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.
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.
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.
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.
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:
- Putting investing in the foreground of your mind
- 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.
William Cowie spent 30 years in senior management (CFO/CEO) before retiring. He has a bachelor's, a master's, and a partial doctorate in management and strategy. Author of the book “The Four Seasons of the Economy,” William also assists medium-sized businesses in the use of the Four Season Strategy to help them capitalize on economic cycles. He runs two blogs: Bite the Bullet Investing (investing) and Drop Dead Money (the economy) and writes for several other blogs in addition.