There are a number of prospective investors who have a desire to make money by investing in the stock market, but they are completely clueless as to how to do it. Investing is a game whose rules are not taught in school or college, but the rewards are aplenty. So, playing this without having understood this is riddled with risk.
In a recently-released Netflix documentary ‘Get Smart with Money’, one of the protagonists Teez Tabor faced this problem. He is an NFL player and got his first cheque of $1.2 million (before taxes) but soon after was left with a little over $2,00,000 since he did not know how and where to invest.
A famous investment advisor Ross Mac takes him through the initial journey of investment and shares a number of valuable money lessons to help him secure his future.
This is what he tells him:
1 Always start with index funds: When you don’t know the nuances of investing, it is better to invest in the index funds which will almost always rise in the long run. In the American context, he encourages him to buy S&P500 and Nasdaq funds, the US counterparts of Nifty50 and S&P BSE Sensex. They have exposure to all the sectors from airlines to finance, healthcare, technology to oil, tells Ross.
“Warren Buffett who is the smartest investor of all time will tell anybody that he makes money the slow way, anyone at the crib know, mom and pop know, Grandma know, Uncle Ray Ray know. Just put your money in the S&P500, and it is gonna really build over time,” Ross tells Tabor in his characteristic style.
2. Prefer blue chip when you are new to investing: He tells Tabor to choose big companies and appreciates him for buying Facebook and Apple stock, and remarks: “It could not have been better.”
3 Investing less in not wise: At the start of investment, Tabor wants to invest only $1,000 for getting his feet wet, but Ross dissuades him from doing it. He insists that the former should invest a minimum of $10,000.
His argument is that investing may sound risky but by not investing, you are sure to lose money to inflation. When the market index rises over a long term, the only regret one will have is of not investing more.
People have a fear that they “do not want to lose money, but they should remember that you lose money by not doing it (the investment),” he tells Tabor.
4 Investing regularly is vital: Tabor was not accustomed to investing on a regular basis. Ross, therefore, insists that he should invest some money as soon as he earns something. By giving an example of mortgage payment and car payment, he says that you should keep some money aside for investment as soon as you earn it.
“The biggest thing is the frequency button on your brokerage account,” Ross tells Tabor.
5 Start early: Tabor is 26-year-old and wants to be financially free by the age of 45. Ross himself mentions in the documentary that he started investing when he was 18 and has become financially free at 31.
So, the key to financial sustainability is to start early and continue to invest on a regular basis.
So, it is vital to note that the earlier you start investing, the better it is. But even if you start late, at least make a start. Do not get bogged down by not being able to create enough corpus.
Consistency and discipline are the keys and before you know it, your wealth will be sizeable. As someone has rightly said: “Journey to a thousand miles starts with one step.”