We live in a world where becoming an investor is easier than it ever has been before. Low cost mutual funds, ETFs, stocks and bonds allow unprecedented access to the capital economy. Tools like DIY.Fund make it easy to watch, analyze and understand investment opportunities.
Despite the amazing accessibility of the equity markets, just over 1 in 2 (52%) Americans own stocks in any form. Even those who own stocks aren’t always getting rich from their investments. Among investors with a 401(k), the median balance is just over $26K according to a 2016 study by Vanguard. And this is during the second longest equity market bull run in American history.
Part of the blame lies within the investment community. We can become so excited about compounding wealth that we make it seem like wealth building is easy if you only have the right tools. But the fact of the matter is that few investors strike it rich overnight. Most people cannot build wealth off of investment savvy alone. Investment tools enhance your ability to invest, but you need to start with basic behaviors.
Before they can really reap the benefits of investing, you need to implement these basic financial behaviors.
Practicing Financial Stability
If you’re struggling to make ends meet and to provide for your family, its tough to argue that you should invest your next dollar. That’s true even if your dollar will grow to twenty dollars in the next 30 years. Before you can invest effectively, you need to have sufficient income to support your lifestyle, and you need to have behavioral practices that ensure that you won’t need to withdraw your investments during a market downturn.
Rather than scraping together for an investment opportunity, work to get caught up on any bills, pay off high interest debts, and increase your savings to at least having one month’s worth of income in the bank and better to have 3-6 months worth. Great investment opportunities come around more than once in a lifetime, but financial stability can bring a peace of mind that lasts a lifetime.
Achieving financial stability isn’t hard. It is a function of increasing the gap between your income and your expenses. Most people can increase their income through intentional growth in their field. Most people can decrease expenses by eliminating purchases that add nothing to their life. But if you don’t take the time to practice financial stability, your investment gains will always go to fund your lifestyle.
No matter how savvy an investor you are, you will not grow wealthy if you can’t become a disciplined saver. Regular saving is one of the behaviors that will allow you to become a successful investor over time.
If you spend exactly what you earn most months, you’ll eventually run into some need to raid your investment accounts. Regularly saving just 10% of your income is an insurance policy that you won’t need to raid your investment accounts for everyday expenses. Saving even more money gives you enhanced opportunities to invest and grow wealth as you find opportunities.
Knowing what money can’t buy
Profitable investing leads to financial wealth, but money has no value if you live an otherwise poor life. Money can’t buy good health, meaningful connections or a life of hope and happiness. When you put investing in perspective of your life, your investments will serve you. When you lose that perspective, your investments become worthless no matter how fat your rate of return.
Don’t forget to invest in your life even as you invest in the markets.
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DIY.FUND was developed by a team of financial industry veterans. While building portfolio and trading systems for multi-billion dollar hedge funds, we realized the same tools are not available to the individual investor…