A beginner’s guide to investing

While Crypto keeps shooting up and down like a roller coaster, rather quietly, the S&P 500 gains over the last year have been astounding. 22% and still going strong!

We might be in for a bear market in 2018. It’s not often we see a seven-year run like this. Yet, after WWII, we saw a 10 year run so you never know.

Here are some rules I use for those who don’t know where to start with their investing:

You have to invest. Drip by drip by drip. Here a little, there a little. You have to find ways to put money away. This is the biggest indicator that tells me how serious someone is about their future.

Understand there are a lot of ways to win. There is no one strategy to win with money. Some portfolios carry more risk, some people don’t have the risk tolerance, some have 30 years until retirement and others have less.

Don’t touch it. Don’t take a loan out on your 401K unless it is a true life or death emergency. I would down size on a house or take a second job before taking a loan out. If you ever leave your job, make sure to use a direct transfer to roll over your retirement. The penalties associated with cashing out early are horrendous.

Don’t invest in anything you don’t understand. Educating yourself on your investments brings more joy and excitement. Living in the dark creates fear. Fear keeps people from investing.

Invest early and often. We all have heard about the magic of compound interest. Einstein called it the Eighth Wonder of the World. Here is a chart that shows the difference if you can get in early.

Ignore the loon noises. If you didn’t invest because of political ideology in 2008, 2012 and 2016–you missed out on some important gains. There is a lot of noise out there on what the market is going to do. The truth is, no one knows. The data, however, shows that over time it does continue to go up. Best to ignore the noise out there, don’t let them scare you away.

Look for tax advantage plans. Understand what the differences are between a 401K (pay taxes on the back) and a Roth IRA (pay taxes up front) and figure out which is a better plan to go with.

Don’t pay for your Broker’s annual Disneyland trip. This is my biggest pet peeve of the industry. In my opinion, for the average investor Brokers offer little value for what you could already manage on your own. However, real advise is worth something–a onetime fee. Brokers do not have to earn an annual percentage of your nest egg over the next 50 years. The reality is Brokers cannot beat the market year after year. So look for a Fiduciary, someone who by law has to look out for your financial interest. They are hard to find but could be worth it if you are nervous about getting started.

Diversify. I’m a huge fan of Index Funds. These lightly managed funds offer low expense ratios and allow me to invest in thousands of different companies all over the world.

Total your net worth. The affluent focus on one number and that is their total net worth. That means adding up everything from your savings, home, retirement, vehicle…all your assets minus your liabilities. Keep track of this number.

Understand your level of risk tolerance. The longer you have until retirement, the more risk you should be able to take on.

Match everything. If your job offers a match with any investment you make, do it. This is no brainer. It is free money. Don’t leave it on the table.

Save 15% of your take home pay. And if you can’t do that save what you can when you can, even if that means eating black beans and rice for a while.

Consider having retirement savings withdrawn before you receive your paycheck. Take the temptations away. Learn to live on less than you make.

Your annual returns should at least average 9%. The stock market has averaged 9% over the last century. I’m always surprised to talk to friends and hear about their returns hanging around 2% year after year. In lean years, that could be fantastic but in the last decade we are having that hasn’t cut it. Remember, down the road 2% won’t even cover inflation.

Don’t eat the marshmallow. The last three years before you retire are likely where you will see your biggest returns. Be patient.