Currently we are in unprecedented times in the world. We are facing higher than ever inflation rates, a global pandemic, gun violence and a war in Ukraine. What do each of these topics have in common? They all impact the stock market. The stock market has taken a nosedive after a record setting year last year and recent investors are starting to realize what the word “volatility” means.
At 29 years old I can confidently say I have a fairly strong grasp on financial literacy but am by no means an expert. What I can offer you is some insight into what I have done (both right and wrong) with my finances.
Taking us back to 2014 when I landed my first job at an Engineering company (TREC Group) I received my first salaried position. I was offered $38,000 dollars and I thought I was LOADED. I did quick math after finding out I was going to get paid bi-weekly, $1,460 dollars per paycheck. With no college debt I would be in the green and would be on the fast track to being a millionaire. I quickly realized thats not how it works. I took a look at my first pay stub and see that I have money coming out in all directions for: FICA (Medicare & Social Security) as well as (Federal & State) Income Tax. Who is FICA and why is he/she taking my money? Honestly after 16 years of schooling I was never once educated to see what a paycheck would look like. After all this I was quickly down to just over $1,100 dollars per paycheck.
Okay, so what, Uncle Sam is taking a little bit of my money, but I still am making a decent pay day at 21 years old. Fortunately, I had no debt since I received a full scholarship to college (jk my dad worked there so I got full tuition – super thankful). For the next two and a half years while I worked there, I was stacking cash and stacking fast. I quickly eclipse the $25,000, $30,000 and even $50,000 dollar mark. I thought to myself…I’M RICH!
NOT SO FAST!
For the past however many years I was always tough by my parents….save…save…save. When the time comes you can buy a new car, house, or whatever I wanted. Were my parents wrong? No – I absolutely could have done that and potentially ended up in a decent spot.
Fast forward to 2018 when I thought to myself, “I’ve been out of school for 4 years and I need to start learning more about finance and business”. With the help of mentors, I was prescribed some life changing books. The first two that I read were: “Think and Grow Rich” by Napoleon Hill and “Rich Dad Poor Dad” by Robert Kiyosaki. These books exposed me to a lot of business concepts but one that stuck out the most was “is your money making money?” I was instantly hooked and started bouncing the idea around to my peers. How do I do this? Who does this? The more questions I asked the more answers I received. Before long I was introduced to the concept of “investing”
What is investing? Simply put investing is to expend money with the expectation of achieving a profit or material result by putting it into financial plans, shares, or property, or by using it to develop a commercial venture.
So now people are telling me I can invest my money into different options and potentially make a profit off of this? Where do I sign? With a comfortable amount of money in my account I knew I wanted to invest, but how much? Who do I invest in? How long do I invest? Can I lose money?
To answer the first question my answer is….it depends. It depends on where you are financially with debt, recurring expenses and liquid money hanging around. For me I made it simple. I started with $1,000 dollars because I knew if I lost it, I would be okay. The next question posed was who do I invest in? Again, it depends but currently I invest in a lot of index funds. Index funds are easy ways to invest in every stock in an index (list). I also invest in some individual companies that I am a fan of, and I believe will not fail. Okay this all sounds great but, how long do you invest in a company/index for? That answer will be different for everyone. For me its a two-part answer. I invest and keep my money with companies that show increased quarterly earnings for 3 plus periods (Book recommendation: Dancing with Analyst – Thanks @mattmorizio). The second part to that answer is I never uninvest that money. Once I have put any amount of money into the stock market, I consider it gone forever (until retirement). Finally, to break the news to you, YES you can lose money in the stock market. If you buy a stock for $25 dollars a share and the stock price decease to $20 dollars per share, then you have lost $5 dollars per each share you owned in that company. Like anything there is no reward without risk.
Are their other ways to make your money make money? Yes, there are other ways such as real estate, buying a company or doing joint ventures. Realistically a lot of you will not have the financial capital to get involved in these options right off the bat. What you will have is a little bit of extra money that you can afford to play around with in the stock market (cut back on eating out/food delivery, spend a little less money at the bar). The stock market year over year average increased about 14.8% annually from 2012-2021. Last year in 2021 it was closer to 26% (S&P 500 Index). Why would you not want to buy into something that has the ability to appreciate up to 26% while you do absolutely nothing? Most bank savings accounts have an interest rate of about 0.06%. You do the math.
Should you invest? My answer is yes, its the easiest way to make your money make you money, but I’m in it for the long game.
If I could do it over again, I would have started getting involved in the stock market at an earlier age. When I have kids, I can guarantee that I will be setting up investment funds the day they are born. Why? Because the greatest competitive advantage you have in the stock market and making money is time (we will touch more on this in a later post).
If you have any general questions about investing:
How to get started?
Where do I invest?
What do I invest in?
When do I invest?
Please feel free to DM me @CM1_Performance and I will give you my best advice or refer you to those who have helped me.
Remember you can still lose money, do your research, and start small.
As always, I appreciate the support of you willing to learn alongside with me