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.

More about...Investing, Planning, Retirement

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Stefanie @ The Broke and Beautiful Life
Stefanie @ The Broke and Beautiful Life
6 years ago

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
Linn Dallas
6 years ago

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… Read more »

Income Surfer
Income Surfer
6 years ago

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

Beth
Beth
6 years ago

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,… Read more »

Jonathan Look, Jr.
Jonathan Look, Jr.
6 years ago

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… Read more »

Ramblin' Ma'am
Ramblin' Ma'am
6 years ago

“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.

Kali @ CommonSenseMillennial
Kali @ CommonSenseMillennial
6 years ago

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.… Read more »

Dave @ The New York Budget
Dave @ The New York Budget
6 years ago

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
William @ Drop Dead Money
6 years ago

Very perceptive – what a great point! 🙂

Artistic4
Artistic4
6 years ago

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.

Mr. Utopia @ Personal Finance Utopia
Mr. Utopia @ Personal Finance Utopia
6 years ago

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.

Kristin Wong
Kristin Wong
6 years ago

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!

freebird
freebird
6 years ago

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… Read more »

stratagic
stratagic
6 years ago

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… Read more »

David L. Wright
David L. Wright
6 years ago

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… Read more »

MoneyAhoy
MoneyAhoy
6 years ago

#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 🙂

Chuckie G.
Chuckie G.
6 years ago

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… Read more »

Brian@ Debt Discipline
[email protected] Debt Discipline
6 years ago

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.

Matt YLBody
Matt YLBody
6 years ago

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.

Alea
Alea
6 years ago

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.

Crystal
Crystal
6 years ago

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. 🙂

CPW
CPW
6 years ago

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 $$… Read more »

Brandon
Brandon
6 years ago

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 betterment.com 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… Read more »

Wesley T.
Wesley T.
6 years ago

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.
-Wes

Kasia
Kasia
6 years ago

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
William @ Drop Dead Money
6 years ago
Reply to  Kasia

I could not have said that any better! 🙂

No Nonsense Landlord
No Nonsense Landlord
6 years ago

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.

Kevin
Kevin
6 years ago

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… Read more »

William @ Drop Dead Money
William @ Drop Dead Money
6 years ago
Reply to  Kevin

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!)

Vincent Duncombe
Vincent Duncombe
6 years ago

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.

Gerben
Gerben
6 years ago

Great Stuff

Steve
Steve
6 years ago

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… Read more »

Lakshay
Lakshay
6 years ago

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

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