Before I graduated college, I already wanted to be financially independent. The ability to live life on your own terms without being dependent on someone else appealed to me. I didn’t want someone else to dictate my future. I wanted to be in control of my own destiny.
That sparked my interest in learning everything I could about personal finance. What did I have to do? What sacrifices do I need to make? I was so disinterested with working that I was willing to do whatever it took to get there. That was the building block of what led me to asking the question, “how do I invest my money?”.
I wanted my money to make money while I sleep so that if something bad happens to me later down the road, I would be set. That my passive income sources would cover all of my living expenses AND THEN some. If I wanted to go back to work, then I could choose to do so. However, it would be on my terms.
That’s when I learned that investing is crucial but I need to do the right kind of investing. I didn’t want to blow all of my money on one gamble that has a chance of wiping out all of the progress I made. I wanted to invest the right way so that I let time work for me instead of making time be the enemy.
That’s what led me to implementing the investing strategy that’s been proven to work. While past results may not indicate future results, I still wanted to give it a try. I didn’t mind trying when it has a historically good win ratio. That’s when I learned about…
Index Investing
When I was young, I wanted BIG returns. I saw Tesla stock flying by 50% in one year and thought that’s the normal rate of return. Oh, how naive was I. That’s when other personal finance bloggers were talking about index investing. On average, index funds generate between 7 – 10% annually.
Then I found out that those returns are phenomenal returns. Not even hedge funds can return those amounts on a consistent basis. It’s not the most exciting investing strategy but it provides results. This is the kind of investing that’s recommended for people who are starting out. I gave it a try.
If you are asking, “how do I invest my money?” You should be investing your money in a broad market based index fund that generates between 7 – 10% per year, on average. There’s no need to try for a 100% returns in one year because those investing strategies have the highest chance of failure.
The people who went all in on GameStop and became millionaires are either the most anomaly of the anomalies or they are flat out lying. The people on WallStreetBets on Reddit have a history of lying about their gains and losses from time to time. So then now you’re asking, what is a good bet?
Enter the S&P 500. The index fund has historically been a good bet and while not guaranteed, I expect it to be a good bet in the foreseeable future as well. There is the NASDAQ and the Dow Jones as well, but the S&P 500 has been the most touted choice amongst investors.
Alternatives to Index Investing
Of course, the S&P 500 and equities aren’t the only options to choose from. There are many alternatives to equities. There are proven asset classes such as real estate that has historically made many people wealthy. These days, the real estate market has gotten out of control.
It’s made so many people wealthy, as the US have had a record number of millionaires in 2021. Soon, it’s going to be that if you’re not a millionaire, you’re a part of the lower middle class. It’s become this way because of the meteoric rise in price of asset classes such as equities and real estate.
Real estate isn’t just a way to build net worth. Real estate is a way to generate consistent cash flows from tenants. It’s one thing to be worth a million dollars. However, it’s another thing to have a consistent $3,000 per month in net cash flow that pays for all of your expenses and then some.
It won’t matter if the prices fluctuate then because the net cash flow generated pays for expenses, anyway. With real estate investing, it’s in your best interest to find property that can rent for above the PITI costs. The tenants are theoretically going to pay down your mortgage and expenses.
AND give you leftover funds after everything is paid for. There are many asset classes to invest in that will make your money make you more money. Many investors diversify and invest in multiple classes, so that they’re not putting all their eggs into one basket.
Why You Should Invest: It’s so Crucial
Inflation is running rampant at 8%, with real inflation being much higher than that. Housing has become out of control. Just one person I know had rent increased by $855/month. What?! That is ridiculous! Food prices are also out of control. You have to pay more than double to fill up your car now.
It’s now more important than ever to protect your money from erosion and make your money increase in value. You don’t want to put your money in a savings account and watch as they slowly decline in value over time. The Fed expects inflation to remain high until at least 2024.
Even in 2024, they expect inflation to be at 2.5%, which is high compared to historical standards. The Fed has a history of manipulating the definition of inflation so that it looks artificially high or low, depending on what they need the people to believe.
It’s one thing if your grocery bill increases from $50 to $51, that’s very manageable. However, when your grocery bill increases from $50 to $75, then it becomes a huge problem. It could even get worse than that. Therefore, your money has to grow at a faster pace to combat those effects.
Life is getting more expensive and it can only get more expensive because population is increasing at a fast pace. Don’t be sitting ducks waiting for someone to get your finances in order. Take proactive steps in order to break out and stand on your own two feet.