Recently, my friend Chris interviewed me about my upcoming webinar series on individual investing. You can find that link here.
The answers to the interview can also be found below.
1. Why do you say there has never been a better time to be an individual investor (and define ‘individual investor’)?
For off, an individual investor is someone who opens their own investing account with a broker and makes their own investing decisions rather than working with a financial advisor and paying (often hidden) fees to the advisor for managing your investments.
There are at least 3 reasons I feel like NOW is the time to be an individual investor. First, just about every major broker has eliminated fees when making trades of stocks and ETFs. Zero commission trading means you have access to just about any investment you would need without needing to pay an advisor for access to funds. Second, many brokers (Schawb, Fidelity, Robinhood) are offering the ability to buy partial/fractional shares of most stocks and ETFs. This provides access to anyone who has even a small amount of cash to invest in the stock market. You can get started investing with just a few dollars.
This simply was NOT the case even just 3 years ago. You don’t need to save up large amounts of money to buy one share of a company, you can just buy a small fraction of a share and get broad diversification right away.
Third, there is a wide array of information available that is far cheaper than working with traditional financial advisors and will result in far better returns on your investments. Fees from financial advisors can absolutely kill your returns long-term and buying low-cost ETFs can easily eliminate the need for a financial advisor. This all may sound overwhelming right now, but trust me, it’s WAY easier than it appears.
2. Why invest as opposed to, say, upping your work hours or work towards promotion or a job with better benefits, or building a side-hustle, or a 401(k) or savings account?
I want to start by addressing that many of these options do not exclude the others. Getting a promotion or having a side hustle is a great way to improve your financial well-being and could actually open up more dollars for investment. Upping your work hours could burn down existing debt that much faster. Savings accounts are SO important in investing. You really don’t want to be investing money that you would need in the next 3-5 years because the last thing you want to have to do is sell an investment during a big market drop. That is when you want to be buying. Building in a emergency fund will allow you to stay invested for longer.
The biggest reason investing is so powerful is compounding. Historically the stock market has returned 10% annually. $10,000 over 30 years would be worth nearly $200,000 without lifting a finger. Compounding is so powerful! This is money that is being made while you are on vacation, at work, sleeping, etc. The underlying businesses in the stock market do all the work and you reap the benefits. Get paid to do next to nothing…I’m in!
3. You say investing is easier than people think it is. What is the biggest turn-off that most people have about it, and how to do you answer that turn-off?
I think the biggest thing people are afraid of is losing money. The stock market is far from a sure thing, but going back over 100 years the stock market has always grown over time. You might not make money all the time in the short-term, but the long-term historical trend of the stock market is UP! Inflation causes you to LOSE money every year in your savings account, but the stock market has outpaced that over the long-term since its inception…ALWAYS.
The other turn-off is that people are afraid to do things they don’t understand and most financial advisors make it out to be really hard. Is there new vocabulary? Sure, but the basics of investing are fairly simple. They don’t want to make a mistake and then have to mentally deal with that. Is it easy to put $1,000 on the line investing? It comes with risks. In March 2020, that $1,000 would have become $700 very quickly, but you would only lose that money if you sold at $700. That $1,000 would be worth over $1300 now if you just kept it in the market through the lows of March. The pain of loss is 3x as strong as the joy of success. This is one of the reasons it can be really hard for individuals to stick in the stock market long-term. Fear holds people back especially if they don’t understand how things work. I’m confident I can bring it into simple terms and provide some really basic options for how to move forward as an investor and do it successfully and for the long-term.
4. Tell me a story about your best and your worst investments.
My best investment probably ever was my decision to join the Motley Fool. The Motley Fool is an investing newsletter that provides monthly stock picks and seemingly endless opportunities to learn about investing. This has helped me to beat the returns of the S&P 500 index by a staggering amount in 2020. Much of this outperformance has been driven by my investment in Tesla at the beginning of last year which has gained over 800% since my investment. Wow!
My worst investment has to be the 3 years I invested with a financial advisor. I’m actually happy it happened though because it forced me to learn more about investing. Over 3 years, I underperformed the S&P 500 by over 40%. Ouch! My worst stock pick was Luckin Coffee. It’s a Chinese coffee company that turned out to have committed fraud. It was down 90% at one point, but has actually bounced back to a loss of 71%. I’m still holding and don’t plan on selling it any time soon since the company is still selling coffee.
5. Is it possible for everyone to make a living on investing? If so/not, why/why not?
I believe investing can transform the financial future of just about anyone. With brokers no longer charging fees to invest and offering fractional shares, many of the old barriers to getting started have evaporated into thin air.
Becoming financially independent through investing is a very personal question. It depends on your expected cost of living. One way to predict how much you would need in investments is to multiple your yearly expenses by 25. This number is an estimate of how much you would need in order to never run out. Increase your saving rate by earning more/spending less and the ability to reach this number comes much faster. For many though, a sizable portfolio allows them to pursue lower paying career options by supplementing their income with investment income. This can greatly reduce the goal amount someone might need in their investment account to live off it and take career risks.
Of course, stock market returns are not guaranteed which makes this a very complex equation that is constantly changing. For illustration purposes (and easy math) it might be good to recognize that a portfolio worth $1 million that grows at a 10% rate in a year will produce $100,000 in which to live on. Depending on your expenses, you can likely see how a large portfolio like this would never run out. It can get more complex than that, but it gives you an idea of how this can work and that’s without even mentioning dividends.
6. What is the simplest investing advice you have or have heard/learned?
The single most important factor affecting your investment returns is TIME. The sooner you start investing, the sooner your money can start compounding. Then, the magic of exponential growth takes over.