I think everyone should constantly think about growing their financial base. See, it’s just not enough to have money in the bank because inflation is continuously beating down the value of your hard earned money. So it’s important, for sure, to make sure your money is at least keeping pace with inflation but ideally is well ahead.
The best way to make your money grow is to invest it in something safe that will appreciate in value over time almost certainly. Now, I know, we can’t always bet on a sure thing… and there always will be winners and losers… but I will still say that you have to make sure – to the extent you can – that your overall money pot grows. So it’s important to diversify your investments.
To grow your money, you have to also make sure you are comfortable with risk, to some extent. Because there always will be money-losers among your investments. So part of the trick is to understand your own zest for risk and pick a level you’re comfortable with. That said, if you’re a daredevil at heart, I’d say keep your daredevilry to things outside the domain of investments… go ride a dirt bike or surf some mean waves… but don’t bring your voracious appetite for risk into your investments.
Now, when I say investments, I don’t just mean stocks… I mean everything… invest in an education, buy a home, buy other growth assets if you want to – there are lots of ways to earn money. But… unfortunately, none of them are too easy. Let’s face it – growing your money is hard.
So… bringing the discussion back to my domain – of investments in securities of various types, stocks, bonds, ETFs, mutual funds, etc. – what’s the best thing you can do to make money in the market?
Well, basically, you have three choices.
1) You can put yourself through some sort of educational program, such as a business school, to comprehensively learn how to evaluate businesses, analyze their corporate and marketing strategies, read their accounting statements and calculate what they are worth. Then use this theoretical knowledge to make investments. I use the term theoretical because many of us who’ve gone to business school know that while an education is a great foundation for future success, the real world always holds lessons that cannot be learned in school but only when you’re out in the field, buying and selling stocks.
But let’s face it, a business degree is not for everyone (ïÂŠ and I’m glad that’s the case because we need engineers, doctors, scientists, artists, musicians and so on… ). Moreover, a business degree is no guarantee that you will do well in your investments. Unfortunately, Wall Street isn’t a straight arrow. So perhaps this isn’t your best bet.
I will also say that while there are a few who succeed at individual investing in a cocoon, most people don’t. With investing, it is important to be immersed in an information ecosystem with the right set of folks constantly updating you on various company-specific or macro-economic matters… because, today, the world is one big interlinked mass and events across the globe have repercussions where you’d least expect them if you are not in the loop.
Investing really is a full-time job… so I don’t think it’s for everyone. Plus, let’s face it; getting a real education is actually quite expensive with sky-high tuition that in itself could take a long time to recover.
2) You could do it yourself… which is to say, not go to business school but self-school yourself through investment books. The problem with this approach is that you likely will not know where to start. See, even the best of investing books – like Peter Lynch’s One Up On Wall Street – give you the basics in a very general manner but do not give you all the tools you need to dive deep into analyzing investments. The other problem with self-schooling is that you could end up with completely useless but well marketed guides by fraudsters who claim to have made a lot of money and are willing to let you in on their secrets… those ones are disastrous right off the bat. Even if you do pick all the right books, you will have to go through Wall Street’s school of hard knocks and if you’re not careful, you could squander all your cash away. So… this is an option and one that many choose, but inevitably with one single result… failure over the long run!
3) You could hire an experienced and ethical investment advisor. But this one has its own set of catches. See, picking a good investment advisor is never easy. There are many with very convincing personalities and PR skills but who just don’t have the chops to make your money work for you. You also have to beware of the few frauds out there that prey on innocents and put your money in risky investments without any real consideration for anyone but themselves. Then there’s also the issue of advisory fees which a lot of investors balk at paying. But, if you really do the math, this is likely your least expensive route – from a fees perspective because advisory fees are well below what you’d spend on going through school or losing money through a DIY plan, and from a capital loss perspective because even bad investment advisors are sensitive about their personal track record, will want your repeat business and will strive to at least get you positive or market-matching returns.
If you do your research well though (easy to do with the Internet nowadays), you could end up with a fabulous investment advisor with a great investment record, who sincerely and ethically advises you on trades. I must also warn you – good advisors don’t come cheap but that’s because they almost inevitably are more than worth the cost they extract from you. Good advisors also attract other good advisors and money managers in a self-reinforcing system of information flow, diversity of investments and so on… which is invaluable for your investments over the long run.
So, if you are so inclined, I’d certainly encourage you to follow Path #1 and hop on-board. If Path #2 is what you’re inclined towards… all I can say is think again…and if it’s Path #3 then do your research well so you know you’re in good hands.