How to get started investing

Confession time: Despite a financial and business education more comprehensive than most, I never invested. I grew up poor and just couldn’t wait for my first “serious” job and those big bucks. It was so bad, I decided to drop out of college in my senior year. “None of this ivory-tower crap is going to make me any more money,” I told everyone who would listen. Fortunately, both of them were able to talk me off the ledge. One of them was my future wife, bless her little gizzard.

After graduation, my illusions were shattered: There are no high-paying jobs in a recession for someone with just a bachelor’s degree. There are hardly any jobs at all. Carol Burnett came up with the formula: Comedy = Tragedy + Time. That explains why I’ve been able to entertain so many guests after dinner with the now-humorous details of my early career. Bottom line: It took several years to set up a household on entry-level wages. My big break came when, in the final year of my MBA, I landed a job that tripled my income. (No matter what all the critics say, no single degree makes you as much money as an MBA.)

Finally, we were rolling in it. The top restaurateurs in town knew us by name. You would think that someone with such a solid education (in accounting and finance, no less) would realize the time had come to start investing. You would be wrong. We had accumulated us some Joneses along the way, up with which we had to keep, and we did some serious “keeping” for the next few years.

Of course, we told ourselves we were “investing.” (All big spenders do that.) You could call that spectacular wooded plot in the Cape (Town, not Cod) for our next dream custom-built home an investment. We did. You can call anything you spend money on “an investment” — nice cars (they will be collectible one day, you know), good wines (more valuable when aged), jewelry, and any number of other wanna-haves — investments, one and all.

Deluding yourself that what you’re doing is smart is not hard. Wise readers know where that journey ended: Our debt tripped us up in our 40s, and we got wiped out in yet another recession.

That’s when I got mad.

And that’s when I got smart. I discovered the more you make, the more you spend. And it’s true what they say: Money can’t buy you happiness. Lack of money, though, doesn’t bring you barrels of fun, either. I haven’t heard too many people say that, because it sounds materialistic; but take it from someone who’s lived on both sides of that railroad track. There is more peace in the house when the finances are in order.

This post was started in response to a question from a reader, who asked: How do you get started investing? Penny stocks, maybe? In response, I wrote a nice, sterile post with the five-point plan to get started. But after reading it over, I did the electronic equivalent of crumpling it up and tossing it in the wastepaper basket.

Why? Because I’ve heard that all before and it never got me to start when I should have started. Why, then, would it help the non-investing reader?

Everybody has heard the message that you’ve got to invest. And if I have a dollar for every “get-started” plan written, I’d be one of the sharks on “Shark Tank.” And yet, it is equally well documented how Americans are headed for retirement disaster because they don’t invest.

Why not?

1. Passion

Because none of those articles, lectures, books, posts, speeches, or admonitions addresses the starting point: passion.

Until you get mad, you’re not going to change. That’s true for any lifestyle improvement: losing weight, quitting smoking, getting fit… or investing.

So, Step One is making a passionate decision. It doesn’t matter if it’s fear, anger, humiliation, or even (dare I say it?) greed. Investing is a long, long grind. Along the way, you’ll face thousands of temptations to derail you, and very few to keep you on track. In the face of that barrage, you’ll only stay the course if you have a steely resolve, and we human beings are wired in such a way that pretty much the only way to maintain that steely resolve is to have it fueled with a long-term fire in your belly. Nothing but that passion will neutralize the onslaught of temptations coming at you day after day… after day.

Once you’ve made that resolve, pretty much anything you invest in can work. My father-in-law only invested in a savings account. You could argue with him all you want (“C’mon, Dad, you can double your earnings with any other investment!”) but a savings account was the only investment he felt passionate about. He made it work. With passion, you can make anything work.

2. Foreground

I started (late, to be sure) with a savings account. I wanted to open a brokerage account, but back then you needed a couple thousand or some huge number like that to open a new account. Along the way, I discovered a nice thing about a savings account: there’s no minimum to start, or to deposit. When we got a $15 refund for something, I could deposit that into the savings account and nobody would frown. It became a game: how high can we make it grow this month? Saving became a foreground activity, not a background activity as so many people think it ought to be.

And that, I think, is Step Two: Make your investing an intentional, “foreground” part of your life. Facing my mid-40s with nothing forced me to admit that my lifestyle was proof that I’m not a natural saver/investor. And so, just like a recovering alcoholic, I need to be very deliberate in staying off the spending wagon. No more fancy cars, no more fancy nothing… and no more Joneses.

I began measuring my worth in things other people couldn’t see.

We were surprised to see how quickly our savings grew when it became an endeavor of passion. So we signed up for 401(k) plans where we worked, and went for the maximum deductions, matching or no matching.

Mechanically, I think it’s important to start with safe investments, like a savings account, a 401(k) plan at work, stock market index funds — stuff like that. For the first four or five years, the lion’s share of your investment value will be your contributions, not your returns. You can always change your investments along the way.

The important thing is picking a safe investment you’ll feel the most passion for. Then learn as much as you can. You’ll find out soon enough what generates the most passion. Then study that for a few years and you’ll be good.

3. Opportunities

There’s something else very few people talk about, and that’s opportunity. J.D. wrote about it recently, but he’s one of very few. I discovered this a few short years into my now-passionate investing career: Once you make investing a foreground part of your life (i.e., you think about it a lot) it’s natural to want to learn more. As you do that, you become aware of things that passed over your head before. And one of those things is… opportunities.

Life brings everyone a string of opportunities. Until I became conscious of investing and made it a priority, I was totally oblivious to them. When someone would mention something that sounded like an investment opportunity, I’d cut them off with a put-down like, “Oh, that’s just a scam. Nothing could be that good. What a waste of time. Wall Street’s just a casino!” And then I’d continue debating whether this great chef’s new restaurant would be as good as his previous one.

When you’re thinking of buying a Honda, what do you see? Hondas all around you. Same with investment opportunities. It’s a well-known trait of the human brain that once you’re conscious of something, you notice much more of it. Every person has a few outstanding investment opportunities that come their way. So I’d say Step Three is to keep your eyes open for all investment opportunities that come along. Be prepared to pass on 90 percent of them, but be ready to pounce on a good one when it comes along. Being prepared comes naturally with anything you’re passionate about because you love to read about it, talk about it, and think about it.

The nutshell

As I said, it doesn’t really matter which particular investment vehicle you pick to get started, as long as it’s not too risky. Success in the long run will come from:

  1. Passion
  2. Putting investing in the foreground of your mind
  3. Preparing yourself to take advantage of unique opportunities which will, almost inevitably, cross your path. Preparing includes learning how to distinguish between get-rich scams and real opportunities.

No two of the people I know who succeeded in their investing followed the same path to success, or invested in the same things. But all of them were passionate about it, thought about it a lot and took advantage of at least one good opportunity which gave them that boost you can never plan for.

It’s easy to talk yourself out of anything and find fault with any option. Those who succeeded didn’t talk; they acted. To misquote my good friend Vern: thinkers think and doers do. Until thinkers do and doers think, investing is just another word in the overburdened vocabulary of broke Americans.

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There are 33 comments to "How to get started investing".

  1. Stefanie @ The Broke and Beautiful Life says 18 March 2014 at 04:15

    Great post. I’ve always wondered about this behavioral “tipping point” and what makes us go from knowing everything we should be doing to actually getting started and doing it already. I think you touch on a good point with the passion, getting mad, etc. Something has to be your kick in the pants.

    • Linn Dallas says 23 March 2014 at 20:20

      Everything in life is hinged on a secure line of decent pay and systemic provided benefits . Without that base, it is all about living for the day and riding the highs, only to crouch down for low storms. Investing in those conditions just seems to hopeless when one considers the mountains of cash that it will take just to make it through a dozen years, let along twenty or thirty..More is simply just out of the question.
      Then there are the extortionist taxes/insurance that consume an upfront half of all income born from employment or investment….The mountain is just too damn tall and the climbing edge way too steep, and in the end the effort doesn’t even succeed in getting one to the end comfortably in innumerable cases, for all the pain that one must go through..Live for today and ride the wave, then party till the day you drop! If disaster strikes in the form of disease, just except ones fate, lay down in some forgotten corner, then die like a dog…They don’t worry about any of it, so why should we humans?

  2. Income Surfer says 18 March 2014 at 04:17

    I’ve always believed we need to know (and likely change) ourselves, before we can change our fortune. Thanks for the post William

  3. Beth says 18 March 2014 at 04:18

    Funny, I realized reading this post that I have a big blind spot when it comes to investing. I don’t think of my savings accounts or RRSPs (currently in mutual funds) as “investing”. To me, “investing” is this complicated difficult thing involving researching and picking individual stocks. Sigh. Such a limited point of view.

    I think people like me put off investing because we think it’s a lot harder than it actually is.

    And using “investing” as a justification to spend drives me crazy too! Why anyone thinks jewelry is an investment is beyond me. IMHO, if you want it, own the decision – don’t make flimsy justifications.

  4. Jonathan Look, Jr. says 18 March 2014 at 04:18

    This is an interesting article and I agree with most of it. The importance is getting started.

    One thing that keeps getting overlooked, and perhaps most important, is the spending part of the equation. Most people live their lives spending between 98 and 102% of their income. The tragedy is that most middle class people could survive, quite well thank you, on maybe half of what they make were it not for pressure to compete with their peers.

    Investing as recommended AND living far below their means could enable people to reach their financial goals much earlier and PERHAPS, move money into the background and start living an experience rich life.

    • Ramblin' Ma'am says 18 March 2014 at 08:14

      “One thing that keeps getting overlooked, and perhaps most important, is the spending part of the equation. Most people live their lives spending between 98 and 102% of their income. The tragedy is that most middle class people could survive, quite well thank you, on maybe half of what they make were it not for pressure to compete with their peers.”

      I thought of this today when I read that a third of Americans have less than $1000 saved for retirement.

  5. Kali @ CommonSenseMillennial says 18 March 2014 at 05:19

    What a great way to start my Tuesday morning, by reading this! I LOVED what you said about passion – I’ve experienced the same thing in my life, that you’re not going to make a big change in any direction unless you get mad about it first. Learning how to invest isn’t too hard these days with the wealth of information the Internet has to offer us. But all the how-to knowledge in the world won’t get you where you want to be if you’re not deep down burning with the desire to achieve your goals or get something done. Thanks for this post, William!

  6. Dave @ The New York Budget says 18 March 2014 at 05:33

    The biggest issue with an MBA might not be the job you get when you graduate, but the Joneses you meet while there. When the MBA program becomes your whole life, you will definitely be hanging out with people who will also be making (and spending) a lot of money after graduation.

    • William @ Drop Dead Money says 18 March 2014 at 07:02

      Very perceptive – what a great point! 🙂

  7. Artistic4 says 18 March 2014 at 07:05

    Oh, the angries, they teach us a lot.

    As someone who got caught up in the prosperity gospel (spend more, more magically appears because God wants us all to be rich), I’ve finally gotten connected to my anger and am taking solid steps to getting out of debt permanently. The moral of the story: learn to identify big spenders in your life and do not heed their irresponsible advice.

    Great advice on opportunity, too, like in Outliers, it’s all about opportunity.

    Thanks for a great post.

  8. Mr. Utopia @ Personal Finance Utopia says 18 March 2014 at 07:58

    That’s unfortunate that you went so long in life before learning your lesson on investing and living within your means to be able to do so. But, hey, at least you finally did…better late than never. And, sharing your lessons with others who are willing to listen is a good way to “redeem” yourself.

  9. Kristin Wong says 18 March 2014 at 08:00

    Great post, and I really enjoyed the part about opportunity. Not just with investing, but with saving in general, I found that once I decided I was going to be a better saver and get my financial house in order, a lot of savings opportunities popped up. But I’m sure they were always there, I just didn’t recognize them as savings opportunities before, because my mind wasn’t in the right place.

    Great insight, William!

  10. freebird says 18 March 2014 at 08:12

    I spend most of my free time shopping for stocks so I guess you could say I have the passion part. What I think fuels it is the same stuff that derails lots of households– but for me the Jones to keep up with is Paul Tudor, and it’s not his spending habits I care about.

    Over the past couple of decades I’ve gradually homed in on an approach that works for me, very slow gradual improvement and many mistakes along the way, but I’m never giving up at the game. My preparation is in two parts, one is I keep a large cash balance (some call it dry powder) and the other is I keep my eyes open but always with plenty of skepticism. A little paranoia actually helps, many scams aren’t obvious solicitations, sometimes it’s stuff you read that if you dig deeper you can find are indirect stock pumps. Detailed stories about deals gone sour aren’t very common (or popular) but by all means invest the time to read them carefully when you find them. You don’t need an MBA to grasp most of these, just imagination and persistence.

    My approach isn’t for everyone, if you’re not interested in finance, by all means buy the lowest cost index fund you can get in your tax deferred plans and keep adding to it as quickly as you can. You may never see a big kill but come retirement age you’ll be glad about what you did.

  11. stratagic says 18 March 2014 at 08:14

    Thank you so much for this post. You kept it simple and concise with the three points which I found to be resonant with my own experience. Passion is definitely #1 and I have found it has pushed me off my behind and into action many times. When I was young and living in an inner city, it was a passion and fear of poverty that made me study hard. If my circumstances were different, I would no doubt work less hard. Now, my passion is to be my own boss and the passion in turn, is really helping me focus on the direction of my days, weeks, and years. Related to this, I think people with no real sense of their inner passion/desires are the ones being driven to consume so much materials good– they think all those material goods are a mark of goals reached because they can be measured on the outside (house, job title, fancy cars, vacations, designer clothes) but little thought is given on whether this is really the case and even less consideration is given on defining true success/real goals (having a healthy saving accounts, healthy bodies, time with family, no money stress).

  12. David L. Wright says 18 March 2014 at 08:18

    Very nice information. It’s never too early to start investing. In fact, it’s probably one of the most important decisions that you can make early in life that will affect how comfortable your retirement will be.

    I have a few comments regarding your advice to “…keep your eyes open for all investment opportunities that come along. Be prepared to pass on 90 percent of them, but be ready to pounce on a good one when it comes along…” Firstly, yes, most of the information that you receive is just “noise” and should be avoided. Every now and then, either stock prices move into the “bargain section” and should be considered (think 2008’s financial meltdown), but I think this is advice that only people who are willing to closely monitor their finances should heed — as you mentioned, there are people who become passionate about their investments.

    But most people are dispassionate about investing and more than likely are either clueless or just uninterested in the subject matter. For those people, I’d STRONGLY recommend index funds.

  13. MoneyAhoy says 18 March 2014 at 08:22

    #3 is a great insight. It funny, but once you get started really learning about personal finance, it’s like flipping on a light switch. Investment opportunities and avenues to make money seem to spring up all around. They were always there before, but the blinders were on 🙂

  14. Chuckie G. says 18 March 2014 at 08:31

    I have to say my favorite nugget in this is “Deluding yourself that what you’re doing is smart is not hard.” How true that is. Engaging in said delusions is the overarching reason I ended up in debt.

    My favorite delusion of my past was convincing myself how it was worth it to “invest” in my own happiness (read: buy crap I didn’t need with money I didn’t have). That sounds stupid it is because it is stupid.

    This post also mentions fire in one’s belly. I am certainly on fire to get out of debt and have been resolute in this pursuit for the past 4 years. I estimate I’m about 17 months from zero and harbor concern that I’m but a one trick pony. Once the debt is gone, what happens? Will I lose this passion when I’m out of crisis mode?

    I like this concept of opportunities that JD wrote about was mentioned here. I’m working on how I can mentally shift my intensity/passion from getting out of debt to saving for as yet to be determined opportunities. Admittedly I find my daydreams are more about engaging in somewhat frivolous purchases that have been off the table than they are about putting together a war chest (opportunity chest?). Anyone have good suggestions as to what gets them going to save for the TBD opportunities?

  15. Brian@ Debt Discipline says 18 March 2014 at 09:02

    Really like point #3. Having your budget/finances in order gives you the opportunity to take advantage of deals you might otherwise overlook. Looking forward to that time as we finish our debt snowball later this year.

  16. Matt YLBody says 18 March 2014 at 09:07

    Great post – one of the problems is that nobody is prepared to invest when a great opportunity comes along. Whether it be stocks, houses, or a business opportunity. The goal is all the same – to leverage your money and put it to work for you.

  17. Alea says 18 March 2014 at 09:35

    Great post. That’s where I am at the moment financially, learning how to spot “that opportunity” and leap on it. When I think back to 2008 if I had the money and knowledge I have today, it would have had a lot more money today. But I didn’t have either. Do I beat myself up over it? No, because opportunities will always show up so all is not lost.

  18. Crystal says 18 March 2014 at 09:56

    I grew up with savers as parents, so I was a saver. But I also saw where they scrimped and it seemed to make life worse, so I dubbed myself a “consumer saver”. My husband and I save 20-30% of our income for padding and investments (like our paid off rental property and high dividend yield stocks), but we do spend a pretty penny to live the life we want now too. We just make sure to save so our future selves can continue the same lifestyle. 🙂

  19. CPW says 18 March 2014 at 11:20

    Like the nuggets in this post. And the sentence: I began measuring my worth in things other people couldn’t see…hit me good. Passion which fuels it, keeping it in the foreground, and being receptive and ready to spot opportunities is so easy to recall as a guiding tool. I have made many mistakes while having good sums of money (and even a small trust) when I was younger. Now as a self-employed person, I touch and feel exactly where my livelihood dollars go. I am investing better now with less than I ever did when I actually had more $$ at my disposal. Strange how that works and the lesson is taught.

  20. Brandon says 18 March 2014 at 13:22

    This article is great for most people. It is very difficult to stay away from the fads or the get rich quick schemes. However, its even harder to just stay on track and not derail from your investment goals when you start.

    I started using and this was my saving grace. Its automatic, smart, trustworthy, and it forces me to stay true to my goals. I would reccomment it to anyone. My mom and brothers have all signed up. If you are interested check out their main site. Even if you dont use my link below and get the 25$ credit for using it, at least sign up on your own. Its a fantasitc company and will help you invest towards your goals in a safe and logical way.

  21. Wesley T. says 18 March 2014 at 14:45

    Thanks for the post, William. To me, passion for investing is of huge importance, so kudos for bringing that point out.

    It’s also important to understand the concept of compound interest, and why starting early is huge to your financial well-being in the long run.

  22. Kasia says 18 March 2014 at 17:25

    You’re spot on with the passion. Passion motivates us to take action.

    I think a lot of people are deterred by the idea of investing because they are under the assumption that it’s for cashed up individuals with money to burn. What they fail to realise is those cashed up investors had to start somewhere too. It’s about taking small regular steps in the investment journey that will yield great results down the line.

    • William @ Drop Dead Money says 19 March 2014 at 06:27

      I could not have said that any better! 🙂

  23. No Nonsense Landlord says 18 March 2014 at 20:19

    Great post. Once I started focusing on real estate to get out of the rat race, it started to be easier.

    it does take some time to focus, and see the end goal, in order to start down the path.

  24. Kevin says 18 March 2014 at 23:22

    Thanks for the great article, it’s very insightful. The statement that “no single degree makes you as much money as an MBA” stuck out to me, however. Not all industries operate on the concept that higher degrees = higher pay. There are some industries in which any degree higher than a bachelor’s is of little to no worth. Professional aviation, for example. Major airline and cargo carrier captains with only bachelor’s degrees regularly earn 200k-250k, and some even have just an associate’s. Only a handful of grad schools have MBA graduates making an average of that amount. A 10-year captain could have multiple advanced degrees and will make no more than a 10-year captain with an associates degree. Perhaps I’m nitpicking and going off on a tangent from the original topic, but I wanted to point it out nonetheless.

    • William @ Drop Dead Money says 19 March 2014 at 06:34

      I agree with you in principle (Bill Gates has no degree). But… the question, as phrased, is: is there any other single degree that pays off better than an MBA?

      Someone pointed out that an M.D. has a better expected payoff. That’s probably true. But what other degree, in and of itself, gives you a better shot at increasing your pay?

      Maybe some readers can weigh in on that question. (This is a topic for a GRS post under construction, so all comments welcome!)

  25. Vincent Duncombe says 19 March 2014 at 03:58

    This is a great post. I think you got it right saying that you have to get upset first. Once you are doing okay you never see the need to change until something finally causes you to wake up. It’s interesting that we have to wait for a crisis before we realize what we should be doing.

  26. Gerben says 19 March 2014 at 12:11

    Great Stuff

  27. Steve says 19 March 2014 at 20:11

    I’m 67, grew up poor, now have zero debt and am approaching seven figures.

    I say all that to add some credibility when I say the author is not giving helpful advice. I know it didn’t apply in my own life.

    In fact, the more I think about it, I think the author is giving bad advice.

    I never had a “passion” for investing. It was never in the “foreground of my mind.” What was in the foreground was being a good father and a good soldier. Investing was a required chore, like taking out the trash in time to get picked up.

    And as far as being alert to “opportunities,” this is a sure way to be eating cat food during your retired years.

    Let me do a quick brain dump. I know I’ll forget some important things, but here’s what’s coming to my mind right now.

    1. Save, save, save and save some more. (But try to enjoy life, too, and don’t be a cheapskate.)

    2. Marry a good woman/man. Nothing else will impact your money (or happiness) as much as this decision. Our 45th anniversary is coming up in a few months, and I love her more than ever.

    3. Read/study the many excellent books on investing. Those by William Bernstein on asset allocation I think are especially valuable.

    I could talk on this for hours but it’s late and I’ve already rambled on too long. Good luck to all the young folk. It’s a much harder world than the one I grew up in, I know.

  28. Lakshay says 14 May 2014 at 01:00

    It sounds great.Then why get rich slowly, it could be getting rich fast with your ideas.

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