The key to your future is saving and then investing these savings. While putting away a modest sum of money away each month may seem like a thankless task – this modest amount of money can build into something that can truly change the course of your life.
We wrote about the importance of saving earlier this month. Saving is key, and you need to try to put money away and if you can’t save your excess between your spend and income, feed a designated amount of money into a savings account:
“Most people know they should have some sort of plan as to what they do with their extra money. Yet the problem is that a lot of people spend years procrastinating. Now is the time to put a stop to that. Instead of looking to save up your ‘leftovers,’ create a budget and start allocating money that is designed for your future development. Whether it’s money for an ISA, for investments, for tackling debt, or anything else. So long as you’re automatically paying out those allocated funds before you start spending, you know that you’re progressing.”
It’s healthy to be conservative with your cash. Don’t waste your money as every penny wasted is a penny less that you have to work for you in the form of a solid investment. Good spending habits can translate into good saving habits and thus good investment habits. Building these habits are key before you think about investing the money you’ve spent a lot of time saving up. Saving your money is a safety net, but investing is a catapult that could shoot you into a better place.
One thing you’ll always need in investment is advice and guidance, and thankfully there is absolutely no end to the amount of advice available to you right now. That’s a great thing.
Educate yourself on investing
There are three amazing books you can get right now that can teach you to think like an investor. The Margin of Safety by Klarman is an incredible book authored by the leader of a fund and offers relatively recent examples. The Intelligent Investor by Graham is a good go to manual that can help frame your thoughts. Graham is considered the master of value investing, and there are editions that have been updated for today’s investing. It sounds bad, but You Can Be A Stock Market Genius by Joel Greenblatt is also good because it identifies lots of investment situations and what to do in those situations. It is a fair bit of reading material, but it’s better than investing with a blind eye.
Before you begin, you need to realize that the market is not your toy. Unless you’re a prodigy of the likes the world has never yet to see, you are not going to outsmart the market. People will tell you that you can, and they will profit from you. Use advice, make sensible investing decisions and don’t put all your money into one opportunity.
So, what can you invest in?
There are a lot of options, and all have their benefits. You can buy real commodities like oil and gold; you could purchase foreign currencys and exchange them, you might invest in the real estate market and buy a property. You may take the typical route of buying shares in companies on the stock market and selling them at a high for profit. There are plenty of choices for you.
Saving in itself represents an investment, but interest rates can vary and in most cases are pretty disappointing. Saving becomes investing when you are granted interest on your savings. If you were to save two-hundred dollars a month into a savings account that granted naught point five annual interest, you’d make $24,614 in ten years of saving. That 614 dollars is made up of the interest – it’s something, but it’s pretty pitiful. If you did the same investing in something that offered a seven percent return you’d make $34,404 in the same time. Ten thousand more. That’s why research is key.
You can invest in property which represents a solid investment as even though the value fluctuates, rent payments do not so you can hold steady until the value returns. Plus, you only really make a loss if you choose to sell for less than you paid. Property provides a steady source of income, but you need to spend on an ongoing basis to care for your property so it can fulfill the needs of your tenants. You can invest in all sorts of real estate from apartments right through to commercial properties.
Stocks are a bit harder – you need to be on top of your game.
Growth stocks need to be bought at a low price and sold on for a profit. These values change fast, so your finger really does need to be on the button. Dividend stocks are safer as you’ll be buying from stable, large companies that will pay you back a share of their profits. Your stock can grow large and wealthy as you support a big company and you’ll be paid dividends which could be worth a lot in the long term.
If you’re more casual, a fund like the Vanguard S&P 500 ETF invests your money in a bunch of large and successful companies for a fee and this fund does extremely well and isn’t a massive gamble, like some other investment options. If that doesn’t sell you on the idea of the Vanguard fund, then let it be known that Warren Buffett recommends it.
There are also plenty of ‘Managed’ funds that do the research for you, but even the ‘Managed’ funds need managing, and many use financial advisers to do the research and due diligence for them. If you’re in the UK and need a financial adviser recommendation, email me (adam AT magicalpenny.com) and I’ll give you some personalised recommendations.
There’s so many avenues in which you can put your money in and the right one is all of them. Diversifying your money is the key to success and saves you from a disaster if one of your options collapses or decreases in value.
Be smart, educate yourself and invest your money!
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