How to Invest Without My (or Anyone’s) Help

For the most part, I run my business in a sensible, logical way. I think before I act, I stay true to my philosophies and beliefs, and I always keep my client’s best interests in mind. However, there’s one thing I do that doesn’t make a whole lot of sense for a financial advisor – I frequently tell people they don’t need the help of any kind of investment consultant.

I truly believe I provide a valuable service, but that’s because I make an effort to educate and help people improve their lives beyond what’s in their checking accounts. Financial advising is only part of my job, and if I were to tell you that I possess secret information on picking stocks you could never obtain on your own, that would be a lie.

While it theoretically undercuts my business a little (sorry, team!), I want to help you understand how to invest independently (or, ideally, in partnership with your spouse). In my mind, that’s a preferable option to you sending your money to a mutual fund manager who will rob you blind with various fees and ill-advised positions. You’re much better off handling your own investment decisions, and I’d like to help you do it.

I can’t teach you everything about personal investing in one post, but I can give you some of the building blocks and offer a little guidance. Then, in a couple of decades when you’ve struck it rich, you can come back and hire me as your wealth manager.

Understand the Realities of Independent Investing

There are so many things that keep people and couples from growing their wealth. Not having enough money is an obvious reason, but dozens of other issues deter people from putting their money to work. At the end of the day, all of these hangups stem from the same problem – a general lack of understanding.

We naturally feel a little apprehension when it comes to what we don’t comprehend. Unfortunately, the response to that apprehension is rarely to educate ourselves and begin to understand the stock market, flipping houses, and various other investment options. Are you afraid of losing your money by picking stocks? Why is that? Could it be that you don’t know how the market works or worry anyone can steal your money at any given time?

Overcoming this type of doubt doesn’t come easily. Even after gaining a little bit of knowledge, one of the biggest hurdles for young investors is accepting that risk is ubiquitous. We’re taught not to gamble with our money – or at least we should be taught that – and yet there’s always a chance certain investments won’t pan out. Buying a stock that immediately goes belly up sure does feel like betting and losing, so it’s no wonder sensible people still get squeamish about most investment options.

Fortunately, the risk you assume with an investment doesn’t work the same way as a bad bet at the bookie. While you may not be able to predict which way the markets will turn, you’re still betting on industry and the economy to do well. As long as you research and buy into companies you understand, your money isn’t dependent on blind luck; there’s no guarantee Apple stock will continue rising, but the odds are definitely in your favor when you choose a tech giant over a roulette wheel.

I talk to a lot of people who think financial advisors avoid risk with their own investments, and that couldn’t be further from the truth. The reality is those of us with investing experience probably take on more risk than average people buying stocks and bonds. Most of the time when people complain about not seeing good returns on investments, I have to tell them it’s because they have all their money in CDs and underexposed mutual funds that deliver infinitesimal returns.

As you battle with irrational risk aversion, keep this in mind: nothing is riskier than heading into your 50s and 60s without any investment accounts or assets. If you’re in your 20s or 30s, you have time to invest in volatile companies and commodities without running the risk of sabotaging your future. You can watch an investment take a hit and still have time to recover. You’ll learn during this process, and by the time you’re closing in on retirement, you’ll probably be seeing strong returns and won’t have to worry about trying to make money in a hurry with high-risk, high-reward investments like picking stocks.

The reality of independent investing is that some people know more, and no one knows everything. Brokers don’t have a secret book full of hot tips, they just have a good understanding of the markets and make moves accordingly. Some financial advisors don’t even have that good an understanding of the markets, they just prey on people who know nothing at all. Why pay fees to someone like that when you can read a couple of books and do the investing on your own?

Set Investment Goals

People often give up on their investment strategy because they can’t see the big picture. Let’s say you and your spouse are putting a few hundred dollars into a brokerage account: some months you see returns while other months your balance drops. It can be difficult to stay optimistic about your plan. For personal investing to work, you have to plan ahead like you’d do with any other endeavor; just like you look up directions before a road trip, or think of what you want your head to look like before you walk into a salon, you need to come up with some financial goals that will guide your investment decisions.

This process takes a little bit of time. If you’re a first-time investor and you don’t know up from down, connecting your retirement goals to the stocks you buy won’t come naturally. There will likely be some trial and error, but that’s just part of the risk you’ve already come to expect. As long as you stick within the financial boundaries you set, you’ll mitigate the risk and learn more about which investments you feel comfortable with.

Your personal investing goals will depend on a few things:

● How much you make

● How much you need to live

● How much you’ll need when you stop working

There are other factors, but this is a good jumping-off point. Starting with your monthly income, you can set up a budget that includes an amount you feel safe putting toward investments. Think about your rent/mortgage, food, utilities, car payments, and all the other essentials you pay for each month. If you’re married, this absolutely needs to be a collaborative process: a relationship in which one person makes all the money decisions has some huge red flags hanging over it. After that, you can see what’s left for investing, and viola – you’ve already set a goal by establishing a monthly investment amount. Put a big, fat check mark by goal number one.

Before you really start moving and shaking with your personal investing, you should think about what you’ll need in retirement. If you’re 20 years old, that’s going to be a hard number to come up with, but you can always reassess later on. Your IRA or 401(k), assuming you have some such account, will help crunch the numbers and show your retirement outlook. If you don’t have one of these accounts, you need to factor that into your monthly investing amount. Never push off retirement savings, because then you may not ever retire.

At this point, you can look in earnest at the investment options available to you. It’s possible you’ll need to start small on your investing stipend; if there’s no way you can spend more than $500 a month, you won’t make much progress in real estate or funding a small business. Nevertheless, that money can absolutely be saved and grown into a larger amount. You don’t need a financial advisor to tell you $500 a month translates into $6,000 at the end of the year, and that’s a good chunk of change.

Without goals, it can feel like you’re throwing money down a well. If you have just a few objectives, every dollar you invest feels more purposeful. Map out your finances, think about what returns you’d like to see, and the answers to your personal investing questions will eventually make themselves known.

Draw Up an Investment Strategy

Now that you have goals, you get to have ideas. Do you want to set money aside, let it work and then cash out in 40 years? Or do you want to actively invest and capitalize on the dividends from those investments? Both are worthy options, so you just have to decide which strategy makes the most sense for you.

If you’re reading this because you want to take control of your personal investing and ditch the advisor, I’m guessing you’re interested in actively investing and seeing bigger returns. I’m going to lay out three investment options you can consider, all of which work for people at varying income levels.

Picking Stocks

Most people basically understand how the stock market works, and yet they have little concept of how to actually invest in stocks. If you want to become a day trader and try to earn a living by swapping shares at your computer all day, you’ll have to get advice from another wealth manager. I see that as one of the riskiest ways to invest, and people without tremendous insider knowledge will almost always get burned.

Instead, try this: take $1,000 and invest it in a company. Pick a company, any company, and buy $1,000 in shares. When I say “any company,” I’d rather you not pick a bad company with shady business practices; I just mean you can invest in any publicly traded company you like. Invest in Adidas if you love their shoes, or buy shares of Tesla if you’re excited about what Elon Musk is up to. You don’t have to be a Wall Street broker to know which companies intrigue you.

I encourage you to invest $1,000 because that amount is reasonable but still counters the trading fees, which is ultra-important. Let’s say you pay $7.99 per trade. If you only have $10 to spend, that means you’ll get $2.01 worth of stocks and $7.99 goes to a broker. That’s no good. Meanwhile, if you spend $1,000, it will feel like almost the full amount is going toward your investment. When putting your money to work, these ratios and percentages can’t be overlooked.

If you have a thousand dollars ready to invest and still aren’t sure what kind of company you want in your portfolio, I’d advise you to look at dividend-paying options. This brings in a little extra money over time, and the businesses that pay shareholders are usually more established and trustworthy. You can take chances on a small, cheaper stock from time to time, but only when you have a good reason to do so. Otherwise, you’re just gambling, and we’ve already gone over our rules about gambling.

Managed Account

This option takes away a little bit of control, but there are ways to influence your trading account while still having a lot of the actual trading handled for you. The issue is getting the right type of account and working with the right company.

If you buy a bunch of mutual funds, you’ve got the wrong account. This option ensures you won’t play an active role in your investment decisions; it also increases your odds of seeing poor returns and paying too much in fees. If you begin your personal investing career by securing a bunch of mutual funds, you’ve taken a giant step in the wrong direction.

Your IRA can offer a lot more control, but I’m hoping you’ll have an IRA you put money in as well as another account that’s a little more hands-on and somewhat more exciting. One legit option to look at is Betterment, there are several others. Betterment is a fiduciary, so the managers there are legally obligated to put your financial interests ahead of any partners or third-party connections. You can choose the types of industries you want to invest in, and the company is skilled at rebalancing your positions to keep returns stable.

Another option to consider is microlending or peer-funded loans. Basically, you and other investors pool money to finance other people’s loans. These may cover anything from business funding to debt consolidation, and your rate of return will depend on the risk exposure presented by the borrower. You can open an account with relatively little capital, and you can either choose specific loans to finance (like small businesses in developing countries) or have an expert manage your account while sticking to your preferences.

There are lots of personal investing firms and even apps that let you do a good amount of the work while still providing information and support. It’s OK if you don’t go with these options, as long as you remember to stay away from those mutual funds.

Real Estate

Say it with me: “I don’t have to be a billionaire to invest in real estate”. This is hard for most people to fathom, but there are ways to earn money off property without forking over millions of dollars.

For example, you can look into real estate investment trusts (REITs), which enable you to add real estate to your portfolio without owning any individual physical property. You can buy tax liens which allow you to collect payments and interest from other property owners. If you’re interested in buying liens, you should start doing your research ASAP. A lot of money can be made this way, but the risk is higher than other options, so you need to know what you’re doing.

And then there’s buying a property. While you and your spouse may not have enough money to buy a fancy home outright, you could have the means to get a mortgage on a small rental property so that tenants will cover your mortgage with rent payments. If you start early enough and invest in good properties, you could end up with a lot of home equity by the time you retire.

Whether or not you go with these particular investment options, you should see the importance of having a strategy. You can’t just plan on pouring money into the stock market without knowing how to go about it; you can’t pick any old brokerage account and then get upset when you don’t see returns; you definitely can’t invest in real estate without knowing exactly what that investment is going to look like.

If you hire a financial advisor, one of the first things they’re going to do is devise a strategy for you. If you come up with a solid strategy on your own, you’ll save yourself some money that can help make your personal investing account even more fruitful.

Don’t Cheat

Investing is a lot like starting a diet plan or committing to an exercise routine. You get excited at first, you spend a lot of time planning and preparing, and then something goes wrong and it all falls apart. Just like with eating healthy and staying fit, it won’t work if you give up after a couple of months.

When I say don’t cheat, I’m mostly stressing that you can’t try to speed up the process or game the system. If you’ve committed to buying good stocks and have several shares you’re targeting, you shouldn’t decide on a whim to buy 500 shares of some little startup you overheard a stranger talking about at the coffee shop. While it’s entirely possible that stock will take off, it’s much more likely you’ll regret the purchase.

It’s easy to get impatient when you’re investing, but you have to remember that the goal isn’t to get rich and retire next week. The real objective, especially for the independent investor, is to take money that would otherwise get blown on superficial purchases and make sure it sticks around and grows until you leave the workforce. If you view investing as saving rather than spending, you’ll see your wealth rise to new levels.

That’s my pitch for why you don’t need to hire a guy like myself to start investing. While I would love to help you achieve your goals and live your dreams, I’m not going to pretend I’m the be-all and end-all of personal investing. If you do the work, you can successfully create your own wealth. When you get to the point where you’ve got more money than you know what to do with, that’s when you should give me a call.

Make it happen!

Taylor & Megan Kovar

The Money Couple