This blog is a summary of the conversations I’ve had with friends and the suggestions I’ve made to them. All content in this blog represents my personal opinions and do not represent those of organisations that I associate with in any personal or professional capacity. The content is provided for informational purposes only. The following is not intended to be investment advice. This article contains referral links because who doesn’t like referral links!
“Hey, Ben. I think I should start investing”
I’ve become ‘the money guy’ for most of my friends in recent times. The timing makes sense as:
- My friends are late 20s or early 30s and have disposable income for the first time
- Everyone is talking about the investment stuff — GameStop, Dogecoin and inflation — which creates FOMO
- Interest rates are a hilarious zero percent so leaving it in your bank account has become a laughably bad option
My friends are right — they should start investing!
But they don’t.
Often aided by a beer or two, I would enthusiastically give them my beginner’s guide and talk them through the steps needed. There’s a flash of conviction in their eyes and for a second they believe they are going to do it, but the feeling is fleeting. As we say goodbye we both know that it’s not going to happen.
🏋There is a massive inertia to start investing
It’s really difficult to make a start.
First of all, money is a serious subject! It’s your hard earned cash and if you do something with it you want to make sure that it’s the right thing!
This is really difficult as investing is complicated. There are so many different things to invest in. Figuring out the when, how and what seems like it’s going to take a lot of effort.
Serious subject + complicated subject → Inaction
✅ Let’s get you set up in the easiest possible way
Like many things, investing gets much easier (and fun!) once you start. After going through this process with multiple friends, I’ve come to believe that getting people to start investing is about removing as much complexity as possible.
What this guide won’t teach you:
- How markets and economies work
- Advanced trading strategies
- How to buy NFTs and Meme stock
- How to boast to your bro-vestor friends about your ‘sick gains’
What this guide will teach you:
- Why you should start investing
- The right mindset
- A model to get started: how much, how often, what to invest in
Let’s start with the what and the why.
📈 What is investing?
Investing is the act of using your cash to buy assets such as stocks or cryptocurrencies with the intention of holding them and eventually selling them at a profit.
It’s different to the activity of trading which typically is a lot more frequent and involves a lot more transactions.
Here are the most common things that you can invest in:
🏆 Why you should start investing
When I was in my twenties, I didn’t care about investing. As long as I had enough in my bank account to backpack round the world and buy a new phone every couple of years, there didn’t seem to be much point in amassing extra wealth.
Over time my perspective has changed. I began to realise the following:
Money would give me freedom to do certain things that I want to achieve in myself:
- ✈️ Travel to every country in the world
- 🇨🇳 Learn fluent Chinese
- 🌍 Start an NGO promoting coding in sub-saharan Africa
Money would also give me freedom from certain things:
- 💼 Having to work in a job I don’t like
- 🚑 Worrying about an emergency e.g. a family member needing an expensive medical treatment
If you were a billionaire, what would you start doing? What would you stop doing? I can’t pretend to know the desires and goals of the reader, but I’ll hazard a guess that money will probably give you freedom to do certain things and having enough of it will provide you freedom from certain distractions, worries or unfortunate events that might pop up in your life.
Reason #1: Investing grows your money
If you buy and hold certain asset classes, each year they tend to increase in value. If you hold those assets over multiple years, the increase is compounding.
For example, the US stock market has averaged about ~9% per year if you reinvested everything you made.
That means that, assuming the market grows steadily at 9%, your money would grow like this:
Reason #2: Your wealth doesn’t grow in a bank account
Remember the days when you received interest on your bank balance? You might find it difficult as interest rates have been very low for a long time.
Right now, in Europe, the Central Bank Interest rates are actually negative! That means banks (including the one I co-founded) need to pay the central bank for the customer funds they store. Some banks are passing on these negative rates to the customer, but most are protecting the customer by absorbing the cost themselves.
The bottom line is you are lucky to get an interest rate of 0%! Your wealth will not grow if you leave it in a bank account
Reason #3: The value of your money is decreasing
To make matters worse, we have inflation. Inflation is the decrease in value of money over time.
That means that if you have €10 in your wallet and leave it there for a year, you will be able to buy less stuff with it than at the start of the year.
This may seem quite abstract, but trust me: it adds up over time.
If you hold money over time, it will decrease its value.
Summary: You should start investing because
- Investing over a longer period will return compounding gains on your wealth
- You money will not grow in a bank account due to low interest rates
- Your money is slowly losing its value due to inflation
🧠 The right mindset for investing
In 2013 I first discovered Bitcoin. I was surrounded by people who had a lot of Bitcoin and who had bought it earlier at a better price. I can be quite a competitive person and I didn’t invest because I felt like I had already ‘lost’ compared to them. Back then a Bitcoin was about $60. At the time of writing it’s about $48k.
Luckily I eventually came around. The point I want to make is that I had a very wrong mindset and it hurt me.
Here are the three mindset shifts that worked for me:
1. “Good enough” rather than optimal
If you’re like me, you tend to try to find the ‘optimal’ solution, especially when it’s something as important as money.
Given the uncertainty and unpredictable nature of investing, you will never be able to find this. Stop trying to go for the perfect solution and make a start. You can always optimise later.
2. Don’t let lost opportunities make it feel like you’ve “lost”
Ok, you didn’t invest in Bitcoin when you first heard about it. And you should have invested in the stock market after the March 2020 Corona crash like your friend said.
Coulda. Shoulda. Woulda.
There will always be things that you could and should have done, but you didn’t. Every day you are making thousands of ‘mistakes’ by not buying or selling something. Hindsight is 20–20 and if you allow the past to make you feel like you’ve ‘lost’ then you’re likely to either reject investing as a whole (people don’t generally like to things they don’t think they’re good at) or to make stupid decisions to try and “catch up”.
Do try to learn from the past, but don’t let the past dictate your future.
3. Think long term
People who invest and trade love talking about their gains, showing off how much money they made in a period of time.
Yes, it’s possible to make a lot of money in a short period, but it’s often very luck based! Sure, you can try to gamble and you might win, but that’s not investing and you’re probably in the wrong place.