On Investing: "Elevate" - Part 3 of ...
The song Elevate for sure wasn't talking about investing, but bear with me here. It is talking about choosing a side, and in terms of investing, you are picking the companies who you think will win. With investing, though, you have to remember that you can bet on everyone at once, and while sometimes you will lose the battle if an economic cycle, you can still win the overall investment war. Most of my opinions here are based off of The Simple Path to Wealth. (If you disagree, take it up with Mr. Collins or check out a podcast).
You gotta choose a side, you gotta choose a side
You gotta pick
You gotta do what's right or you gonna lose the fight (I gotta elevate)…
My boy, you better choose a side
I may have lost the battle but I will not lose the war
I can promise you I will not lose this time
On Monday, a stock I held went up 15% in a single day. The next day, it went up another 30%. Killer right?
Unfortunately, the previous Sunday night I had decided to cut my losses with that stock and dump it, putting the selling wheels into motion I probably caught some if the rise of Monday's activity but overall I missed that almost 40% upswing. Whoops.
My point here is that I was choosing a stock that I wanted to be a winner. The stock I'm talking about is the electric vehicle manufacturer NIO. I don't want to get into the details of the company here (this video does a better job of that), but when I bought a few shares, it was more like placing a bet than making an investment. Maybe the bet would hit, maybe it wouldn't. This is not an investment strategy.
If we treated investments like Spider-man chooses being good and fighting evil, we would lose both the battle and the war (eventually).
A better approach is to invest in the fact that there will always be companies battling to be better. In practice, this looks like buying an index fund like:
Total stock market exchange traded fund - VTI or IWV
Total market index mutual fund - VTSAX or FSKAX (minimum balance needed)
Real estate index funds - VGSIX or VNQ or FSNRX
There are also managed funds that I'd say are equivalent to investing on Marvel vs. DC comics. You know the characters (companies) who are involved in each universe, you know the style of the fund managers, but you also pay a premium to have someone else do the thinking for you instead of assembling your own group of companies. Of course there's no guarantee here that either managed fund (Marvel or DC), has any better idea of what they're doing than investing in the whole game itself, but you never know. You could get an Avengers portfolio that lasts for 20 years and makes billions are the fifth reboot of Superman that somehow never takes off.
One of the funds I like in this space, is ARKK. It is a tech-heavy managed fund run by a woman and betting on disruptive Innovation. I like the founder, I like their analysis and I'm willing to sacrifice some investment returns on paying for their time. Overall, though it's still only a small fraction of my investment savings.
So, if you're new to investing, here we're doing the opposite of what Spider-man has to do. You don't have to pick a side, and the best way not to lose is to bet on the game itself (index fund) rather than choosing a particular company.
In terms of practical steps, i'd do something like this just to get started learning more:
Open a Roth IRA if you don't have one already
In that IRA, buy shares of an index fund - this should be like 95% if the money you're setting aside assuming you're already contributing to a retirement account
Open a brokerage account (account that holds stocks), choose one company you like in an industry you're familiar with. You could use Robinhood or Acorns to be trendy.
Periodically follow the financial news about that company. Odds are it will put into context everything that's happening to your bigger index fund holdings, and you will learn more and retain more about investing.
In the meantime, keep contributing to the index fund,no matter what the market is doing, you will not have to time highs or lows or choose companies, you're just betting that everyone around you is choosing sides while you sit back and win the war.