In order of importance:
-Start young. This cannot be overstated. An investors best ally is compound interest (or compound earnings) over time. Google the rule of 72.
-Study investing. My best investment education was in a college Finance class, where the instructor taught us how to read the financial pages in the paper, and later, how to read a financial statement. It stimulated me to learn much more. This is investing in yourself.
-Understand risk versus return vs time. Young investors should take on more risk, as they usually have less money to lose, and time to recover from any losses.
-Invest consistently, and invest until it hurts. I am not saying to not enjoy your life. I am saying to budget your expenditures so that you still invest. If you can't swing life's expenses, fun and investing then take on a second job, or find a way to improve yourself to improve your earnings.
-Understand that your investments will go up and they will go down, but over time they will go up. Don't bail out when your investments are down.
-Don’t spend more money than needed on depreciable assets (cars, boats, RV’s, etc). The money you don't spend can be invested.
-Don't spend your investment money until your working days are over. Then understand how much of it you can spend so that it lasts until your last days.
-Enjoy the fruits of your sacrifice and discipline! This is the stage of life I am in, and I am having a blast!
In terms of investing, I follow the principles of a community called FI/RE, which stands for Financial Independence and Retire Early. The goals of this community is to save and invest enough money at a young age to last you as you get older and through retirement. There are a number of books and even Reddit and Facebook groups on the topic. Most of which will advise you to start early and invest often even if it is with $5 per week. As you build your career, you can add more to your nest egg over time.
As you set aside money, you can invest in a number of ways. At your age, I wouldn’t recommend individual stocks just yet. I would look at funds called ETFs or index funds, which allow you to invest in groups of stocks like tech stocks or financial stocks. Investing in this way protects you from the ups and downs (or volatility) of single funds.
I would also recommend reading books on the topic. There are lots out there. As you get more sophisticated, then you can try different types of investing. My favorite books on investing are “The Richest Man in Babylon”, “Rich Dad Poor Dad”, and “Everyday Millionaires”. These books will teach you the basic and practical principles to investing so you can set realistic goals for yourself. To me that is the key, if you set the destination, then you can start to build the roadmap.
Regardless of your income, financial independence is possible. You’ve already taken the first step by seeking help. Best of luck to you!
Really nice question!!
You should always think of deriving maximum out of you money/assets. Let your money work for you. In short we should be able to fight inflation. Stay Market relevant. Your purchasing power should increase.
First of all try investing in different pools: Fixed income(Debt assets), Equity(market driven), Commodity trading etc.
If you consider Debt assets: You can top up your provident fund plan. In India, we are given flexibility to park our full basic salary in to provident fund which serves a good interest rate to fight inflation.
Invest in shares/ mutual funds/ commodities. But always try diversifying your funds in to different portfolios.
Invest in Real estates(eg. Land etc). Land appreciation is awesome.
Last but not the least. Invest in yourself, have varied skills etc.
Hi Jose, this is a great question. The most satisfying way to invest is in areas that appeal to you - this may be something that you know well, something familiar to your surroundings or to your family, or something you've never gotten to be a part of but which seems really interesting to you. What is most appealing may or may not have the best return, however. If you want to roadmap how to have a dayjob as an investor/daytrader, or how to be a self-employed type of investor or a venture capital professional, these are all different paths. In either case, having strong training (and experience!) in business is an excellent path. If you want to steer clear of questionable supply chains, global slave and quasi-slave trades in your investing (these trades yield higher returns and are still status quo, but are concerning to those who wish to make a return on investment (ROI) from ethical and supportive means), studying a frontline type of major such as a social science and then getting experience in front line service areas such as through Peace Corps, AmeriCorps, etc., before studying business or economics, would be a great mix. For example, I grew up outside the business setting but seeing and doing a great deal of social service that showed me how curiosity about someone's background was vital value to an organization. The global awards I have received since then are all thanks to that awareness, which not everyone who has had multiple business degrees but less exposure to the result of corporate business decisions (i.e. paying a non-living wage to service employees) has had the opportunity to see close up. It has helped me to make a lot of money for a lot of companies, and it has helped me to choose investments as well.
The bottom line is that the best investor tends to be someone who has logged quite a bit of experience in the world, with a very solid amount of that in business, and with a solid amount of that in "extra-curricular" areas that round out the knowledge base. There are other skill sets that differentiate different types of investors, but those two qualities tend to be the common denominators.
Lindsay recommends the following next steps:
I studied, I made mistakes, and I learned from it. I became a learning machine as Charlie Munger and Warren Buffett said.
Warren Buffett and Graham Dodd laid the ground work for intelligent investing. I practiced value investing and refined it to 24% returns for the last 10+ years.
Learning about an industry, company, and competitors
Learning about investment strategies can outperform the average return
Learning how to read and create financial statements
2. Start by reading about industries and companies you’re most familiar with.
Determine a business industry that is easy to understand. The easiest industries to learn are from your profession or products you purchase.
For example, an Apparel company has simple operations. Apparel makes clothes that offer branding value with unique design distinctions. The Apparel industry is a multi-billion-dollar opportunity, but it is a very competitive industry. Apparels can offer their goods in physical and/or digital distribution channels. One of my favorite Apparel business is Under Armour.
In the beginning, you will learn general facts and find interesting facts about a business. Ask critical questions because if you don’t have enough confidence in your research you could cost your total life savings. But don’t worry, this should be a fun process. It’s like finding the perfect ingredients for a recipe so that you have an enticing outcome!
Read everything you can on the company’s merchandise, management, and business risk. It may be tempting, but for now, let’s hold off on the financial statement. We should uncover the basics about the company first. Once you have learned about the company, the financial results will make sense.
Here are some initial questions I might ask about Under Armour:
Why is Under Amour (UA) a better investment than its competitors?
What makes UA better than other Apparel businesses?
Does UA have any patent on their clothes and shoes?
Who manufactures UA clothes?
Is there a contract, partnership from the manufacturer?
Why was this manufacturer selected?
Who are UA shipping partners?
Is UA shipping partner contract?
Why does UA have its own stores?
How many stores does UA have?
How many retail partnerships do they have?
Did Under Armour ship it from a warehouse, and which warehouse?
How did they decide to pick this warehouse?
Where were the clothes made?
Who designs UA’s clothes?
What is the designing strategy, are they into athleisure or not?
Who’s the design team leader, how long did they work at the firm?
Notice that I did not list any financial or math-related questions. The point of this exercise is to get familiar with the industry and business. As you are learning, there will be more financial jargons and it will get more confusing. Do not be discouraged. If it is confusing, you are learning.
3. While there are many investment strategies, the best strategy to get an above-average market return is to buy undervalued companies, which is called Value Investing.
Also, a value investing strategy provides a strong foundation for an investor to learn about other investment strategies. Value Investing is a popular strategy that created many billionaire investors, to name a few, notably Warren Buffet, Seth Klarman, and Bill Ackman.
What exactly is value investing?
Value investing is identifying companies with a current market price that is less than their intrinsic worth, which means the stock or company is “undervalued”.