We at The Liberty Block are huge advocates of financial independence and prosperity. In order to attain financial success, we must earn money and save or invest it in wise assets. Saving money was sufficient a long time ago, but now that the US government devalues the currency by at least 2% each year, saving money is losing money. Some say that if your investment generates more than 2% returns per year, you are ‘beating inflation’. This is generally accurate, but there is much more to this complicated concept.
Once you have a few thousand dollars – let’s say $10,000 for simplicity – you may want to invest it. As mentioned above, simply storing it under your mattress means that it’ll lose 2% of its value per year, meaning that you’d lose $200 every 12 months. Typical checking accounts, savings accounts, and CDs barely generate any interest for you (a few pennies per year), and the government just plummeted interest rates, which further lowers the interest banks can offer you. So, how do you make your money maintain or increase its value?
I’m far from an investing expert, but I generally believe that there are a few forms of investing: Foreign currency, stocks, bonds, ETFs, money managers, IRA’s, starting a business, physical assets, real estate renting and flipping, precious metals, and infinitely more, depending on how creative you are. This article will describe what I believe to be the simplest and best investment for beginners or those without millions of dollars.
My personal preference for investing is a personal stock portfolio using a commission-free broker. An example of such a broker is the app/site called ‘Robinhood’. The app has zero commissions ever, meaning that you will never pay a dime for using it, unless you want to upgrade to their premium plan (which is really not necessary at all). The program is very simple. Buy and sell stocks (and some other funds) and enjoy the profits from growth and dividends! Robinhood is also unveiling cryptocurrency trading in states that allow it, I believe.
The benefits of a personally-managed portfolio such as the one I have with Robinhood are numerous:
1) Unlike my friends who pay firms to manage their money, I pay zero commissions. All of my profits are mine to keep (except for the part that the government steals from me).
2) Unlike my friends who have others manage their investments, I have 100% control over my investments. If I want to sell my shares in a Chinese company, I can do it. If I want to buy Ruger, I can do that. I love having total discretion over my investments.
3) A personally-managed stock portfolio generally offers 100% liquidity, meaning that you can sell your shares and have the cash in your account whenever you want, should an emergency (or a better opportunity) arise. If I find a beautiful gym for sale in my town, I might cash out my entire portfolio and buy the gym on the spot. IRA’s do not have good liquidity. Gold is not necessarily very liquid, either. Assets are only as liquid as the consumer interest in them happens to be at the time of sale. If times are tough and nobody wants to buy your gold, you are out of luck. I love the simple liquidity of my investments.
4) Simple personal portfolios have a very low startup cost. You can invest pennies or dollars, depending on how expensive the stock or fund you’d like to buy is at the moment you buy it. Of course, buying a house, starting a business, and some CDs may have lower limits that are quite high, which might preclude beginner investors or young workers from investing in them.
5) Despite its low risks, low costs, and benefits, this form of investing has tremendous upside. With a bit of research and intuition, you can easily grow your portfolio by 5 or 10% per year, in general. I am up 58% since I began investing with Robinhood in December of 2016.
6) Set it and forget it. Unlike with most other forms of investing, you can easily set any sort of repeating transfer from your bank to your account. This allows even the most reckless spenders to still save and invest a few dollars per week or month – whatever they decide is best. Programs like Acorns and others will even invest the money for you, so you can really set it and forget it. Robinhood recently unveiled a new feature: Recurring investments in stocks or ETFs. Not only can you now set up automatic recurring transfers, but you can now automatically invest a set amount of money at a set interval (daily, weekly, monthly).
7) Passive income. While at first it’s not quite the same amount of income as you’d earn if you were a real estate tycoon, you can generate real passive income in the form of dividends if you choose to invest a few thousand dollars in stocks/ETFs that pay regular dividends. I’ve already earned over $250 in dividends from one of my funds. That is real money. Once my portfolio is actually big, I can earn enough passive income to retire (or work a little less).
8) Trick your brain! It is natural human psychology that we feel pleasure when we purchase something. As with other pleasures, dopamine is released in anticipation of buying something we want, and serotonin is released when we do buy it. So, why don’t I buy new clothes, cars, guns, and houses every day? Because I can’t afford to and/or because I don’t want to give up my money. The beauty of this simple form of investing is that you are hardly giving up your money, because most stocks maintain or increase their value. But you DO still get the pleasure rewards from dopamine and serotonin when you buy a stock. When you make a few dollars extra at work, try buying a few shares of an index fund on your phone instead of buying that new toy. You’ll notice that it feels roughly as good, but it’s a MUCH wiser fiscal choice.
9) Investing in this hands-on manner allows you to learn a tremendous amount about the stock market, economics, and politics. If you paid a money manager to invest for you, you might not learn much about the national or international economy.
While I believe that we should invest in a super-diverse (multi-faceted strategy spanning all industries and investment forms) manner, I generally consider a free, personally-managed portfolio to be the best approach, especially for beginner investors. I love having total control over my money. I love that I can sell my investments and have my cash back in my account any time. I love that I can buy stocks anytime I feel like my money is burning a figurative hole in my pocket and quench my spending thirst with a splash of dopamine and serotonin anytime. By the time I’m ready to retire, I hope to have two great options: Live off of my monthly dividends, or sell my stocks to fund my golden years.
UPDATE: My current strategy also involves investing a few dollars in each crypto (as many different ones as I can buy) on a regular basis. I see crypto as volatile and speculative, but nearly every crypto currency seems to either increase rapidly or increase super rapidly. I also believe that you should buy and own some physical gold and silver, especially now that prices are lower than they technically should be.