What Is "Investing" and How Can I Participate?
First things first, if you want to build wealth and you aren't 7 feet tall with a sweet jump-shot or a square-jawed Hollywood big shot, you need to invest.
"Invest in what?" you might ask.
Anything you anticipate will hold increased future value.
I will admit, a great majority of the time--probably 90 to 95% of the time--when you hear about investing it revolves around either the stock market or real estate.
A distant third to the stock market and real estate is likely small business investment or entrepreneurship.
Technically, you can invest in anything. Not all investments are not created equal.
Hey, just because a pile of empty cigarette cartons presently holds little to no value, there is no guarantee that it will never hold value. Who knows, all you need is one person willing and able to purchase those empty boxes at a premium and you may be closer to financial independence than you realize.
The reason the above cigarette carton scheme this is a terrible investment example is because these cartons hold no present value and likely will hold no future value either.
If you purchase something and you do not reasonably expect it to be worth more in the future than it is at your purchase price, then you are probably making a poor investment.
Please, don't let me stop you from purchasing a dump-truck of empty cigarette cartons however.
If You Know You Need to Invest For Wealth, Where Does One Start?
Educate yourself. Read, study, and immerse yourself in money management, investing, and personal finance.
I am not saying be the next Warren Buffet and read financial statements all day for the next 80 years, but educating yourself would be a good place to start.
The two most common investment options, both with fairly small barriers to entry, are investing in the stock market or real estate.
How Do You Invest in the Stock Market?
You actually have many options. The primary options are through any of the following accounts:
So investing in the stock market is pretty simple. If you are interested in investing outside of retirement accounts, you can check out either Fidelity or Vanguard (or any other brokerage -- just make sure they are low cost to maintain an account).
If you want the simples investing strategy, look no further than index funds. Pick whatever you want but I personally use these:
You can definitely invest yourself and you will find that you will save a ton of money on expenses this way.
It's pretty simple, if you are younger, consider having at least 75% in stocks and 25% or less in bonds. As you get older, you want to adjust to less stocks and more bonds.
If you have any trouble figuring out how to purchase stocks/index funds, just call their toll-free number and ask how to purchase these in your account.
If You Started Investing In The Stock Market, What's Next?
"Set it and forget it".
My preference is to just keep adding money, whenever I am able, over time to the same funds that I originally purchased. My plan is to do this year after year until I am ready to start withdrawing this money which will be when I no longer need to work for money and can live off investment income.
Please, do not worry about timing the market. Do not worry about crashes. Do not worry about corrections. Just invest in low cost index funds for life and allow your money to compound over time.
Do not listen to any snake oil salesmen who can tell you they have "insider information". Guess what, they don't. Their "pick of the week" and "insider information" has never historically proven to be accurate. Consider that almost every single long term investment advisor has failed to even match the returns of the S&P 500. That's why I choose to invest in index funds to allow me to match the S&P 500 thereby beating 95% of all professional investment advisors.
What About Real Estate?
I have not personally began investing in real estate as of 2020, but I expect that to change over time.
One of the best real estate investment books I have read is How to Buy and Sell Real Estate for Financial Freedom by James and JW Hicks.
The two most common real estate investment strategies are:
These two strategies oppose one another greatly. Long-term rental strategies are geared for those looking for many years of residual rental income and who do not mind either managing the properties themselves or paying somebody else to do it.
"Fix and Flip" is exactly what it sounds like. Buy a crappy place for cheap, fix it up either yourself or with low cost contractors, and sell it for a profit after factoring in expenses to fix it up.
Regardless of how you start investing, whether it be real estate, stocks, or otherwise, you need to get your money working for you as early in life as possible.
If you are hoping to land the $500,000 salary or win the lottery I hate to break it to you, chances are you never will. Please let me know when you do and I will be the first to congratulate your windfall.
The most assured way to generate signficant long-term wealth is saving and investing. Boring? Maybe. But you can laugh your way to the bank someday when you are counting all the zeros behind a big number in your investment accounts.
Dr. Jon is a physical therapist by day, and a dedicated frugalist by night, deeply enthralled in the thrill of "pinching pennies" and investing the margin.