Start Investing Now
Let's delve into why investing in capital markets is the smart thing to do, not as risky when done right and super easy to do. Lets go over the who, the why and the where!
Hi Everyone 👋
Welcome to the new subscribers who have joined Aconomics. and If you’re reading this but haven’t subscribed, join our community! 👇
Investing is one of those things that most people should do but don’t because they think it requires a lot of knowledge, its very risky, they don’t have enough money and a million more reason.
But the truth is that with the technology that exists today and the resources to learn the basics, it just doesn’t make since to keep the money in the bank so lets go over this:
Who should start investing.
Three reasons why you should start investing.
Where to start.
Who should start investing
You should check where you are from a financial standpoint and what your objectives are before you jump into the markets. It’s important to understand that I’m talking about investing, not trading.
“Our favorite holding period is forever.” – Warren Buffett
I for one, had to check all the following boxes before opening an investing account:
Have recurring revenue or a steady paycheck.
Have zero or very low debt payments.
Keep sufficient amount of cash in case of an urgency.
So basically, if you’re under pressure from debt or you find yourself in an unstable situation without cash reserves, this article is not for you.
But if you DO check all the boxes above, its important that you commit to be disciplined and not let hype, fright or FOMO get the better of you. For long term growth is better to focus on the Macro and not on the Micro - more on this later -.
Three reasons why you should start investing
So now that we’ve established that we’re in a position to start investing, let go over the three main reasons that you should actually do it:
1 - The beauty of Compound Interest
Its very hard for our brains to intuitively understand exponential growth. It’s been proven that our brains are much more confortable picturing linear growth but in investing, its important to make an effort and project exponentially. When we do, our long term goals become clearer and its easier to make good investment decisions, for example:
If I put 200 $ every month and basically buy the S&P500 which returns around, lets say, 10%/year on average (on average, the last 10 years, the S&P 500 returned 13.9% annually).
Every year we put 2400$ (200 * 12), after 20 years we have invested 48000$ (2400 * 20), but we actually have almost 139000$:
“Money makes money. And the money that money makes, makes money” - Benjamin Franklin
Investing early and often with a long term view is not only the best way to start investing in my view but its the best way always. That’s why it’s so important to make a distinction between a trader and an investor:
2 - It’s as risky as you want it to be
The market is huge and the list of investable products is infinite but there is absolutely no need to know most of them, in fact, to start, its just important to understand what stocks, index funds and ETFs. That’s it.
The fact that sometimes it looks complicated is because traders make a lot of noise but most people on the internet you see saying that you should buy X or Y, making ridiculous graphs to corroborate their own theory, most likely have no F**ing clue what their talking about because nobody can predict the future.
The advice given to know investors by Warren Buffett (even to his own descendants) is to buy the S&P500 Fund and leave it:
As you can see, as long as your investing extra money that you wont need for a long time, you can expect your portfolio to increase with the market. And you wont have the money in your account to spend the 100 or 200 that month on more UBER eats or alike. (talking from experience).
This is just one option but if your super scared of losing money any given day/month or year and cant handle it, you can always just buy Inflation-Protected Bonds ETFs which hold government bonds (as secure as the US government) but offer a lower rate of return.
And if your like me and want to aim at higher returns (with the higher risks that it entails) create a portfolio of companies and ETFs that you like and go for it. I just have a few recommendations:
Don’t buy on recommendations without researching yourself.
Be willing to take the down days and avoid selling.
In any case, feel free to check out how I set up one of my portfolios here.
3 - The invisible tax of inflation
Inflation is often refer to as the “hidden tax” because every day, month and year, our liquid currency losses value and depending on where you live, this can represent as little as 2-3% (Europe), 5-10% (USA) or 99.99% (Venezuela).
This graphs show how all the prices around us are going up but most likely, our salary isn’t going along at the same rate and much less the interest rate that our banks pay us for our savings.
This is the main reason for the title I chose. Every day, week and month that our savings are sitting in a savings account we lose money. Every month our salaries don’t increase, we can afford less with it.
The only well that we can safeguard our savings and create a bit of wealth for our future is to take advantage of the compounding effect of investing long term.
Where to start
Where to start depends a lot on where you live, but I would suggest you not to invest through your normal bank as they usually charge a lot of fees, management and other crazy things.
Instead use Etoro or Robinhood. These are the most famous ones, and they offer low fees and are super easy to use, buy and sell as little as 50$ at a time.
I use Interactive Brokers, Degiro, Coinbase and Etoro, this last one being the friendliest for beginners and it also has a great social feature that I personally use to share ideas and learn.
If you’re going to open an account on Etoro, consider using the following link 🙂
If you like my content, I would highly appreciate you sharing it. And if you see a typo, an error or have anything else to point out, please do so in the comments or connect with me on twitter @aconomicscom :)
Disclaimer: I use and love Etoro and I’ve signed up to the affiliate program, some of their links are affiliate links. Also, all material presented in this newsletter are not to be regarded as investment advice, but for general informational purposes only. You are solely responsible for making your own investment decisions. In any case, transparency is paramount so my portfolio can be viewed here.