That's when I got mad.And that's when I got smart. I discovered the more you make, the more you spend. And it's true what they say: Money can't buy you happiness. Lack of money, though, doesn't bring you barrels of fun, either. I haven't heard too many people say that, because it sounds materialistic; but take it from someone who's lived on both sides of that railroad track. There is more peace in the house when the finances are in order. This post was started in response to a question from a reader, who asked: How do you get started investing? Penny stocks, maybe? In response, I wrote a nice, sterile post with the five-point plan to get started. But after reading it over, I did the electronic equivalent of crumpling it up and tossing it in the wastepaper basket. Why? Because I've heard that all before and it never got me to start when I should have started. Why, then, would it help the non-investing reader? Everybody has heard the message that you've got to invest. And if I have a dollar for every "get-started" plan written, I'd be one of the sharks on Shark Tank. And yet, it is equally well documented how Americans are headed for retirement disaster because they don't invest. Why not? 1. Passion Because none of those articles, lectures, books, posts, speeches, or admonitions addresses the starting point: passion. Until you get mad, you're not going to change. That's true for any lifestyle improvement: losing weight, quitting smoking, getting fit… or investing. So, Step One is making a passionate decision. It doesn't matter if it's fear, anger, humiliation, or even (dare I say it?) greed. Investing is a long, long grind. Along the way, you'll face thousands of temptations to derail you, and very few to keep you on track. In the face of that barrage, you'll only stay the course if you have a steely resolve, and we human beings are wired in such a way that pretty much the only way to maintain that steely resolve is to have it fueled with a long-term fire in your belly. Nothing but that passion will neutralize the onslaught of temptations coming at you day after day… after day. Once you've made that resolve, pretty much anything you invest in can work. My father-in-law only invested in a savings account. You could argue with him all you want ("C'mon, Dad, you can double your earnings with any other investment!") but a savings account was the only investment he felt passionate about. He made it work. With passion, you can make anything work. 2. Foreground I started (late, to be sure) with a savings account. I wanted to open a brokerage account, but back then you needed a couple thousand or some huge number like that to open a new account. Along the way, I discovered a nice thing about a savings account: there's no minimum to start, or to deposit. When we got a $15 refund for something, I could deposit that into the savings account and nobody would frown. It became a game: how high can we make it grow this month? Saving became a foreground activity, not a background activity as so many people think it ought to be. And that, I think, is Step Two: Make your investing an intentional, "foreground" part of your life. Facing my mid-forties with nothing forced me to admit that my lifestyle was proof that I'm not a natural saver/investor. And so, just like a recovering alcoholic, I need to be very deliberate in staying off the spending wagon. No more fancy cars, no more fancy nothing… and no more Joneses. I began measuring my worth in things other people couldn't see.
We were surprised to see how quickly our savings grew when it became an endeavor of passion. So we signed up for 401(k) plans where we worked, and went for the maximum deductions, matching or no matching.Mechanically, I think it's important to start with safe investments, like a savings account, a 401(k) plan at work, stock market index funds -- stuff like that. For the first four or five years, the lion's share of your investment value will be your contributions, not your returns. You can always change your investments along the way. The important thing is picking a safe investment you'll feel the most passion for. Then learn as much as you can. You'll find out soon enough what generates the most passion. Then study that for a few years and you'll be good. 3. Opportunities There's something else very few people talk about, and that's opportunity. J.D. wrote about it recently, but he's one of very few. I discovered this a few short years into my now-passionate investing career: Once you make investing a foreground part of your life (i.e., you think about it a lot) it's natural to want to learn more. As you do that, you become aware of things that passed over your head before. And one of those things is… opportunities. Life brings everyone a string of opportunities. Until I became conscious of investing and made it a priority, I was totally oblivious to them. When someone would mention something that sounded like an investment opportunity, I'd cut them off with a put-down like, "Oh, that's just a scam. Nothing could be that good. What a waste of time. Wall Street's just a casino!" And then I'd continue debating whether this great chef's new restaurant would be as good as his previous one.
When you're thinking of buying a Honda, what do you see? Hondas all around you. Same with investment opportunities. It's a well-known trait of the human brain that once you're conscious of something, you notice much more of it. Every person has a few outstanding investment opportunities that come their way. So I'd say Step Three is to keep your eyes open for all investment opportunities that come along. Be prepared to pass on 90 percent of them, but be ready to pounce on a good one when it comes along. Being prepared comes naturally with anything you're passionate about because you love to read about it, talk about it, and think about it.SUMMARY As I said, it doesn't really matter which particular investment vehicle you pick to get started, as long as it's not too risky. Success in the long run will come from:
- Putting investing in the foreground of your mind
- Preparing yourself to take advantage of unique opportunities which will, almost inevitably, cross your path. Preparing includes learning how to distinguish between get-rich scams and real opportunities.