If you've read my book, you know that I teach about the 10 Keys of the Millionaire financial principles. As I continue to meet and talk with more millionaires and future millionaires (people who believe they can become millionaires and are actively working towards their goal), I continually see these ten principles in action. Today, I'm going to talk about millionaire key #3 and focus on investing.
Millionaire Key #3: Get Money Smart. If you want to become a millionaire, you have to take the time to get money smart. It doesn't happen overnight. You have to study. If you're not going to study money at least a little, then don't cry about not being a millionaire. Many people have reasons for why they aren't a millionaire or will never become a millionaire. These reasons are just excuses to make them feel better about themselves and the poor decisions they have made or are making. The reality is, almost everyone who has become a millionaire has had to spend time getting money smart. You're not born with financial wisdom and knowledge. No one is born with it. Everyone has to learn it at some point. And the reality is if you don't learn it, then you will never become a millionaire. What separates the haves and the have-nots isn't money. It's knowledge. Financial knowledge. If you don't become a millionaire, you have no one to blame but yourself. The good news is you can get it. You can become money smart. Today, we're going to explore some basic investing concepts. I'm going to keep this straightforward today, so don't expect any profound otherworldly investing wisdom. If you want that, call me and well exchange notes. Today's post is about helping people make the jump and start breaking into the investing world. Basic Investing Concepts
Anyone can invest. Over 70% of Americans are living paycheck to paycheck. Some statistics show it is as high as 78%. Roughly 188,000,000 adults. That's a lot of people! With 188,000,000 people living paycheck to paycheck, no wonder people aren't investing as they should. As I talk to more and more paycheck to paycheck people, one thing is evident. There is a mindset problem. People don't believe stock market investing is something they can do or that they can trust. It's not on their radar. It's not part of their cultural upbringing, and it wasn't part of mine. I grew up in a paycheck to paycheck family. As an adult out of college, I continued the family trend. I lived paycheck to paycheck. At 25, I broke free from that, and I realized part of my path to break free was investing. I learned about investing, compound interest, mutual funds, how to and where to buy stocks. Today, it's even easier to get into the stock market thanks to technology. The stock market and investing are open and available to everyone. It's not just for rich people. It's for people who have hope for a better financial future.
Investing is simple. Some people are intimidated by the idea of investing. Although I've been investing for 25 years, my immediate and extended family has not. Why? I believe there are several reasons. Lack of understanding and knowledge, fear of the unknown, investing is for rich people mindset, and thinking it's too complicated. Investing doesn't have to complicated. In fact, it's very simple. With technology, it's almost as easy as buying a Dr. Pepper at the convenience store. For new investors, it's best to stick with safer investments like mutual funds. Mutual funds are safer because they spread your money out over 100s of companies. By diversifying your money across so many companies, you lower the risk of losing money if a company goes out of business. You can open an account with any reputable mutual fund provider like Vanguard, Fidelity, or American Funds. There are many more. For newer investors, it's recommended to stick with lower fee Index Funds like an S&P Index Fund or Dow Jones Index fund. These funds allow you to buy into the most successful and usually well-performing companies on the stock market. Buying into individual company stocks like Apple, Google, and almost anything else you want is also very easy. Simply set up an account through Etrade, Scott Trade, or a similar provider. It's okay to buy individual company stocks. Your risk is much higher, but the possibility of rewards is also much higher. There are several investment strategies you will learn about on your journey, but for new investors, Buy and Hold is a good one. Buy and Hold simply means you will buy a stock or mutual fund and hold it for an extended period of time. This could be 10, 20, 30, or even more years. The idea is that by holding the stock or mutual fund over longer periods, the value of the investment will continue to increase as the company and economy grow. It's one of the simplest and reliable investing approaches.
Dealing with investing fear. Many people have a fear of investing. This fear usually comes from the unknown and a reluctance to accept risk. A simple investment like a mutual fund can help you lower the risk and hopefully lower your fear a little. Fear in the investing world can cause you problems and hurt your investments. If your investments and the market starts to go down, it feels like you are losing money. This can cause fear to set in. Fear can cause you to make poor decisions. Unfortunately, many investors will give in to the fear in a down market and sell off their stocks, fearing that they are about to lose all their money. When the market rebounds, they miss out on the market returns and growth. It's best to remove your emotions as much as possible when making investments. Understand that investing in a mutual fund is safer than an individual stock. It's possible for a stock to hit $0 and go out of business. It's almost impossible for a mutual fund to hit $0. For example: At one time, K-Mart was a very successful business, but they essentially went out of business. Circuit City, Blockbuster, Kodak, Sears, and many more were all at the top of the game. If you had invested in those, you would have made money for a long time, but if you had them during the end of their time, you would have lost all your money. Mutual funds give you a level of protection from losing your money by diversifying across 100s of companies. All 100+ companies would have to undergo some extreme problems for your investment to go to $0. However, there is still risk with mutual funds, but these risks are tied more to the economy as a whole. As long as the country's economy is doing well, mutual funds will do well, and your money is safe. If the economy has issues, mutual funds have issues, but over time, the economy will recover, and so will your mutual fund investments. The risk of losing all your money is near 0, but it is not 0. There is still the outlier possibility of catastrophic economic and governmental implosion. However unlikely, it is still a possibility. We'll save that for another time.
Start small, but start. The important thing about investing is to get started. You don't have to start with a lot of money, but you do have to start. Today, technology and lower fees allow you to start investing with very little money. With just a few hundred dollars, you can open a mutual fund account or start buying and trading stocks. As a new investor in my 20s, I took a simple approach to my investing. I invested $1,000 per month. $500 per month was automatically put into a mutual fund, and I set aside $500 per month to buy individual stocks. It was a simple methodology, and it got me started. Later, I paused my individual stock investments and focused on retirement accounts and mutual funds. Your investment plans will probably change over time as you learn more about investing, and your financial goals evolve.
Continue learning about money. Getting money smart is about learning, and you need to continue learning once you start. There are so money resources available. I love the book Investing 101 for beginners. There's also David Bach's Automatic Millionaire, as well as many podcasts like Stacking Benjamins with Joe Saul-Sehy, Motley Fool, and Market Watch with Mo Ansari.
If you've read my book, you know that I teach about the 10 Keys of the Millionaire financial principles. As I continue to meet and talk with more millionaires and future millionaires (people who believe they can become millionaires and are actively working towards their goal), I continually see these ten principles in action. Today, I'm going to talk about millionaire key #3 and focus on investing.
Millionaire Key #3: Get Money Smart. If you want to become a millionaire, you have to take the time to get money smart. It doesn't happen overnight. You have to study. If you're not going to study money at least a little, then don't cry about not being a millionaire.
Many people have reasons for why they aren't a millionaire or will never become a millionaire. These reasons are just excuses to make them feel better about themselves and the poor decisions they have made or are making. The reality is, almost everyone who has become a millionaire has had to spend time getting money smart. You're not born with financial wisdom and knowledge. No one is born with it. Everyone has to learn it at some point.
And the reality is if you don't learn it, then you will never become a millionaire. What separates the haves and the have-nots isn't money. It's knowledge. Financial knowledge. If you don't become a millionaire, you have no one to blame but yourself.
The good news is you can get it. You can become money smart. Today, we're going to explore some basic investing concepts. I'm going to keep this straightforward today, so don't expect any profound otherworldly investing wisdom. If you want that, call me and well exchange notes. Today's post is about helping people make the jump and start breaking into the investing world.
Basic Investing Concepts
Anyone can invest. Over 70% of Americans are living paycheck to paycheck. Some statistics show it is as high as 78%. Roughly 188,000,000 adults. That's a lot of people! With 188,000,000 people living paycheck to paycheck, no wonder people aren't investing as they should. As I talk to more and more paycheck to paycheck people, one thing is evident. There is a mindset problem. People don't believe stock market investing is something they can do or that they can trust. It's not on their radar. It's not part of their cultural upbringing, and it wasn't part of mine. I grew up in a paycheck to paycheck family. As an adult out of college, I continued the family trend. I lived paycheck to paycheck. At 25, I broke free from that, and I realized part of my path to break free was investing. I learned about investing, compound interest, mutual funds, how to and where to buy stocks. Today, it's even easier to get into the stock market thanks to technology. The stock market and investing are open and available to everyone. It's not just for rich people. It's for people who have hope for a better financial future.
Investing is simple. Some people are intimidated by the idea of investing. Although I've been investing for 25 years, my immediate and extended family has not. Why? I believe there are several reasons. Lack of understanding and knowledge, fear of the unknown, investing is for rich people mindset, and thinking it's too complicated. Investing doesn't have to complicated. In fact, it's very simple. With technology, it's almost as easy as buying a Dr. Pepper at the convenience store. For new investors, it's best to stick with safer investments like mutual funds. Mutual funds are safer because they spread your money out over 100s of companies. By diversifying your money across so many companies, you lower the risk of losing money if a company goes out of business. You can open an account with any reputable mutual fund provider like Vanguard, Fidelity, or American Funds. There are many more. For newer investors, it's recommended to stick with lower fee Index Funds like an S&P Index Fund or Dow Jones Index fund. These funds allow you to buy into the most successful and usually well-performing companies on the stock market. Buying into individual company stocks like Apple, Google, and almost anything else you want is also very easy. Simply set up an account through Etrade, Scott Trade, or a similar provider. It's okay to buy individual company stocks. Your risk is much higher, but the possibility of rewards is also much higher. There are several investment strategies you will learn about on your journey, but for new investors, Buy and Hold is a good one. Buy and Hold simply means you will buy a stock or mutual fund and hold it for an extended period of time. This could be 10, 20, 30, or even more years. The idea is that by holding the stock or mutual fund over longer periods, the value of the investment will continue to increase as the company and economy grow. It's one of the simplest and reliable investing approaches.
Dealing with investing fear. Many people have a fear of investing. This fear usually comes from the unknown and a reluctance to accept risk. A simple investment like a mutual fund can help you lower the risk and hopefully lower your fear a little. Fear in the investing world can cause you problems and hurt your investments. If your investments and the market starts to go down, it feels like you are losing money. This can cause fear to set in. Fear can cause you to make poor decisions. Unfortunately, many investors will give in to the fear in a down market and sell off their stocks fearing that they are about to lose all their money. When the market rebounds, they miss out on the market returns and growth. It's best to remove your emotions as much as possible when making investments. Understand that investing in a mutual fund is safer than an individual stock. It's possible for a stock to hit $0 and go out of business. It's almost impossible for a mutual fund to hit $0. For example: At one time, K-Mart was a very successful business, but they essentially went out of business. Circuit City, Blockbuster, Kodak, Sears, and many more were all at the top of the game. If you had invested in those, you would have made money for a long time, but if you had them during the end of their time, you would have lost all your money. Mutual funds give you a level of protection from losing your money by diversifying across 100s of companies. All 100+ companies would have to undergo some extreme problems for your investment to go to $0. However, there is still risk with mutual funds, but these risks are tied more to the economy as a whole. As long as the country's economy is doing well, mutual funds will do well, and your money is safe. If the economy has issues, mutual funds have issues but over time the economy will recover and so will your mutual fund investments. The risk of losing all your money is near 0, but it is not 0. There is still the outlier possibility of catastrophic economic and governmental implosion. However unlikely, it is still a possibility. We'll save that for another time.
Start small, but start. The important thing about investing is to get started. You don't have to start with a lot of money, but you do have to start. Today, technology and lower fees allow you to start investing with very little money. With just a few hundred dollars you can open a mutual fund account or start buying and trading stocks. As a new investor in my 20s, I took a simple approach to my investing. I invested $1,000 per month. $500 per month was automatically put into a mutual fund, and I set aside $500 per month to buy individual stocks. It was a simple methodology and it got me started. Later, I paused my individual stock investments and focused on retirement accounts and mutual funds. Your investment plans will probably change over time as you learn more about investing and your financial goals evolve.
Continue learning about money. Getting money smart is about learning and you need to continue learning once you start. There are so money resources available. I love the book Investing 101 for beginners. There's also David Bach's Automatic Millionaire, as well as many podcasts like Stacking Benjamins with Joe Saul-Sehy, Motley Fool, and Market Watch with Mo Ansari.