A Few Wise Words About Investments That I Wish I Had Realized A Long Time Ago
Many of us started out investing perhaps by directing our paycheck deferrals into our 401k accounts. Here we likely either chose the default mutual funds that were selected for us or played around and created our own portfolio. Many of us also tried our hand at individual stocks. When mainstream media was filled with day traders making millions many docs jumped in trying to make some money.
Many of my coworkers have no idea how to make a decision when it comes to investments. They don’t want to pay for financial adviser because they know how many of them out there scam-target docs. These docs are still putting money in their tax-deferred accounts but learning about investments is something that’s on a future ‘to-do’ list.
Picking a Sport is Like Picking an Investment Method
I am going to make the analogy that choosing investments is like choosing a mode of exercise in order to get healthy. One can do bicycling (stationary vs road), swimming, tennis, running, surfing or weightlifting. Obviously your first step is to choose one of these right? I mean how many patients do we see who are frustrated that they can’t lose weight but they aren’t even exercising? The next step is you have to stick with it and learn everything about it. For example in tennis you would learn that if you start getting really tired and sloppy you can hurt your shoulder serving or you can tear a calf muscle etc. So dude, pick something, anything and start learning it… in the research process alone you will find so many answers you didn’t even know to ask the question to.
There is No Right Way of Investing
Investments aren’t that different. There is no ‘right’ way of investing. I’m very aware of the bogleheads, the index funds, the bond investors, the dividend investors, options trading, and there are a ton more. Naturally there are some that are safer and easier to figure out than others. My advice to you is study one method and learn it well, try it out in small increments and aim towards mastering it.
Please don’t fall into the trap of thinking the one method you choose is the eternal truth. The economy is always changing, markets fluctuate and sway towards one side for a few decades then sway back in the other direction. At the same time I would urge you not to make a ton of changes just because of all the hype out there. Right now index funds are all the hype… and there is nothing wrong with that as long as you learn this investment strategy and know where the pitfalls are.
My personal investment strategy is index funds. The reason I chose them is because I know they are easy to figure out, they have low costs of ownership, they require very little time, and they are a great stepping stone for me to learn about other investment strategies. Do I think that I can buy an index fund and hold it until I turn 90? Absolutely not, and if you drank the Kool-Aid thinking that you found the one and only method that will withstand the test of time then I would encourage you to rethink it.
Choose a Method But Remain Neutral
I realize that index funds are safe for now and likely will be so for a few decades to come. Their return on investment is very low but that’s how things work in the investment world… more safe means less return. However, I will remain vigilant. I am not going to sell off all my index funds just because there is a market ‘crash’ or ‘downturn’ or ‘correction’. That would be being reactionary which is a weakness. However, if the entire market system changes I certainly will reconsider… and what would that look like you ask? I don’t know but I know I’ll recognize it because I’ve done my research. Perhaps I might then slowly shift into bonds or CD’s or buy some real estate. Maybe I’ll then invest in some small businesses or become an angel investor.
If you are after larger gains then invest in something safe for now and use a small percentage of your funds to learn the more profitable methods out there. Don’t believe what you read about individual stock investors who “will all eventually fail because only index investing makes money historically”. There are plenty of people who methodically make a good return on their investment with being index investors but who also put in a lot of hours every week to research such investments.
I would highly encourage you to start by reading The White Coat Investor website if you haven’t been there already. Not only does he have fantastic book reviews for the DIY investor but he also is as objective as any human can be when it comes to giving financial advice. He is the evidence based doctor of the financial industry. Read his site, learn his ways, come close to mastering one style and when you know what he knows then believe me you won’t be needing any advice from him or anyone else.
Do you have a current investment strategy that you follow?
Where do you go to learn more about investing?