RETIREMENT and INVESTMENTS

“The best time to start investing was yesterday.  The second-best time is today.”

Get your money to work harder than you.

If you don’t get to a point where you can make money while you sleep, then you will have to work until the day you die.

Wealth is built through investments. Having a job and saving money can give you the ability to invest more, but your financial freedom will be built through investing.

Before investing, be sure to have:

  1. an emergency fund.

  2. all debts (at least high-interest debts) paid off. It will not do you any good to make 8-10% on a good stock if you are paying 18% interest on debts. You will be going backward on wealth building.

Plan, prepare, and strategize. After you complete the above steps, then you can make an investing plan. Decide how and when you will invest. Will you invest consistently, passively, or automatically? Will you keep dry powder (money not allocated to anything sitting on the sidelines) to scoop up deals when they come by? Plan and research early so you don’t miss an opportunity when it comes, and so you will not get taken advantage of on fake opportunities. If you start searching when an opportunity arises, it will more than likely be too late. Do your research now on companies/opportunities to find your buying price, then wait for it to drop to that price.

Time is one of the most valuable things and time is the one thing you cannot buy.

When it comes to investing, remember to not get emotional and stick to your plan.

You should decide if you are a day trader or an investor.

If you’re an investor, you should be only thinking of buying stocks or cryptos if you plan to hold them for at least 5 years. When you invest in something, you should be able to walk away from it for 5-7 years.

Many want a quick win with no volatility and risk, but that is really not out there. Remember, riskier assets do better during good times and worse during bad times.

You should decide what your end game or selling amount is.

When will you start taking some profits?

Will you turn some of your profits into hard assets, like real estate, and if so, when?

You should understand what you are buying.

They say, if you cannot explain your reason for owning that asset to someone in line behind you at Walmart, then you should not buy that asset.

Investment Strategies

From Economic Ninja:

When an investment doubles, pull your money (the money you put in) back/out.

Then when the investment doubles again, pull 1/2 of those gains out.

Then you can sit back and enjoy the ride.

If the investment dips again and drops by 1/2, then you can double your position. (Only if you still believe in the fundamentals of the asset.)

From Mark Moss:

https://www.youtube.com/watch?v=jCFlePTfBpI

If you think there is a 30-40% chance the investment/asset will go down, then you can take 30-40% of your dry powder (money you have sitting on the side) and deploy it or invest it into the asset keeping 60-70% of your dry powder on the sidelines.

This way you can dollar cost average up or down whichever way the investment goes. Since no one knows for sure what the markets will do, this can help you not get left behind, and lessen your chances of losing everything.

Investing Terms to Know

Dollar Cost Average (DCA) = This is an investment strategy intended to minimize the impact of volatility. DCA is investing a fixed amount into a particular stock or fund (or even in the market as a whole) at regular intervals regardless of the market’s ups and downs. The goal of DCA is to reduce the risk of investing a large sum of money in a single transaction and to avoid trying to time the market, which can be difficult and often leads to poor investment decisions. This can help lower the amount paid for investments and minimize risk. DCA can take the emotion out of investing making it easier to deal with uncertain markets by making purchases automatic. This is also called unit cost averaging, incremental averaging, or cost average effect. In the UK, it is referred to as pound cost averaging.

Drip Investing = DRIP is an acronym for "dividend reinvestment plan". This means the cash dividends that an investor receives from a company are reinvested to purchase more stock, making the position in the company grow a little more with each dividend payout. Others will also use this strategy by buying more of an asset every time it falls a certain amount/percent. For example, say one of your favorite assets drops 10%, then you buy a little more of the asset, and then if it drops another 10%, then you buy a little more of it again, and so on.

Mutual Funds are a type of investment vehicle that pools money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. Mutual funds are managed by professional investment managers who use the pooled money to buy and sell securities on behalf of the fund's investors. Each mutual fund issues shares, and investors buy and sell these shares based on the fund's net asset value (NAV), which is calculated by dividing the total value of the fund's assets by the number of outstanding shares.

ETFs: An exchange-traded fund (ETF) is a type of investment vehicle that trades on a stock exchange like a stock, but represents a diversified portfolio of underlying assets such as stocks, bonds, or commodities. ETFs are designed to track a particular index or benchmark, and their share price fluctuates based on the value of the underlying assets. ETFs can be bought and sold throughout the trading day like stocks, and investors can use them to gain exposure to a particular sector, asset class, or investment strategy.

Differences between Mutual Funds and ETFs:

  • Trading: Mutual funds are traded at the end of the trading day based on the NAV, while ETFs can be traded throughout the trading day like stocks.

  • Fees: Mutual funds may have higher expense ratios than ETFs, but ETFs may have trading commissions associated with buying and selling shares.

  • Minimum Investment: Mutual funds may have minimum investment requirements, while ETFs can be purchased with no minimum investment.

  • Diversification: Both mutual funds and ETFs offer diversification by investing in a portfolio of underlying securities, but ETFs may offer more targeted exposure to specific sectors or investment strategies.

Per The Money Guy: Before moving to taxable investment accounts, make sure you have at least 25% of your gross income invested in Step 6 of the F.O.O.

Look into the 3 bucket strategy from the Money Guy

Per The Money Guy, at age 20, $1 invested has the potential to turn into $88 by age 65, however, at age 29, that $1 invested only has the potential to turn into $26 dollars. That is a steep drop-off. Take advantage of your early years!

Check out The Money Guy Wealth Multiplier chart to learn more.

Increased interest rates are bad for assets because it will cost more to borrow money. This means not as many people will buy.

This can be good news if you can think a little different than the average person. This can create buying opportunities. Think of it like a Black Friday sale for assets.

Remember, though, some assets might not make it through inflationary, so be sure you are researching and only buying what you believe are good assets.

Assets that will hurt the most are more speculative assets such as tech and cryptos.

Increased risk could equal increase potential reward but be sure to manage your risk appropriately.

Do your own research, but per Jaspreet (Minority Mindset), Fundrise might be an easy way to get into real estate investing.

From: Is The Housing Market WORSE Than 2008? - What You NEED To Know

Buy, Borrow, Die Concept

The continuous accumulation of wealth by the rich is not solely attributed to their hard work. They do not rely on exchanging their time for money, unlike most of us. Instead, they invest in a range of assets that generate unlimited wealth. This is not an exclusive ability of the wealthy, but rather a result of following a distinct set of rules that enable them to use the tax system to their favor, and use debts to acquire appreciating assets.

It starts with buying assets, but remember, when you sell investments, you will have to pay taxes on those investments. A strategy used by the wealthy is when they need money, they will borrow against their assets rather than cash them out.  This will save them that tax bill, and then…when they die, they can potentially pass on these assets without much of a tax burden to their heirs.  This is the buy, borrow, die concept. Be sure you’ve done your homework and understand what you are buying.

Using Investments as an Emergency Fund

Several financial gurus say to never have your emergency fund tied up in anything else as you might not be able to get to it when you need it, however, others suggest that you shouldn’t keep as much cash in your emergency fund, because you could be tempted to spend it on non-emergency stuff.  They suggest keeping your emergency fund in something like the S&P or total stock market index fund as it should pain you to take that money out, kind of like breaking glass or a piggy bank.  However, if you do this, it’s good to only think of the value of these investments as half or 50% of the total.  (For example, if you have $10,000 invested, think of it as only having $5,000 in it.)  This can make you work harder to invest more, and if the markets are ever down, you will still be okay because you have figured that in.

  • Something to consider is the stock market dropped almost 90% during the Great Depression, and it took about 20 years for it to fully recover.  Also, there have been times during our recent history when trading has been halted for one reason or another.

  • It could still be a good idea to make sure this is not money you will need immediate access to, and still have a cash emergency fund, and some savings in an account that you can easily get access to if needed in an emergency

The wealthy only use debt for things that will bring in income (ie: purchasing property for rentals), and smart investors do not overleverage themselves.  There have been plenty of millionaires that have lost all their wealth due to overleveraging.  Be sure to prioritize your money wisely so as to not incur so much debt that it becomes unprofitable.  A slow continuous wealth growth is likely to be more lasting than an instant / temporary influx.

Passive Wealth vs Passive Income

Some suggest focusing more on passive wealth rather than passive income. 

  • Passive income (like dividend income) is something you are taxed on the year you receive it, and most try to delay their taxes as much as they can until retired in order to pay the lowest tax amount now.

  • Focus on passive wealth (like stocks or real estate) instead as this is something that appreciates in value over time, but you are not taxed on it until you sell that asset.  There could also be some tax breaks with real estate that could be worth looking into. 

Real estate investments should be prioritized before stocks but be sure you’ve done your homework on how to get good real estate deals.

The wealthy do not work for money. They work to put their money to work for them.

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” - Albert Einstein

What does this mean? Wealthy people invest their money to earn returns with the intention for it to grow every year into more money.

Example: $100 invested at a 10% return turns into $110 the first year, $121 the second year, $133 the third year, and so on. This is called compound interest. The interest you receive from your initial investment also starts earning interest which snowballs into a larger and larger sum.

Pennies make dimes, and dimes make dollars.