Recently, I feel like I’ve spent a lot of time repeating the same information over to my friends on how to get started investing in the stock market. So I wanted to ensure that I had all this information written down so people could access it and read it in their own time.
Before I begin, I want to put forward that I am no investment professional, there is always risk in investing, and this is just general knowledge and not investment advice. It’s really me re-packaging a lot of articles, books, and general resources I’ve covered over time.
With that out of the way, I want to make sure that this series is as actionable as possible. It’s easy to get bogged down in financial metrics, hype, and a complete overload of options. Where should you start? With this series, I hope I can break down and explain investing in a practical manner which lets you actually go out and start investing.
My focus is on simply getting started in investing in a sustainable and easy way for anyone, not just people who study business. This is not a series about financial analysis and diving into whether a company is a good investment or not. Frankly, there are more qualified people for that, and you don’t need to understand that in order to start investing.
What Will Be Covered
Within this series I want to discuss a few key topics:
- Why should you invest?
- What are some common misconceptions about investing?
- What can I buy? Options, bonds, stocks, dividends, mutual funds, ETF’s and everything in between
- The concept of passive investing. Why ETF’s are a great place to start.
- Where can you start investing stocks? What platform can you use?
- The psychology of investing
- Sources for more information
If you have additional questions, please comment below, and I will make sure they are answered within the articles.
If you study business/already invest and have objections, questions, comments, and variations on “you’re dumb”, I also welcome those in the comments section! Feedback and debate is always appreciated.
Why Should You Invest?
- You can actually be losing money by leaving your money in a bank account
- Letting money you already have earn more money for you beats having to work more for it
- Saving will not let you achieve financial freedom
Putting Money in Savings Accounts Doesn’t Give You Any Money
Wait. Don’t savings accounts give you interest?
Yes, they do. But in Canada, these interest rates are very, very low. The best ones from smaller banks are close to 2.3%.
Isn’t 2.3% better than nothing? Well, here’s the thing. We have to deal with the concept of inflation, which means that year over year, stuff becomes more expensive or every dollar will buy you less and less.
You might have seen this with food or groceries. You probably remember a time your favourite childhood restaurant charged way less for food. Inflation (unless the restaurant owner is really greedy) is that rise in prices.
That rise in prices occurs in food, rent, gas, services, and everything in between. It means you can buy less with each dollar that you have. Your purchasing power, or ability to buy stuff goes down or just doesn’t change if your money is growing at the same rate as inflation.
The inflation rate was 1.61% in Canada last year. Compare that to the highest bank savings rate you can get of 2.3%. That means your ability to actually purchase more, which matters more than how many dollars you have, grew by less than 1%.
If you had 10,000 dollars in a savings account, you made less than 100 bucks for it in an entire year. People make that much in two or three shifts at McDonald’s. Your money isn’t really being put to the best use.
Making Money With Money Is Better Than Working For It
Wouldn’t it be great if you could earn an extra couple of hundred dollars just for clicking a few buttons and buying a stock? Wouldn’t it be great if you could work a little less than someone else and still be earning more?
That’s the potential that lies with investing. Your time is one of the most valuable things in the world. With investing, you have the potential to earn more money while saving time.
It’s like the cash in your bank account is a little worker who goes out there and works a couple of extra shifts to give you more money to play with. Conversely, if you’re not putting it to work, it’s just lazing around and doing nothing for you.
If you actually had a little butler to do all this extra work for you, but instead, they chose to sit down and do nothing, how would you feel?
Just Saving Will Not Let You Achieve Financial Freedom
Financial freedom isn’t about not having a job. It’s about the ability to pick what you want to do, where you want to work, and who you want to interact with… because you can.
It’s the idea that money is no longer a significant factor in your decisions, because you are self-dependent and can do what you choose to do with your life.
Saving is a crucial part of the journey, but it’s also just not enough to achieve that goal of financial freedom.
Have you ever done exponents in class? Were you ever shocked by how large exponents could get? Take this series of 2.
In 10 stages, the original number 2 grew by 1022. That’s like 51100% growth.
That’s what happens when you invest. It’s compound interest. You have a starting amount, then that grows by 10%. Which grows another 10% and so on and so on.
This? This is one of the most surefire paths to becoming a millionaire and achieving financial freedom.
By choosing not to invest, you miss out on the possibility of compound interest and growth. There is a hidden cost for the future in every dollar you choose not to invest.
Here’s a compound interest calculator to play around with. The principal is your starting amount, the interest rate is how much you earn (7% is a good estimate), and the annual addition is how much more you invest every year.
For your own knowledge, let’s say that you invest $100 a month, can earn 7% annual returns, and keep on investing every year. Enter in $1200 for principal, $1200 for annual additions, 7% for your interest, and 10 years for the period. Also feel free to play with those numbers.
What this shows is that for $100 a month of investment and a reasonable rate of return, you can turn $100 a month into $20,000+ over ten years. If you were 19 now, by age 29 you would have an extra $8000 to play with. That’s enough to buy a car, some nice clothes, contribute towards a down payment etc.
You would have earned even more if you invested more than $100 / month. Say you did $125 / month for 10 years. That turns into $25,000. Not bad.
Hope this helps!
I’m a big fan of personal finance, and I really hope this series can answer some basic questions. Always appreciate comments and feedback, and will make sure to respond to them.
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