If you are still on the sideline thinking about how to start investing, but haven’t got started, then today’s article is for you.
We are already in the new year, a new era. We can’t be in a better time than now to experience the growth and evolution as a human race.
And there’s no better time to start anything than now.
As the saying goes, the best time to start investing was 30 years ago. And the next best time to invest, is now!
I know there’s a lot of confusion and anxiety when you are just starting to figure out how to invest, especially in the stock market.
Well, I don’t know all the things about investing, but the only thing i know is that even if you are 5 years, 10 years or even 20 years into investing, you will not be able to know everything.
Why Making Mistakes Is Ok When You Start Investing
Even Warren Buffett, the legendary investor, with his 80 years of experience, continues to make mistakes and errors.
Source: Berkshire Hathaway Annual Report FY2020 / Letter To Shareholders
Iin the latest annual report for the full year of 2020, $11 billion was written-down in his investment holding company, Berkshire Hathaway. Buffett said that this was due to the miscalculation he made in purchasing this company Precision Castparts back in 2016.
And this is not his first error, and not likely going to be last.
Yes, it’s painful to lose money. But understand that this is just one of the errors out of many successful investments he has made.
Over time, his investment has grown a whopping 2.8 million percent.
So, the message here to you is clear. You are going to make mistakes, but you are going to make successful investments as well. Well of course that takes effort to accomplish.
But the hidden message here is also that, time is your ally. The longer you stay invested, the higher your returns will be.
Why You Need To Start Investing Now
Source: Berkshire Hathaway Annual Report FY2020 / Berkshire’s Performance vs S&P 500
You may argue that we are not as good as Buffett to register 20% gain every year. Let’s say we follow the general market, and trend with the S&P 500. This index is reflective of the trend and movement of the whole market.
If you just invest in the S&P 500 index, you would have reaped a return of 10.2% compounded annual gain.
Over time, you can see the compounding effect over the last 56 years will give you a 23,000 percent return. Meaning that if you invested $10,000 56 years ago, you will be sitting on a gain of $2.3 million today.
Well, you may not have been born 56 years ago. This is just to illustrate my point here, why and the urgency to start investing today.
Imagine you started investing 5 years later. For reasons such as for you to time the market, after you have stabilized in your new job, or after you have started your family.
Or for any other reasons, you delayed your investment by 5 years. Your return of 51 years instead of 56 years, based on the average market gain of 10.2% every year, will be an overall gain of $1.4 million 51 years later. An almost $1 million difference in gain, just because you delayed your investment by 5 years.
This is why you need to stop thinking and start investing.
How To Start Investing
So your next question will be how.
There’s just 2 things you need to know.
Buy and invest in something that you know and something that is easy.
Invest In Something You Know
I remember myself back when i was 18, i went to open a brokerage account, and made my first investment.
Well, same as you, I didn’t know where to start.
But they always say that you should invest in something that you know.
Back then I just went to Genting Highlands in Malaysia. So, I thought why not check out the shares of Genting. It turns out that Resorts World Genting is not parked under Genting Singapore.
Anyway, long story short, I invested about $1000. After about a year or so, it went up slightly, which I sold and made a profit of about $50.
Well not a fantastic return per se. But nonetheless, it’s a 5% return, which is much better than if i have saved it in the bank.
I wouldn’t have researched deeper and know more about the shares I’m buying If I haven’t got started. I will not know what kind of businesses it has or doesn’t have.
Invest In Something Easy
Fast forward, after graduating, I finally have a bit more money to really start investing.
Well, many of the business operations and financial statements were still pretty foreign to me back then. So I started with something easy, real estate investment trusts, or what we call REITs.
They are just investment vehicles that own and manage income-producing properties, ranging from offices to shopping malls and hotels.
Basically, the bulk of the revenue and income comes mainly from the rental income the REITs collect from their tenants. Rentals may be associated with corporations leasing their offices or retailers leasing their shopping malls etc.
For instance, to qualify for some tax savings in Singapore, REITs must distribute at least 90% of their taxable income to shareholders.
That means that whatever they earn, they will pay most of it to the unitholders. It is relatively easier to understand the business and assess whether certain REITs are good investments for you, by determining the kind of returns you can get based on historical payouts.
Therefore, REITs are easier to understand and research than other companies’ financial statements. As the latter usually comes with many non-cash income and expenses that may distort the valuation.
The gist here is to find something that is easy for you.
It may not be REITs, it may be actual physical properties, your condominiums and apartments. Or it may even be the company you are working in that makes it intuitively easier to understand its operations.
So, to sum it up, I just want to say again that getting started today is the key. There will be mistakes along the way. But not getting started is the biggest mistake that you can make, as you saw how time can be your ally to massive wealth creation.
And how to get started is just simply find something that you know and that is easy for you to understand.
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Keep learning and happy investing! 🙂