed cry whenever they have to confront their finances. Despite the number of resources, outlets, teachers, blogs, platforms, guides, Reddit forums, and Jim Cramers, Americans still seem to have difficulty with crossing that hurdle and confronting the reality, the most important yet nervous part of their lives: their nest egg. No wonder the national savings rate soared close to 50% at the start of the pandemic! Americans had no other choice than to safeguard themselves, stop spending, each Ramen, or go evicted with no readily available capital preservation strategy onboard. It is frightening how many people have less than $1k in savings. Prepare for the worst hope for the best is the most crucial lesson. Jan 2022 has taught us that big time.
One of the greatest pieces of advice I can tell you as a novice investor is to block out the noise and invest passively over time. Do not poor a lump sum or windfall and over-index that has a 10% chance of becoming the next unicorn.
Time is on your side. Itâs better now than later. If you are younger than me, 21, I urge you to run not walk to a brokerage platform. Open up that credit card if you havenât done so already to start building credit and invest as much as you can out of your paycheck or savings. Your 80-year-old retiree self will be proud. I cannot even fathom how high inflation will be in 2080. Letâs focus on the present, shall we?
All you have to do is log on online to a reputable FDIC-insured investment platform/brokerage with a decently sized AUM holding and one that serves a variety of clients from institutions to families and open a brokerage and Roth IRA account from there. I would advise to ditch the phone whenever investing or paying for something for that matter. It saves you money in the end. Trust me. Itâs all psychological.
Once social media and investing went to mobile, mental sanity and bank accounts went bust. Once they are created, deposit as much of your paycheck as possible, aggreisvley save and invest, max out your Roth IRA accounts and once you start working, contribute to your tax advantageous accounts. It may be hard to save more than 20% of your earnings starting out but it will surely increase as you go. Whatever discretionary income youâve got, reinvest it. It will pay dividends for a lifetime, far longer than that Chanel bag. The rest should be invested in yourself, through education, personal finance, and health. Health = wealth after all.
Logical Reasoning
Personal finance and investing arenât just for stat majors or physic enthusiasts, it is for everyone. No matter what you study or industry you work in, money is a part of your life forever. It doesnât have to control you if you control it by investing in yourself and becoming involved in the continuous process. Time in the markets beats timing the markets. Please donât strive to be a full-time day trader and predict the markets. 80%+ of day traders lose at least 35% of their capital invested! You will lose more money conducting technical analysis and charting stocks than consistently saving, investing, less rebalancing, and observing. It will serve your time and mental sanity as well.
The most advanced mathematics you will witness within basic investing and in the markets is algebra, percentages, and sometimes, rarely fractions. Iâm sure you can handle it. If you want to risk your chances for loss and dive into derivates, options, and forwards, be my guest but they come with added risk, higher barriers, and less guaranteed return. To understand the fundamentals and valuations behind the P/E ratio, EPS, debt to equity ratio, market cap, itâs all listed online. My go-to source for quick facts is Yahoo or CNBC.
To be an investor means you are simple, practical, basic, and stick to what you know. You arenât here to impress anyone. You can do that with your materialistic goods if you truly desire. Just expect to waste money and drain your self-esteem in the process.
In fact, if you do have a portfolio manager to consult, remember to take advantage of every penny you are giving up through expense ratios. Most of the time, you arenât just paying for portfolio allocation, monitoring, and management, it is for advice and endless check-ins. This is your money on the line. If you arenât pleased with the service and simply give away your money and let someone with more experience and qualifications who does this full-time, it is in your best interest to keep in touch with them. Anyone can learn to invest. Thereâs no crystal ball. Just because we are paying someone to manage it doesnât mean they will earn us a 20% return or anything at all! Most of the time the wealthiest people on earth still have portfolio managers not becuase they arenât able to invest themselves itâs rather becuase they donât want to deal with the mental battle or arenât in the space at all nor like investing! It is too emotionally draining for them that they believe a stable unbias somewhat unemotional manager will save their money better than they ever can. Everyone has different priorities with working with an advisor and within that practice, make sure you know what you are paying for. Expense ratios are charged as a percentage of your invested amount, AUM each year whether you had a negative or positive one.
Itâs all luck-based, a manager provides some sort of comfort and experience positioning your money in the best places their team of traders recommend but it doesnât guarantee anything.
If you canât handle fractions, your portfolio advisor can always trim your losses for you, rebalance, and punch in all the trades for you. Itâs easier than ever to execute a trade. No thinking involved. If you want to buy 10k shares for $5, the system will now automatically tell you if you have enough funds to cover it or not. No more guessing or calculating based on share price and funds available. If you are old school, I guess you can call them too. The democratization of finance is happening folks! The markets are waiting for everyone, even the non-tech-savvy or mathematically gifted to join.
Donât overcomplicate your finances. It is your balance sheet: assetsâââliabilities = net-worth. Stay diversified, prepared, and invest in what you understand and believe will help down the road. Focus on what you can control and enoy the process. This is an investment in your future.
Investing which provides portfolio income is an alternative source of income that you shouldnât be fully reliant on a.k.a day trader mode. It should provide a stable cushion to increase the quality of your life later on once you decide to eventually cash out, the point where it stings the most. Strive to have at least 5â10 passive income sources, one of which is portoflio income and the rest from eared income, main job or several side-hsutles, and business income through a tax-efficient busines, rental property, blog, YouTube channel, LLC, partnership, cash burning website, you name it, if you own it, consider it a busines, and as a business, you can depreciate business-related expenses as it appreciates. Thatâs not available with personal gross income, only net income= revenueâââexpenses where expenses are tax-deductible within a business. No wonder 60%+ of Americans donât pay taxes. They all own businesses!
Welcome to the way financial freedom and flexibility is really made. You donât have to be a CEO of a Forutne 500 company or over-priced VC-backed unicorn to be wealthy. Youâll be surprised how many plumbers, electricians, contractors, etc. âdirty jobsâ live in Greenwich or Fifth Ave. The dirty, hidden, quiet meaningful jobs pay just as well if you structure them right. Thatâs the ultimate key.
Living a rich not wealthy life starts with upgrading your income not expenses and being completely focused for the next few years or decades or for however long you make it take. Itâs not about how much you earn, rather how much you keep. What if it was as easy as not quitting? Itâs disappointing how many people quit too early due to boredom and lack of patience or diligence. Donât be one of them and start investing now or never. The best time to invest is today, the worst time is tomorrow. Go get after it.