It doesn’t really have a lot to do with investing
First off, let me start by saying that the essence of investing is not staying on top of the news.
It’s really incredible how much news content there is around on the internet, and even more incredible is how many investors listen to it as if their savings depended on it. Even if news outlets like CNBC and Bloomberg put out four or five videos on YouTube every hour, that’s the completely wrong thing to focus on.
In fact, the essence of investing is not even about the market itself. You should probably forget about the stock market in general, given that the essence of investing is not about why the market is crashing or even what is the best stock to buy. Forget about that too.
So, what’s the essence of investing? It turns out that the big secret to being a great investor is to spend less than what you make. It might seem like a stupid thing to say, but it’s actually crucial — and I have a great example to show you why.
Imagine two different investors with opposite behaviors and the same time horizon of 20 years. Let’s call them Jim and Dwight.
Dwight starts investing with zero dollars but makes a monthly contribution to his account of $500. Since he wants to be the best investor out there, he spends all of his weekends researching stocks to buy to beat the market, and -after a lot of stress and sleepless nights- he manages to achieve a 15% per year annual return over the long term. After 20 years, his account is sitting at $615,000.
So, after 20 years Dwight has contributed $120,000 and got out $615,000. This is amazing, but it also took a lot of effort and risk-carrying to get there. Fifteen percent per year is something that only the top 1% of investors in history have managed to pull off consistently. But now let me show you something that will blow your mind.
Jim on the other hand chooses to invest passively in index funds. He doesn’t spend any time researching stocks, he has never watched CNBC once, and he achieves average returns of 9%. What he does is instead focus on his skills, job, side hustles, and saving strategy — something that allows him to invest twice the money that Dwight is. After 20 years of putting $1000 per month in the market, it turns out that Jim’s account is also sitting at the same $615,000 that Dwight has.
I think the example was pretty self-explanatory, but the point is that there’s very little difference between doubling your savings or doubling your returns. Now, the real question is what’s easier of the two? What’s easier — to double your savings or become the new Warren Buffett? Personally, I have zero doubts about what’s the easiest alternative. Especially in 2022, the year of side hustles and job hopping. I’d say it’s much easier to double your savings than to achieve improbable returns.
And also, I really want to stress how hard it would be to reach 15% per year consistently. It seems easy according to the people on the internet, but it’s really not. It’s more than 50% above the average market return, and there are so few people doing it that they write books about them. So, again, I have no doubt what’s the easier task of the two.
Spend less than what you make: that’s rule number one, and it makes the difference in the world. And here’s even more proof: the average investor in the stock market does much much worse than even the S&P 500 — let alone 15% per year.
This strategy also carries a few more advantages.
For starters, it’s a lot less stressful and risky than chasing returns. And then secondly, you can also stop caring about the stock market and what analysts are saying. When your focus shifts from something you can’t control (whether the market is up or down that day) to something you can have a serious impact on (your business, your job, and your life), then you also start to see things with a different mindset as an investor.
If you focus on maximizing your personal income and your skills, you will exponentially benefit from that over a lifetime. Because compounding also happens in real life with salaries, you know. And that’s the key to investing – if you can understand that and get your mind to it, then everything becomes easier.
Techyrack Website stock market day trading and youtube monetization and adsense Approval
Adsense Arbitrage website traffic Get Adsense Approval Google Adsense Earnings Traffic Arbitrage YouTube Monetization YouTube Monetization, Watchtime and Subscribers Ready Monetized Autoblog
0 Comments