You can learn how to make money investing: Just do it!

Several readers responded to our “Big Question” post by saying they'd like to see something about investing, and some elaborated that they'd like to see some advice for investing on a small scale. Small in scale obviously means different things to different people — but I'll relate my experiences, for what it's worth.

My background is in finance and accounting. You'd think having 10 years of college, focusing on business and money, I, sooner or later, would know what I was doing with my money. You would be wrong. Coming out of college, I joined the rat race in the fast lane and zoomed past most of my peers, landing a top executive job in a fast-growing computer company at a young age, and ending up with a small minority stake in it. When it was sold to a major conglomerate, all the stockholders received generous payouts. I was 30 at the time and decided to retire. For my retirement, I wanted to come to America and study some more — isn't that just the geeky “investment” to make?

Not wanting to become a professor, I rejoined the rat race, only this time taking care to stay away from the fast lane. It may look attractive to those getting passed, but staying in it requires too much time and dedication, and you have no life beyond it. I wanted to visit, smell and photograph some roses along the way.

I never gave retirement another thought. I just figured that I've done it once, I can do it again anytime I like. Well, that's not quite as easy when you don't make fast-lane money anymore. It took me a few years to realize this. I know, I know: I may have degrees up the ying-yang, but that doesn't mean I'm smart. I was now in my 40s, and starting all over with close to nothing.

The smart people (like J.D. Roth) say you have to invest and start early. Sounds good, of course … but I couldn't get myself to actually do it. Looking back, I can see several things which held me back.

Roadblocks

1. I didn't make enough money. At least that's what I told myself. If you want to invest, you need to have some “over and above” money, right? I had myself convinced I couldn't check that box.

2. I didn't want to make sacrifices. In graduate school, we had a Polish couple living next to us in student housing, Wojcek and Kinga. He was an out-of-state student and had to pay high tuition fees. Yet, when he graduated, they had a down payment for a house. Amazed, I asked him how he did it. His answer boiled down to living close to the poverty line and squirreling away every penny they could. In five years, they saved up $18,000 and they bought a $180,000 house. My earlier life, on the other hand, had accustomed me to an inflated lifestyle. It doesn't take many years for that to turn into a sense of entitlement. “Hey, I'm entitled to eat out so many times, drive such-and-such a car, and live in a house with so many square feet.”

3. I failed once. I tried to open a brokerage account with Charles Schwab, back when they were the only discount brokerage around, to invest in stocks. I didn't have the minimum required to open an account. It was humiliating to be told I don't have enough money and, for some weird reason, that just stuck in my mind, reinforcing the first point I made up above. Worse, it made me not want to try again.

4. What's the point? Even if I had the minimum (as I recall, it was something like $1,000 back in those days) it was so little, there was no way it could ever be enough to give me a comfortable retirement. Besides, even back then everyone was talking about the market being rigged against the little guy. So why bother? I may end up losing it all, anyway.

5. I didn't know enough. Talking to friends, coworkers and acquaintances, it sounded to me like you needed a lot of luck to make good investments. At the time, I remember Microsoft and Walmart were the hot, high-growth stocks. But were they going to mature right when I bought? When a growth stock matures, its stock price crashes as the P/E (price-to-earnings) multiple gets deflated (like happened to Apple last year and Whole Foods this year). Because I didn't know enough about the stock market, I figured I had better stay out of it.

Other people told me they don't have time to invest, but I knew that didn't apply to me (or to anyone else, for that matter). If someone told you you'll win a million dollars if you set aside an hour every Saturday, we'd all do it. We all make time for something we truly value. I knew that I would make time for investing if I truly believed in it. Trouble was I didn't.

What Changed?

Three things:

1. Our 401(k) plans. We both got jobs which offered what was still a fairly new thing back then — 401(k) retirement plans. These things are not perfect, and they've generated a lot of criticism; but at the time, I thought it was a great thing for only one reason: I got to take it with me.

Until the early '80s, the default retirement option at most employers was a pension. The problem with a pension, though, was you often lost it all when you changed jobs — and that was by design. Back in the day, employers used their pensions as a golden handcuff, an incentive/reward for staying there. A 401(k) was different because you could take it with you when you moved on, or if you were “asked” to move on.

So, we embraced our 401(k) plans and contributed to the level our employers matched. It wasn't much, but at least there was some “free money” (the matching) to give us the motivation to do it.

And then we forgot about them. In hindsight, that was probably a good thing because they grew quietly and undisturbed. You avoid using any 401(k) plan at your own future peril.

2. Our savings. My wife and I grew up in frugal households and we tend to live below our means. So, we opened a savings account to serve as an emergency fund. We lived on a strict budget — not overly tight, but it was a high priority never to exceed it. And, every month, we'd transfer everything left over to the savings account and start fresh for the next month. The emergency fund slowly grew, and we never paid it much attention. There were a few times a car needed repairs and so on, and it was nice to have enough for that. But, other than that, we never really thought of it.

Then, one year, we got a bigger income tax refund than we expected. The natural thing was to put it into the savings account, which we did. But then, suddenly, we looked and saw that we had “real money” in that account.

It dawned on me that we had enough to risk opening a brokerage account without the fear of being told we're insignificant cockroaches.

3. Old age suddenly drew closer. After we turned 50, and the over-the-hill parties faded in the rear view mirror, we looked through the windshield of time and gulped. What'll we do when, like the Beatles song, we turn 64? Funny how you never think of this when you're young. But, as they say in the sports world, Father Time is undefeated. Sooner or later he'll beat you.

My (and your) only defense against that old fart is our investments.

Decisions

So, all of a sudden, I was confronted with the question: What am I going to invest in? I had no clue. That's when, as my wife put it, I went to “night school.” Every night, for months, I'd hit the Internet after dinner till past midnight and learn everything I could about investing in general and stocks in particular.

Why stocks? If I were a different person, I'd probably go for rental real estate, because you can (literally) buy the house next door and keep a watchful eye as other people pay down your mortgage and inflation builds you a lovely nest egg. However, to make that work, you need a modicum of handyman skills and you should be somewhat of a people person, engaging enough to attract tenants, and tough enough to kick them out when they don't pay on time. I'm neither. I am enough of a geek, though, with enough education to understand companies and stocks. So that's why I became like the little robot in the movie “Short Circuit,” muttering “input, input” night after night.

What I Learned

1. Investing matters. I can kick myself for the years I avoided it, and the overcome-able reasons I used to justify that. As time passes, we'll be less and less able to rely on Social Security or pensions. Therefore, you will be the master of your fate, and there's no way other than investing to master your fate when you're older.

2. You get nothing for nothing. To get something in the future, you have to forgo something now. It is what it is.

3. Time is everything. Even if the amounts you work with are small — and they can be — they will add up the longer you give them.

4. Patience is essential. As Warren Buffett puts it: Investing is like planting a tree — nothing happens overnight.

5. Perfection is not required. Nobody, not even Warren Buffett, has a flawless track record in their investments. That's the bad news. The good news is investing is robust enough that, as long as you are patient and diligent, the good will far, far outweigh the mistakes and misfortunes. My perfectionist tendencies kept me from investing for too long. (“If I can't do it right, why do it?”) Imperfect investing, started earlier, will always beat perfectionist investing delayed.

6. You can learn. There are plenty of resources, free and paid, to learn everything you need to know to succeed at investing. The good news is it's not rocket science, so anyone can learn it. The bad news is it's not all obvious, so you do need to put in time (nothing for nothing, again).

But…

7. It's never too late. We got serious after reaching 50, so we had to sacrifice more than we would have needed to if we started earlier, but that's the price of folly. The good news is you can learn from my mistake. And if you think you're too old, stop. Just stop. You can always catch up; it's never too late.

The key to success, though, is the old Nike slogan: “Just do it.”

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Cynthia
Cynthia
5 years ago

This is a nice enough post, but it doesn’t teach anything much about investing. This is a minor point, but I don’t understand why so many of the postings invoke J.D. He doesn’t really post much here and hasn’t for many many years.

tony noculak
tony noculak
5 years ago
Reply to  Cynthia

The article was excellent advice. Stocks go up because the companies sell lots of their products. If they are high quality products that people or other businesses buy at an increasing rate the stock will go up in time. I prefer simple and mainly look at revenue growth and read up on the company and it’s product. Companies are like humans, babies, teen’s adolescents, young adult etc. Invest in companies in their growth stage. Make a short list using a stock screener, once you have a list of about 10 make a virtual portfolio (I use yahoo finance) and observe… Read more »

Beth
Beth
5 years ago

Interesting post, but I think it’s “preaching to the choir”. True, many people do need a pep talk to get started, but many of us have been requesting investing information because we’re we want to know HOW to do it. Perhaps this is the first in a series?

getagrip
getagrip
5 years ago
Reply to  Beth

I was able to take a course at a community college years ago that provided some basics with respect to investing and risk. That was a good primer, but honestly there are dozens of books out there that cover much of the same data and that’s what I used to get me going and relieve some of the fear. I guess I wonder what people are looking for when they ask “how” do you invest? Techincally it’s easy, go to a website or pick up the phone and contact a firm like Vanguard or Etrade and they’ll walk you through… Read more »

Vanessa
Vanessa
5 years ago
Reply to  getagrip

I can’t speak for other beginners, but when I ask “how do you invest?” here’s what I want to know: What are the characteristics of a good investment vs. a bad one? How do you choose a stock, fund, or bond when there are so many to choose from? What is a good (or bad) rate of return over the course of a year, five years, 10 years? What’s a reasonable amount to pay in fees and how do you find out what you’re paying? It was a long time before I even knew investments *had* fees. Yes there are… Read more »

Sanjeev
Sanjeev
5 years ago

Great post… Just do it… I like it. I also waited many years. When I was 30 years old I thought of investing but never took action. Every year I said I would do it. But never did it. In 2013, when I turned 35, I opened Roth IRA and maxed out. Since my company at that time did not have 401k, I changed my job beginning this year. Now this job has 401k, I am maxing out this year, both 401K and Roth IRA. My next plan is to create Freedom account outside of retirement account and invest anything… Read more »

Mondo Esteban
Mondo Esteban
5 years ago
Reply to  Sanjeev

Tell me that you have no children and I can sleep tonight.

Carla
Carla
5 years ago
Reply to  Mondo Esteban

?

Aldo@MDN
5 years ago

I was also a little (very) hesitant to start investing because I thought I didn’t know anything – which I didn’t – but then after reading a few books and some personal finance blogs I realized it’s really not that hard. Risky, but not hard.

There’s always the risk of losing some money, but there are ways to minimize that risk. And there is also the risk of not making money by not investing. Like Wayne Gretzky said, “You miss 100% of the shots you don’t take.”

Emma
Emma
5 years ago

Do you mind if I ask which blogs? (Sorry, GRS! But like others here, I need some how-tos)

William @ Drop Dead Money
William @ Drop Dead Money
5 years ago
Reply to  Emma

Investing is not rocket science, but there are precious few resources for someone starting out totally cold. Everyone seems to assume the reader is familiar with some investing concepts. At the risk of sounding self-serving, I started a blog for neophyte investors called Bite the Bullet Investing (http://bit.ly/bitebullet) for my wife, who, while smart, knows nothing and was intimidated by most books.

Prudence Debtfree
Prudence Debtfree
5 years ago

I am glad that your wife can be smart while knowing nothing about investments! She sounds a lot like me – at least in terms of investments knowledge. I will check out your blog. Glad you mentioned it.

Beard Better
Beard Better
5 years ago
Reply to  Emma

For drop-dead simple investing information, definitely check out the Bogleheads wiki and forums. Everything is explained at a level that anyone can understand, from their overall philosophy of investment (bogleheads.org/wiki/Bogleheads%C2%AE_investment_philosophy) to example lazy portfolios (bogleheads.org/wiki/Lazy_portfolios). It definitely seemed like a bit of a cult to me when I first read about it on the Personal Finance subreddit (reddit.com/r/personalfinance), but after reading through what they have to say and running some numbers myself in Excel I am convinced that easily 95% of investors would benefit by following their approach.

Krishanu
Krishanu
5 years ago
Reply to  Emma

Go to http://jlcollinsnh.com/stock-series/ and read up EVERY SINGLE article in the series.

Then read up, slowly but surely, every single article this guy has written.

Then, if you get it, great!

If you don’t yet get it, repeat steps 1 and 2.

Mike
Mike
5 years ago

If you are going to complain about the article not explaining how to do it, it is a fair criticism. BUT, most people including J.D. would recommend nothing exotic. They would basically say pick very low cost passive index funds from Vanguard or another company. With some diversification a lot people would even say keep it simple with total stock, total bond and total international stock funds, percentages based on your time frame an risk tolerance. You can get exotic as you want, you can invest in any type of assets or explore all type of alternative investing strategies. The… Read more »

Momof2
Momof2
5 years ago
Reply to  Mike

Mike,
You mentioned tax diversification strategies, can you suggest which funds I should look at?
I have some money in saving now that I want to invest in some funds with very little tax pmt until I retire and withdraw it 15 years from now.

AZ Joe
AZ Joe
5 years ago
Reply to  Momof2

You might look at “tax advantaged funds” through Vanguard and probably other providers like Fidelity. They typically don’t have much turnover in their portfolios so they don’t incur any realized gains. If they have gains they are capitol gains which are taxed at a lower rate. Where ever you look, make sure the fees are Low Low Low. 1 to 2 /10ths of 1 percent is a good target

Momof2
Momof2
5 years ago
Reply to  AZ Joe

Thank you.

Millionaires Giving Money
Millionaires Giving Money
5 years ago

Investing for the first time is rather daunting however the internet and sites like Get Rich Slowly have really helped me to build confidence. I can’t imagine investing my money 10 years ago when I was a novice unprepared to pay planners fees. Thanks for sharing, great post.

Steve K
Steve K
5 years ago

Some folks have asked for “how to” invest books. Here are the two best books I can recommend. It’s assumed you know something about stocks and bonds and how they differ, and about the different types of stocks (value vs growth; small-medium-large capitalization, etc). That shouldn’t take more than an hour online. We’re not trying to become traders. OK, book #1, which I’m reading now even though it was written back in 1987, is Harry Browne’s exceptionally readable “Why the Best-Laid Investment Plans Usually Go Wrong: And How You Can Find Safety and Profit in an Uncertain World.” Actually, stop… Read more »

nicoleandmaggie
nicoleandmaggie
5 years ago
Reply to  Steve K

My professional opinion is that the only book an investor needs is the Bogleheads Guide to Investing (if that). In the long run, all that matters, and all that an individual small investor can control, are risk, diversification, and fees. Really, I would just recommend that a person pick a Vanguard target-date fund if they have that option and just set and forget. None of the other details are that important and any downsides to that option compared to others are insignificant compared to the time saved from trying to fine-tune things under uncertainty. (With exceptions for people wanting to… Read more »

Alea
Alea
5 years ago
Reply to  Steve K

1.) Don’t invest any money until you know what you are doing. Can’t stress that enough. 2.) These are the books that finally had the answers for me, and I read a lot of books until I hit the jackpot with these ones. Most books give general advice, these really give you a “how to” guide and no promises of overnight riches. How to Read a Mutual Fund Prospectus: A Practical Guide to Getting the Most Out of a Mutual Fund Prospectus, Lemke, Thomas P. Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor by John C. Bogle… Read more »

Steve K
Steve K
5 years ago
Reply to  Alea

Alea, your list nails it.

Readers, stop here. Print Alea’s list. Read the books on it. He’s provided a public service you’d be “foolish” to ignore.

KC
KC
5 years ago
Reply to  Steve K

I have to echo this, ESPECIALLY with regard to Unconventional Success. David Swensen (CFO for Yale) provides an impeccably researched case for index funds and regular (though infrequent) rebalancing. I can’t recommend it enough. He’s also got some very interesting lectures you can watch online.

Scooze
Scooze
5 years ago

I like the post. It’s relatable – and it seems the entire financial services industry wants us all to feel inferior so we’ll buy their services. Unfortunately, that condescension keeps many from investing earlier. It was the same for me. But once you do it, and make choices of investments, it can be on auto-pilot for years to come.

Robert
Robert
5 years ago

One of the best forums for beginner investing advice is http://www.bogleheads.org. The forum is loaded with great questions and thoughtful responses by fellow bogleheads. I’d recommend starting in the Wiki and Investing Philosophy sections to get your toes wet.

scott
scott
5 years ago

i was waiting for someone to mention: http://www.bogleheads.org…..great starting point and very conservative, low fee, minimal management required for beginners. also in the library the little book of common sense investing, by john bogle makes for an easy read and explanation to the market. i might also suggest: http://www.aaii.com for some free info but also for a modest membership you get access to all of their on line information and they have live meetups (clubs) with speakers and guidance…..

Tina
Tina
5 years ago

My son who is a freshman in college is just now getting interested in stocks(after all my talks about making your money work for you). He is now using his own funds to buy stock. I wanted both of my children not to be afraid of investing so I started talking about it in middle school. I know that seems early, but that was when started buying my daughter and son stocks and wanted them to know in case something happened to me. Honestly, high schools should require financing classes such as balancing check books, credit card dangers, investing, etc… Read more »

Beard Better
Beard Better
5 years ago
Reply to  Tina

While I absolutely agree with you about the benefit of personal finance classes to teach the basics, I think you undermine your own argument by talking about other classes so flippantly. The point of reading and responding to literature isn’t to memorize the plot points, character names, etc., but to teach students to critically analyze the things they read rather than accepting them at face value. The point of math classes isn’t to teach students to memorize formulas and do arithmetic in their heads, but to teach them how to manipulate abstract objects like numbers and variables that are subject… Read more »

Debi
Debi
5 years ago
Reply to  Tina

I absolutely agree. And they should also bring back home ec, or “domestic engineering” so that young people can learn the basics of cooking and basic sewing. Shop classes need to be returned as well to teach the basics of home repair and maintenance. We’re turning out generations of young adults that have no basic survival skills.

sarah
sarah
5 years ago

I don’t know anything about investing but I just put as much as I can into a 401k and IRA. It seems like that’s all this article really said, too.

JoeM
JoeM
5 years ago

Unfortunately, my parents were (and still are) scared of investing and are (and will be) financial wrecks. As a teenager, I was making thousands of dollars as an ice hockey referee. If only they made me save some, I can imagine the gains over time. However, at 23 and entering my second year of post-college salaried employment, I figured I should start investing – I just didn’t know how. I was young and I didn’t have much money to save with my low salary, but I knew the importance of saving and compound interest. A friend who works in wealth… Read more »

Greg
Greg
5 years ago

Investing is easy if you remember these three things: 1) Index Funds 2) Index Funds 3) Did I tell you about Index Funds Most of my friends are performers (read: “Waiters”), which means that just getting by often trumps any thoughts of the future; however, when I show them how, by squirreling away the cost of a happy hour each week and putting them into low fee index funds (like those oftered by Vanguard), they can plant the seeds of their future, they tend to grin ear-to-ear. Plus, you don’t need to worry about picking the right or wrong stock… Read more »

Patrick
Patrick
5 years ago

Yes, index funds are the way to go. Open a Vanguard (or Fidelity) Roth IRA account. Make automatic investments each month. Put in as much as you can (to the limit $5,500 under 50, or $6,500 over 50). If you have a 401K, put in at least up to the employer match. Ideally, once you retire you will want money in 3 pots: Tax Deferred money (401K, Traditional IRA) Tax Free money (Roth IRA, Roth 401K) Taxable money (CD’s, stocks/bonds in regular brokerage accounts, Ibonds, Muni Bonds, Real Estate, gold, other) If you have each of these types of income… Read more »

Jerome
Jerome
5 years ago

In addition to the other books already mentioned I would also recommend: The little book that still beats the market by Joel Greenblatt and anything written by Andre Kostolany. I started investing in 1995 and it took me at least 15 years before I felt comfortable with what I was doing. The main problem is that nobody can actually help you develop your personal style. You can only develop this by earning and loosing real money while investing. Dry runs are no substitute for this. My personal style of investing is: read a lot very critically, make a decision (ie… Read more »

William @ Drop Dead Money
William @ Drop Dead Money
5 years ago
Reply to  Jerome

You hit the nail on the head: there isn’t a “one size fits all” investment plan. Contrary to what the media tell you, it is possible to beat the S&P consistently. The trade-off, like with many things in life, is you have to spend a little time on your own, instead of treating it like a passive thing. Not hours a day, more like an hour on a Saturday afternoon every now and then. For some bonds work, for others index funds do the trick, for others it’s real estate. I know a guy who after 30 years owns about… Read more »

Prudence Debtfree
Prudence Debtfree
5 years ago

It’s a relief to see that there is someone else out there who didn’t get financially savvy until 50. I really appreciate the message, “It’s never too late.” I don’t know how William Cowie and his wife are doing in terms of finances now, but I suspect he wouldn’t have written the post unless they were doing quite well. Hope is a real fuel. Thanks!

MoneyMiniBlog
MoneyMiniBlog
5 years ago

This is how I used to be. A few bad experiences than I quit investing entirely for years. I finally decided that if others were successful at it, I could be too, so I started educating myself through books, audio, courses, blogs and basically anything I could. Now I have been investing for years and successfully too. I have learned a lot and I will always keep learning. It is possible, just do it!

Nzumbululo
Nzumbululo
5 years ago

I feel stirred to start investing. I guess if it’s never too late to start investing, it can never be too early. Being a university student, every amount of money that lands in my hands is spent, without thinking twice about investing. There is so much truth in the whole article and I absolutely love the comments left by my fellows, especially those who gave other useful writings.

karl krueger
karl krueger
5 years ago

It’s true that proper planning is important if you want your capital investment to be fruitful. Those who don’t come from a finance and accounting background need to be extra careful. Your personal experience is quite inspiring and I really appreciate your insight into what changes with strategic investment. If nothing else, it can help boost your savings in the long run. I agree that timely decisions are the key when it comes to investing money, be it your business, home or other assets. It is equally true that those who lack patience can’t be good investors. In fact, in… Read more »

Papa Foxtrot
Papa Foxtrot
1 year ago

Every financial guru I know has started investing while they were in their early teens, even earlier than me. The earlier you start the better. I always recommend starting by investing for retirement because by investing in something you do not have to worry about in thirty years you can forge emotional control into a natural instinct.

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