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Have you always wanted to invest but never knew how or where to start?
Then this article is for you. I am going to make a series of posts to help teach others the fundamentals of investing and trading.
In later posts I will talk more about investing and personal finance. This post is mainly about why these things are important and why you should care.
You might ask, why should I learn how to invest and trade? Why are these financial instruments useful to me?
Financial Freedom
Investing isn’t necessarily about getting incredibly rich (although it can be about that). It’s about one day having the financial freedom of being able to support yourself without an income.
Here’s the truth: at some point in your life you’re going to have to stop working. This is not a matter of if, but when. The only question is whether you’ll be forced to stop working (imagine having to work past 70!), or whether you’ll be able to choose to stop on your own terms.
Reality check: Unless you have a very wealthy family with a significant inheritance, the only person that is going to give you that freedom is you.
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Nobody is going to give you free money. Therefore, investing responsibly is really about freedom and choice, the choice of how do you want to live your life.
You don't have to be perfect from the beginning
Most people never get started investing because they’re worried about making a wrong move and losing some money.
The truth:
For the first decade of your financial life, the returns you get are not nearly as important as your savings rate!
Investing is easier than you think. For example, index investing has been found to beat the average professional investor about 90% of the time, all while requiring little to no effort. It is perfect for beginners, and it is incredibly profitable. Even Warren Buffett said so!
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The best time to start is now
The sooner you put your dollars to work, the more you’ll benefit in the long run. In fact, when you invest can have a greater impact on the size of your nest egg than the amount you invest. If you are worried about the current situation of the market or finding the "right entry", you probably should not be. Odds are, no matter what you do, you will not get to time the market. More important than that is putting your money to work for you. Always remember:
Time in the market > Timing the market
Sources:
"Working Past 70: Americans Can’t Seem to Retire"; Steverman, Ben; July 10, 2017; Bloomberg; https://www.bloomberg.com/news/articles/2017-07-10/working-past-70-americans-can-t-seem-to-retire
"How to become financially independent in 5 years"; Bahney; Anna; June 7, 2017; CNN; http://money.cnn.com/2017/06/06/retirement/retire-5-years/index.html
"How early retirees are different from the rest of us"; Holland, Kelley; June 1, 2015; CNBC; https://www.cnbc.com/2015/06/01/how-early-retirees-are-different-from-the-rest-of-us.html
"Your Investment Plan Means Nothing If You Don’t Do This"; Becker, Matt; March 17, 2015; Mom and Dad Money; https://momanddadmoney.com/savings-rate/
"Indexed Investing: A Prosaic Way to Beat the Average Investor"; Sharpe, William; May 1, 2002; Stanford University; https://web.stanford.edu/~wfsharpe/art/talks/indexed_investing.htm
"Stock-Picking Fund Managers Are Even Worse Than We Thought At Beating the Market"; Bukhari, Jeff; April 13, 2017; Fortune; http://fortune.com/2017/04/13/stock-indexes-beat-mutual-funds/
"Warren Buffett just won a $1 million bet and highlighted one of the best ways to grow wealth"; Martin, Emmie, January 3, 2018; CNBC; https://www.cnbc.com/2018/01/03/why-warren-buffett-says-index-funds-are-the-best-investment.html
"This is why the best time to start investing is right now"; Rapacon, Stacy; March 15, 2018; Market Watch; https://www.marketwatch.com/story/now-is-always-the-time-to-start-investing-2018-03-15