Laying the Foundations
First, it’s important to acknowledge the step you’ve just taken. Investing can feel scary, especially to someone who’s just starting—though it’s still scary to me too! But for the same reasons, investing is exciting. Investing doesn’t just teach you how to grow your portfolio (and manage the passive income that follows), it also teaches you how to manage your emotions and figure out your risk tolerance.
I have been researching investing since I was in my second year of college. It was 2008, and I was tired of seeing my savings earn 2%. 2008 saw financial markets across the world crash. Some investors lost hundreds of thousands of dollars from their portfolio. Seeing the value of their portfolios plummet made people panic-sell to prevent further losses. What many did not consider was that panic-selling only meant realizing their losses.
Let’s go back a little further. After a couple of years of reading books and blogs about investing, I put together a simple strategy to create a diversified portfolio. I then focused on completing my education and finding a full-time graduate job. Only once I had started at the job would I allow myself to start investing, because I didn’t feel I could afford to lose my money until I felt financially secure.
This is the first takeaway for investing: Only invest money you can afford to “lose.” Of course, the aim is not to “lose” any money, but any money you do invest can lose value within weeks of investing. Money that’s invested does not offer you the same certainty provided by a savings account. But it does offer you the opportunity to make bigger gains over time.
In this course, I won’t be teaching you how to pick winning stocks. Why?
1. because stock-picking is definitely not suitable for investors starting out and who have never experienced the volatility of the stock market before
2. because I don’t do this myself—I have never picked individual stocks because I don’t believe that this is a cost-effective way for me to invest
Instead, this course will feature the recipe I’ve used to step into the world of money beyond my checking and savings accounts. I did my research by reading about other people’s experiences of investing (some investors I follow have been investing for 40 years or more!) and learning from their mistakes to help me build a portfolio that allows me to sleep soundly at night.
You don’t need to be in a position to invest to complete this course. As I mentioned previously, it took me a couple of years to reach a suitable position financially before putting what I had learned into practice.
So, are you financially suitable?
If you can say “yes” to the following criteria, you may be ready to start investing:
• paid off all consumer debt (credit cards, loans, student loans*)
• saved at least six months’ worth of expenses in emergency savings
• contributed the maximum to your pension (or 401(k) if you’re in the US)
*If you are being charged interest of more than 4%, it may be worthwhile clearing those loans before investing. This is based on the 4% safe withdrawal rate theory, which argues that this is the amount you can withdraw from your investments without reducing the value of the amount invested, because your portfolio should generate a minimum of 4% interest. If you have loans costing 4%, it may be better to pay these off first.
Tomorrow, we’ll look at myths about investing and how this can reduce your returns.
Share with friends