If you’re not investing, you’re already losing (even if you’re broke)


Want to start investing? Great! You don’t need a lot of money to get started.

The most common mistake I see is people waiting to have “more” until they begin investing. I can understand the feeling, but it’s a mistake. The only exception to this is if you’re carrying credit card debt. If you are, this blog is probably not for you.

If you are not carrying debt month-to-month, keep reading.

You are losing wealth every day you’re not investing.

Sadly, this is true. Not clickbait.

It’s about inflation. Inflation means you lose money when you keep it in cash (i.e. in the bank) instead of putting it to work.

If you’re not familiar, inflation is the observation of the price of goods (groceries, gas, movie tickets, plane trips) increasing over time. “Stuff” just costs more now than when you were a kid.

Economists debate why this happens, but it ultimately comes down to supply and demand of cash itself.

The supply of cash in circulation (the cash in your wallet, your money in the bank, the loan on your house) is going up over time. The Federal Reserve is a government-managed corporation that controls the speed at which this happens. It’s the US’ central bank. They purposely want inflation to happen as a way to mitigate economic turbulence (it’s a touch too complicated for this post, so start googling if you’re curious). “The Fed” targets an inflation goal ~2% a year, generally. In practice, that means the equivalent of $100 USD in 2001 is worth about $147 in 2021. You have to spend more now in order to buy the same amount of “stuff.”

If you’re reading this from not-the-US, pretty much every central bank does this. You’re screwed, too.

If you earned $15,000 in cash in 2001 and just held it in your bank for 20 years, you would still have $15,000. Except now it only buys 2/3 of what it used to.

This is why you must invest. You will lose your wealth over time. It’s unfair. But it’s just how it is.

You don’t need a lot of money. In fact, it’s probably better you don’t have a lot to start because you’re going to make mistakes, and it’s better to learn (and lose) with a little money than a lot.

Quick story:

Back in university, I begged my friends to start investing their savings. Absolutely begged. Even just $50 or $100 a month. Most of them said some equivalent of “oh, well I don’t have ANY money now so maybe in 10 years!” The trouble is, years later, many of those friends still aren’t investing. They aren’t “rich” in their own minds, and investing is for rich people.

There’s nothing wrong with working a job they love if it pays the bills—but there is something tragic about their failure to love and prepare for their future.

They would still go out and get meals with friends. They absolutely could’ve spared $50 a month, but simply didn’t want to. If I asked them today, I would bet most still don’t feel “rich enough” to start investing. It’s a mental trap.

If you’re not invested, you’re already falling behind. This probably stresses you out. It should.

Don’t plan on getting rich from passively investing in the stock market. That’s not what I’m talking about. The goal is to stop inflation from eating your savings.

Please start investing, but do it as a way to protect your wealth. Conventional investing (like in an index fund) is a wealth-protection move, not a wealth-generating move. It is good enough.

You don’t have to become a day-trader. That’s probably a bad idea anyway, since most full-time investors lose money. Yes—most. Trading a zero-sum game. For you to win as a trader, someone else has to lose (or at least miss out). Yet everyone can win we acted as long-term investors. Trading and investing look the same from the outside, but they’re as far apart as it gets in terms of attitude and objectives.

The 8th Wonder of the World

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

— Albert Einstein (probably, it’s debated, whatever)

Compound interest is when your money builds over time, not by adding in more to the pile, but letting the pile grow on its own.

Examples of this include when you receive a dividend from a stock and reinvest it, or if you’re growing a garden and instead of selling the seeds you harvest, you replant them to grow even more the next year.

The idea is simple: keep your money in the game, and it’ll grow exponentially.

Here’s a graph if the tomato example didn’t make sense. The bottom axis is time.
The vertical axis is money/tomato seeds/whatever you’re trying to grow.

Invest $200 a month at 20 years old (with 8% annualized growth), and at 60 years old you’ll have over $620,000. This number increases exponentially if you can (1) invest more, and (2) invest better—like in your own business.

Conversely, if you wait until you’re “rich” at 50 years old and invest $100,000 at 8% growth, while adding in $1,000 a month, and you’ll only end up with a little over $389,000 around 10 years later.

Waiting to invest until you’re “rich” means you’ll end up with nearly half as much money, even if you never increased the amount you invest. Almost anyone in America can retire a millionaire with this strategy—barring any catastrophic financial losses along the way (which is why insurance is necessary).

Slow and steady wins. But you gotta get in the race early.

When you should not invest

Here’s the big caveat. If you have debt with a crushing interest rate (e.g. any credit card), you’ll keep more money long term by paying that off rather than investing. The stock market as a whole averages ~8% a year (sometimes more like 8.5%, or 7, or 15% like this last crazy year).

If you are paying debt with annual interest payments higher than 8%, you probably need to deal with that first. If you have credit card debt, then I don’t even know what to tell you except get your own house in order first. The lowest credit card APR I’ve ever seen is 15.99%, which is far, far above what you’ll get in a typical year in the stock market.

But if the only debt you have is a house, start investing. If you have a car loan, yes pay that off, at least to the point where you can get your APR below 6% (which is still an absurd amount). If you have student loans, which last I checked are around 2.75%, you can invest.

If you have crazy APR on your debt (8%+), stop reading this blog and start listening to Dave Ramsay.

This is not investment advice. It’s meant to be a push for you to start doing research. If you want to dig in further, I recommend Charles Schwab’s Guide to Financial Independence. I get no kick-back from that link. I just read that book and really liked it.

So, please, don’t wait to start investing. You can’t afford to wait.


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