Hello everyone. Stefan here from projectlifemastery.com. Today I’m going to talk to you a little bit about investing for beginners. How to get started. What’s the best way to get started and what advice do I have for people that are brand new.
To give you guys an idea, I got started investing when I was 18 years old. Now I’m 30 years old. At the time I didn’t know anything about investing, but I was reading these self-help books. I read some books on finances and just learned some basics about investing. I realized the most important thing is to start as early as possible. The earlier that you have to start investing then the more beneficial it’s going to be later in your life, because then you could take advantage of compounding interest, which Einstein said is the ninth wonder of the world.
You know, Warren Buffett and all these investment gurus all talk about the power of compounding interest. I learned some basic things about that, and so I knew at 18 years old I needed to get started. Of course, the earlier that you start then the sooner that you can make mistakes. You can learn from those mistakes. You have much higher risk tolerance because a mistake that you might make is not going to be as costly as opposed to if you’re in your 30s or 40s or 50s or 60s. That is where you have to be a little bit more cautious and more conservative in your investment strategy.
I was 18 years old, and the first book that I read on investing was called A Wealthy Barber by David Chilton. It’s more of a book geared towards Canadians, but it basically taught the principles of paying yourself first. First and foremost, the number one rule, the most important thing is to pay yourself first and to invest on a monthly basis an ongoing basis, so that you can take advantage of what is called “dollar cost averaging”. Have your investments, your money, compound over a period of time. I’m going to explain a little bit what I mean about those, but going back to my story, I got started when I was 18.
I start with about $500. My first investment was in a mutual fund. It was actually the Bank of Montreal mutual fund, here in Canada. I started putting aside 25 dollars a month on a pre-authorized payment plan to constantly buy more shares of that fund on a monthly basis. I think when I was 19 years old I made a $5,000 investment to another mutual fund. I invested in a few other different things, and then I just kind of stopped. I mean I was always kind of putting money aside every month, paying myself first, but I didn’t really do any active investing for a while. But I did remember a number of years ago, I did buy Apple Apple stock and I had a great return from that. I did buy Facebook when Facebook just went public a number of years ago and I made some money from that.
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However, back when I was 18, I didn’t have a lot of money to invest. I literally remember buying six hundred dollars worth of shares of Facebook and eight hundred dollars with the shares on Apple. Even though I did make some good returns, percentage-wise, the return was really only a couple hundred bucks, or a thousand bucks, or something like that. But since then, to give you guys an idea, I’ve done very well of business. I’ve learned a lot more about investing. At thirty years old I bought a real estate property. A number of years ago, I think in 2013, that is a rental property that I rent out. I make a little bit of a passive income from that, as well as the capital growth of that.
I’ve also gotten over 1.6 million dollar investment portfolio of just stocks. I no longer invest in mutual funds, actually I do have one mutual fund still, but primarily a stock portfolio that consists a blue-chip stocks, index funds, in a variety of different sectors. I have many dividend paying stocks, some real estate investment trusts, bonds, a number of different investments. I’ve also invested in private businesses. I’ve also done my own businesses alone as well.
Pay Yourself First
I’m going to go over some of the strategies and give more basic advice. I want to give you guys an idea that I started from nothing, and I’ve been able to build myself up to a millionaire today, at thirty years old. What I’m going to share with you can definitely help you. They’re just getting started. It can take time, of course, but I’m going to show you some just very basic principles that are really important for you to understand. Now, the first and most important thing is to pay yourself first. That’s the first thing they’re going to learn in any investment book or financial book. Because you need money to invest. You need money that you can put aside to save, or invest, or whatever it is. If you don’t have that, if you can’t take a percentage of what you make and put that aside, then there’s no hope for you to be able to grow your net worth and be able to make more money.
Whatever amount of money that you’re making right now, whether it’s $1,000 a month $2,000 a month 5,000 10,000 or more, you got to make a decision. The most important financial decision of your life is that you’re going to take a percentage of what you make (and I recommend 10 percent at minimum), take 10 percent and put that aside. Pay yourself first. You’re going to put it in a savings account, or an investment account, or some other account that you’re not going to touch. That is very important.
Manage Your Money
Now you might be saying, “Well, I don’t have the money to do this. I live month-to-month”. Perhaps the step before that, that’s actually even more important, is you’ve got to manage your money. You’ve got to manage your finances and you’ve got to pay attention to it on a weekly and a monthly basis. You should never be in a position where you’re living months without saving. That’s a horrible position to be in. That means that you’re never going to be able to get ahead in your life. Living month to month basically means that your expenses are here and your income is here and so, whatever income that you’re making is going right towards your expenses. The only other options to be able to pay yourself is either to make more money, and so that and keep your expenses where they’re at — make more, so that you have a positive cash flow you can then pay yourself first, or you’ve got to lower your expenses.
For most people, the best thing to do is to lower your expenses. Cut down on your current living expenses. If you’re living a month a month lifestyle, that you can’t afford to live the way that you’re living, you’re living beyond your means. That’s not smart, financially. Most people that live in a house or they rent an apartment or rent something that they can’t they can’t afford, they have a car that they can’t afford, they’re buying food and luxury items that they can’t afford, it’s not a winning situation.
Make Some Sacrifices
You’re going to have to make a sacrifice, and this is coming from someone who was in debt and one point of my life. When I came to this realization, I had to make a sacrifice. I had to. For example, I did move back into my parents house. I had to live with my friend on his couch for several months, where I had to eat at home and not eat out as much. I had to take the bus and get rid of my car. These are all sacrifices that you might need to make in order to bring down your expenses, so that you have that positive cash flow. This is very important.
Evaluate Your Lifestyle
Look at your current lifestyle. Set a budget for yourself, that you’re not going to spend more than X amount of money anything in excess. You’re going to save that. You’re going to pay yourself first. The reason why they say pay yourself first, is because you’re supposed to pay yourself that money before anything else. Before you pay your bills, your rent or anything else. That’s how important that you have to make this.
Start With 10%
You have to pay yourself the first ten percent. I don’t care if that’s a hundred bucks a month, twenty-five dollars a month, a thousand dollars a month, you have to make sure that you’re doing that. To give you guys an idea, I started that way but now (because my business and my cash flow is really big) I’m able to pay myself like eighty percent of what I make. Just because I have low expenses and very high margins in my business. Therefore, I’m able to take literally tens of thousands of dollars every month to invest that, and to be able to grow more my portfolio and everything.
Set Aside an Emergency Fund
You want to be in that position. You want to have positive cash flow, number one. Number two is you need to make sure that you have an emergency fund of savings. That is very important. If you don’t have that, then you’re going to be in trouble. Typically, what all the financial books say is you want to have at least three months to six months of savings. This is where you can pay your typical of your expenses. If your expenses every month is $2,000 a month (and by the way you’ve got to know what those numbers are), you have to know exactly what you’re spending every month, and what you’re making every month. If you can’t tell me those numbers, you’re going to be in financial trouble.
You have to know those numbers off the top of your head, so if it’s $2,000 a month that’s your expenses, then you need to put aside at least six thousand to twelve thousand dollars in savings as an emergency, in case something happens to your job, in case a disability happens, in case something happens to your business, who knows what can happen. You have to have that emergency fund. It is very important. You have that emergency fund of three to six months, and if you’re more it’s going to be more (you can do more than that if you’re more risk tolerant, you can do less), but three months at minimum.
Invest In Yourself
Once you’ve set up an emergency fund, you’re going to have an extra positive cash flow where you’re going to be paying yourself. You’re going to have that money go into a savings. What do you do with that money? How do you invest it well? You have to explore the different investments that exist. The number one investment that you can make, the number one according to Warren Buffett (you know the multi billionaire investor), the best investment you can make is not in real estate, not in stocks, not in your business — it’s in yourself. That’s the number one investment that you can make.
By “invest in yourself”, what I mean by that is investing in your knowledge. You should be developing your skills, your confidence, and your beliefs. You should focus on self development, learning about finances, learning about business, learning about marketing all the different skills you have. You must invest in yourself. All the most successful people in the world understand this. The truth is is that if you could invest in yourself, that’s what’s going to bring you the highest return out of anything else. If you continue down the path you are and you don’t invest in yourself, then you’re going to continue getting what you’ve always gotten. By investing in yourself, you’re going to be able to learn the skills and the confidence and the habits that can help you make more money. Knowledge will help you make better decisions in your life. That, in turn, will make you a lot more money.
For me, I realized this. I realized that I needed to invest in books. Number one, I needed to read. If you want to earn more, you have to learn more. I just started reading books. I started studying. I started going to courses, video training and audio training, and seminars, to continuously develop myself. That is very important. That’s the most important thing.
Start a Business
The second most important thing that I think you’re going to get that best return from (besides yourself), is your own business. Now, a business is something that has a high potential for reward. You are in control of the business. In fact, it is directly related to you. The more that you improve yourself, the more that your business will succeed. You always want to bet on yourself more than anyone else. Betting on yourself, investing money in a business (whether it’s an online business or whatever), it has a higher potential of growth and it’s going to be a lot less risky because you have more control over it.
What type of business? It might be getting started on an Amazon business, or a publishing business, or developing a blog and doing affiliate marketing, or doing your own products, or an app or a software. Whatever that is, you’re going to need money to invest and build that and market that. You want to have that advantage to be able to grow it. Those are the two biggest investments that I believe that you can make. For me a lot of the money that I make, I put it in myself. I’m always going to seminars and courses, even though I’ve made a lot of money. I’m still investing even more myself. I have coaches, I read books, I do all that sort of stuff continuously. Today I invest in my business because my business is a seven-figure business. It has the potential to grow even beyond that. I’m going to get the highest returns in my business. Starting a business is very important.
Stocks, Bonds and Real Estate
Other options that you have would be stocks, real estate, investing privately in other businesses and bonds. There’s a lot of different investment vehicles out there, and you can explore. You know a number of the different ones. I’m not an expert on the whole of them, to be honest with you. I think your business is always the best because you know that the most. You understand it the most, whereas other investments you might not understand or know much about. You want to explore the different options. For me, personally, I like stocks, primarily index funds.
In fact, Warren Buffett, that’s his advice for most part — to invest in an index fund. An index fund is basically a stock or a mutual fund that has very low fees, like ridiculously low fees, but it’s basically owning a segment of a market. For example, there’s index funds that you can own — the S&P 500, which is the top 500 companies in the United States. You can own an index that’s diversified, owning a piece of all 500 of those companies. You can own an index fund of the TSX (the Toronto Stock Exchange), that will own the top companies that are in Canada. You can own index funds that will own the whole world economy, or different markets. There are many different types of index funds out there. Index funds are great because, as the economy goes up, your investment goes up. You make more money when it goes down.
Invest Long Term
When investing, the best advice that I have is to invest long-term. Have the long-term mentality. Don’t be caught up in the whole “get-rich-quick” mentality, because that’s what’s going to lead you to making a lot of bad decisions. You’re going to get into trouble. I believe in investing long-term, and some investments that I make are where I invest in businesses and stocks that (long-term) are going to have a positive return. Depending how old you are, if you’re reading this and you’re less than forty years old, or even 50 years old, you have a lot of time on your hands. You have the time to wait. For me, when I invest in index funds or other stocks, it’s going to go up and it’s going to go down. I actually enjoy it when it goes down. Going down is a good thing, if you’re investing in index funds (or if you’re investing in blue chip companies or stocks that are very secure), because when things go down — that’s an opportunity for you to buy more at a discount.
Buy more shares, because you know the economy always recovers. Recessions, depressions, they always recover. If you’re owning index funds, you know for example in 2008 (when the recession happened), there was a great opportunity for you to buy more. If you did, if you were investing and buying a lot in an index fund, where we’re buying a lot of stocks during that time — today you’d be worth a lot of money. Invest long-term invest on a monthly basis. That’s known as “dollar cost averaging”, because the stock market is always volatile with ups and downs. If you invest every month, it’s going to even itself out. There’s going be times you’ll buy high, there’s going to be times when you buy low. Overall, by investing and buying every month, the trend is always going to go up. It’s going to always be better off for you. Dollar cost averaging, investing every month is very important.
I personally prefer stocks. I enjoy them because they’re very low maintenance. Index funds are pretty safe with low fees. You can get dividends on index funds as well, which means that you can actually get paid a dividend — either every month, or every quarter, or every year — depending on what the payout is. That’s a pass passive income. Also, you can actually set up a lot of these investments and stocks on a drip. That means that when you get paid from the dividend, it will automatically buy more shares for you. That is great because then you’re buying more shares. If you focus long-term,you have the benefit of compounding over a long period of time. Index funds, I think, are a “must” for every portfolio.
Blue Chip Stocks
You can also own blue chip stocks. I like them. I primarily invest in Canada, although I do do some investments in the US. Banks are good and they pay good dividends here. They’re very secure, for example, the Bank of Montreal here in Canada has not missed a dividend payment in over a hundred years. That’s going through depressions and recessions. You know the bank system is very secure here in Canada. You know there’s no risk of them collapsing, or anything like that. If it goes down, great! I can buy more. It’s going to eventually go back up.
Real Estate Investment Trusts
I like real estate investment trusts as well, because (although I do own a real estate property), I’m not a big fan of owning real estate. There’s more maintenance involved. There’s more problems that happen. If you really want to scale it, you need a property manager. You’re going to have to pay them, usually five to ten percent of whatever the rent is, just to manage the property for you. If I want real estate, real estate investment trust means that I can own a company that owns real estate. I can invest in them, and that way I benefit from the real estate market (whether it goes up or down). I can easily get out of it, whereas most real estate can be hard to get out of and liquidate. I can get paid a dividend from that as well, and I don’t have to manage it.
I think learning the different sectors, the different models, the different vehicles is important. Reading books on that I think is very important. Index funds would be the simplest advice that I give for beginners to get started with. Do some research on those. Real estate is another thing, do the research on that.
I think it’s important to make sure that you get started as soon as possible. At times you’re going to want to make sure you’re very strategic about the investments that you’re making. You’re not just buying real estate if the market is hot. For example, right now in Vancouver, the real estate market is ridiculous. I personally would not buy right now. It just doesn’t make any sense – I’d much rather use that money invest it in stocks or other vehicles that exist out there.
I know I sprinkled a lot of different advice here for you, but just to recap:
- pay yourself first, ten percent ideally
- invest in yourself
- make sure that you have good savings, three to six months of expenses
- invest in a business if you have one, or other people’s businesses
- stocks — explore the different opportunities
- invest long term
- I like to invest to get a passive income specifically in dividends
- I personally don’t enjoy mutual funds (even though I still do own one)
- a great book that can help you is Tony Robbins called Money Master The Game
- another books by Robert Kiyosaki, Rich Dad Poor Dad
I think these are the most important things. Get yourself in a position where you have the money to invest. You don’t need a lot of money to invest. I think that’s a misconception. Get started with a couple hundred bucks and make sure that you build up that savings as well. Manage your money, because that’s really the most important thing. If you don’t do that it doesn’t matter how much money you have. If you can’t manage it, then you’re going to lose it. You’re going to you’re going to make a lot of poor decisions and make a lot of mistakes. To get started with stocks, there’s trading accounts that you can get set up. Most banks, they have their own trading accounts.
The last piece that I’ll give you guys: you want to take advantage of any tax deferral systems that you might have. For example, in Canada, we have what is called a TFSA (tax-free savings account). Currently, you can put in fifty five hundred dollars a year into it. That will grow tax-free. It is very important to take advantage of that, and max that out. The United States has something different, IRAs. I’m not totally familiar with the US. Make sure that you take advantage of that, because that’s also very important.
Stefan James from Project Life Mastery reveals his very best strategies to mastering and living life fully; everything from how to be motivated, his secrets to success, how to make money online, making passive income online, how to change your beliefs and mindset, being healthy and physically fit, being happy and productive, life management, cultivating relationships, spirituality, and much more!