When I talk about money with my friends, I get a range of reactions. I get those who put smirks on their faces because they think I am stingy or stupid for believing the things that I do. I get blank faces that stare at me, judging me for being a capitalist who only cares about money. And sometimes, I get people interested in what I have to say.
I'm not sure which category you fall into but here's the thing, I am deeply passionate about personal finance. For one main reason, during my short time on earth, I've noticed that money is perhaps the one thing we all have to deal with everyday. Yet, most of us don't understand it or know how to handle it.
I've made it a personal mission to learn as much as I can about it. So that I can help people like you. And myself, of course. Anyway, I write what I like and believe so feel free not to take my opinion as professional advice.
Let's imagine there are only two ways to invest: actively and passively. One requires you to think everyday. The other requires you to do the bulk of your thinking upfront, then leave things on auto cruise. Which one would you pick?
I'd say auto cruise. But here's the thing, it's boring.
With passive investing, you typically buy an index fund or two. Sometimes three (the more complex it gets, the harder it is to manage) Each index fund contains a couple of different individual stocks. Some funds focus on all (or almost all) the stocks that can be purchased in a single country. Or within a narrow sector, like the Energy sector.
Now, remember that saying, "don't put all your eggs in one basket?" Well, that's the point of putting money in index funds. The average investor (you and I) is unable to do all the research to figure which individual stocks will be extremely valuable in the future. If you do, you might still make fatal mistakes that destroy all your wealth, if something like Coronavirus happens. Then all the airlines, hotels and entertainment parks you invested in stop working. If you put your money in a basket of stocks, across a set of industries, you get to protect yourself from crazy downturns. And, most importantly, you get to sleep well at night. Not worrying if the stock market will rise in the morning.
But most investment professionals won't tell you this or try to advertise it to you. They want you to believe you have exceptional skills in investing so that you can trade often or bring your money to them. That way they charge you tons of fees, and get rich off money you worked hard to earn.
Active investors these days sit in front of screens watching how stock prices jump from one point to another. Many of them aren't really investors. They speculate. Guessing what'll rise and what'll fall. Sometimes they make tons of money, other times they lose a lot.
If you are young like me, would you rather take a bet on yourself by investing in a few stocks that you pick, or would rather put your money in every possible basket?
I think we should all learn about the stock market, and be passive investors.