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Ready to make your first investment? You’re in the right place. In this short
eBook, we’re going to break down how you can build wealth from your
investments. We’ll do that by covering 4 topics:
1.
2.
3.
4.
Investing 101
How can you get paid
Where do you invest
How can you make your first investment (even if you don’t have a
lot of money)
But before we begin, a quick disclaimer:
This eBook is not providing any financial advice. We’re only
providing education. If you have specific questions about your
financial situation, please talk to a licensed financial advisor in
your area.
Plus, investing has risks. You’re never guaranteed to make money when
you invest. In fact, you will lose money at some point. It’s part of the
process.
The goal is to make way more than you lose. But this is where it’s
important to remember you shouldn’t invest more than you are willing to
lose.
Ready? Let’s jump in.
Lesson 1: Investing 101
We are trained to be consumers. Most people earn money to spend it.
But wealthy people, and people who aspire to become wealthy, use
money very differently.
They earn money to grow it.
When you earn $100 you can do one of three things with that money:
1. You can save it
2. You can spend it (like on a new pair of shoes)
3. You can invest it
It’s important to have a savings cushion so you don’t have to worry
about going into debt when an emergency happens. (Jaspreet Singh
recommends saving 3-12 months worth of savings, you can learn more
about that here: Watch On YouTube)
But most people, statistically, spend all their money and have nothing
left to invest.
Wealthy people, and people who aspire to become wealthy, do the
opposite. They “pay themselves first” meaning they invest and save their
money before they spend it.
This is where most people say something like, “But I can barely afford
my payments as it is, how am I supposed to invest money?”
Well, there are two things you can do; you can either: spend less money
or earn more money.
Most people assume that when they earn more money, all their financial
problems will be solved. However, the data shows otherwise. When
most people get a raise, they dig themselves into a deeper financial hole
because now you can qualify for a more expensive car, a bigger credit
card payment, and a larger home.
That’s a big reason why the majority (over 50%) of millennials who make
over 6-figures a year are still living paycheck to paycheck.
The simplest way to start would be to create a financial system.
Jaspreet Singh recommends starting off with something like his
75/15/10 plan which says for every dollar that you earn:
● 75 cents is the maximum you can spend
● 15 cents is the minimum you invest
● 10 cents is the minimum you save
You would ideally create three different bank accounts to replicate this.
That way when you earn money, money will be paid to bank account #1
that has your spending money. Then, automatically, 15% of your
paycheck will be transferred to bank account #2 which has your
investment money. And, automatically, 10% of your paycheck will be
transferred to bank account #3 that has your saving money.
Many banks will do this type of automatic transfer free of charge.
And now you won’t have to worry about accidentally spending your
investing money on a new TV.
This system will give you money to invest.
But why is that so important?
When you invest your money, you’re trying to grow your money. When
you spend $100 on a new pair of shoes, that $100 is gone. You’ll never
see it again. Even if you tried to sell your shoes, you’re not going to see
anything close to the $100 you spent to buy the shoes. If you save the
$100, your $100 will be dead. It doesn’t grow. It just sits there.
And if the interest rate that your savings account is paying you is less
than inflation, then your savings are losing value. That’s why you want to
save 3-12 months worth of expenses. After you hit your savings goal,
invest that money instead.
When you invest your money, you are buying something that will
(hopefully) grow in value.
Now you’re trying to turn your $100 into $200.
You’re putting your money to work because you can’t always work.
There’s a limit to how much you can earn. But there’s no limit to
how much you can own.
This is why investing is so important.
Investing means you are buying assets that pay you. The more assets
you buy, the wealthier you will become.
If you want to break out of the “system” of constantly working to get
paid, you have to own more assets because when you’re investing your
money, you’re buying a day you don’t have to work to get paid.
What you’ll see in this eBook is that you can start investing for wealth no
matter where you live, what you look like, how much money you make,
or what kind of job that you have.
You can start investing with as little as $1. But it will require you to
develop your financial education so you know how to use your money as
a tool.
Lesson 2 - How Do You Get Paid?
There are two ways to get paid when you invest your money:
1. Appreciation
2. Cash flow
Appreciation is when the value of your investment grows.
For example, you invest $100. Two years later, your investment is worth
$200 and you sell. You just made a $100 profit. That’s appreciation.
Cash flow is when you get paid just for owning an investment.
For example, you invest $100. Your investment begins to pay you $5 a
year just for owning the investment.
Before we get into the details of where to invest your money, let’s talk
about the pros and cons of each.
Let’s start with appreciation.
When you invest for long term appreciation, you’re taking on more risk
because you don’t get paid until you sell.
If you make a $100 investment and it goes up to $200, you haven’t
made any money yet. You only make money when you sell. Likewise, if
you invest $100 and your investment goes down to $50, you don’t lose
money until you sell (assuming your investment doesn’t go bankrupt).
As an investor, you’re investing for the long term (years or decades). So
you are hoping, and calculating, that your investment will be worth more
money when it comes time for you to sell.
With cash flow, you get paid while you wait.
If you make a $100 investment that pays you $5 a year, now you’re
getting paid while you wait (and hope) for your investment to go up in
value.
But there are also some cons here.
The first being taxes. If you get paid with cash flow, you have to pay
taxes on that income.
The second being growth potential. If a company you invested in is
paying you with cash flow, that means they’re taking money out of their
bank account and instead of using that money to grow the company
they’re giving it to you.
That means generally, cash flow producing assets will appreciate in
value less quickly than a company that is aggressively investing in their
company.
In the next lesson we will discuss the different investments you can
make for appreciation and cash flow.
Lesson 3 - Where Do You Invest?
The purpose of financial education, when it comes to investing, is so you
can grow your money faster. The faster you can grow your money, the
wealthier you will become.
Here’s the catch, if you want to grow your money faster - you generally
have to take on more risk. That means a higher likelihood of you losing
your money.
Here’s a list of different places where you can put your money, in order
from the lowest risk to the highest risk:
1.
2.
3.
4.
5.
Savings account
Certificate of deposit (CD)
Traditional investments (stocks and real estate)
A business idea
Lottery tickets
When you deposit $100 in your bank account, you know with high
certainty that if you went to the bank tomorrow, you’d have $100. It
would take something catastrophic for your bank to be wiped out.
Even then, in America, you are protected with FDIC insurance on your
savings.
So you have very little risk when you put your money in a savings
account. However, your money will see the slowest growth.
If you invest $100 in the bank, and you can get a 0.5% interest rate, that
means after one year you earned 50 cents.
Even if you had more money, like $1,000,000 a 0.5% interest rate
means your money grew by $5,000 after one year.
Low risk, but low return.
On the other end, with lottery tickets, a $2 lottery ticket can make you a
multi-millionaire. However, you’re more likely to be struck by lightning
than you are to win the lottery.
High potential return, high risk.
Investing in a business idea (whether it’s your own business or someone
else’s business idea) can bring you huge returns.
Imagine if you were one of the early investors in Apple or Amazon.
But it’s also very high risk. Most startups fail within the first 5-years of
starting.
This doesn’t make it a bad investment. If you are an entrepreneur,
investing in your idea can be the best investment of your life.
But for the purpose of this eBook, we will focus on traditional
investments: stocks and real estate.
These investments have been around for a long time and have proven
the test of time.
Historically, over the last century, we’ve seen real estate prices and
stock prices rise.
Does that mean that asset prices only go up?
No.
We’ve seen many periods where asset prices fall. In fact, about every
decade or so, we’ve experienced a recession or economic slowdown
that has caused some sort of asset crash.
Here are a few examples:
●
●
●
●
2020 stock market crash
2008 real estate crash
2008 stock market crash
2000 stock market crash (& dot com bubble burst)
But even with these crashes and recessions, over the long run, we’ve
seen asset prices continue to rise.
That’s why long term investing is so important.
The mistake many people make is when they see asset prices fall, they
sell their investments, at a loss, instead of buying more at a discounted
price!
More millionaires are created during market crashes than any other
time. This is because market crashes create a great buying opportunity.
Both stocks and real estate give you the opportunity to earn cash flow
and dividends.
In the stock market, you get appreciation when you buy a stock that
goes up in value. And you get cash flow when a company pays a
dividend.
A dividend is a cash payment you get just for owning the stock.
Note: not every company pays a dividend.
A company will pay a dividend only if they are making large profits and
can afford to take the cash out of their bank accounts and give it to their
shareholders (investors like you).
If a company is not profitable, they will generally not be able to issue a
dividend.
In real estate, most investors buy real estate with cash flow as their
primary goal.
You buy a property, whether it’s a house, an apartment complex, an
office building, an industrial building, or a retail plaza with the goal of
renting it out.
Now, your rent should cover your expenses and put some money in your
pocket.
Plus, if you’re investing in a growing area, you should also see the value
of your real estate rise over the long term.
Again, this does not mean that your investment value will rise every
year. This means over the long term, asset prices generally go up assuming you’re investing in strong assets with growing demand.
The way you differentiate a good investment from a bad investment
goes beyond the scope of this eBook (we cover that education in our
Market Insiders app), but that’s where the quality of your financial
education comes into play.
Lesson 4 - Make Your First Investment (Even If You Don’t Have
A Lot Of Money)
Not everyone wants to be a full time investor. That’s okay. You don’t
have to be a full time investor to build wealth through your investments.
You just have to know how involved you want to be as an investor.
There are two general strategies for investing your money. You can
be a passive investor or an active investor.
Both of these require you to invest for the long term. But they have
different time requirements.
As a passive investor, you will set your investments and forget about
them.
There’s little upkeep once you get it set up.
As an active investor, you’re going to be more involved. You’ll be
working to monitor and manage your investments.
There’s more time and knowledge required.
As an active investor, you have the potential to get higher returns
because you’re also taking on some more risk and putting in more work.
But it will take more time and effort on your end as well.
That being said, you can become wealthy as a passive investor, too.
If you invest $100 a month starting at age 21 until you retire at 66 and
you got the historical market return (which has been 10%). You would
retire a millionaire.
And this assumes you don’t invest more than $100/month even as you
earn more money.
You can’t go back in time, but you can change what you do with your
money today.
Let’s start by talking about how you can make your first passive
investment.
As a passive investor, the goal is to set it and forget it. You don’t need to
keep up with the daily swings in the market.
Remember, you're investing for the long term.
And you also don't have to invest in individual companies. Instead, you
can invest in funds as a stock market investor.
There are three general kinds of funds:
1. Index Funds
2. Mutual Funds
3. ETF’s
Each one of these gives you exposure to a basket of stocks. Now,
instead of investing in just one company, you can get exposure to
hundreds of companies through one fund.
Here are a few examples of ETFs to jumpstart your research. Again,
these aren’t recommendations, we’re mentioning them here just for
educational purposes.
● VTI - This is an ETF that gives you exposure to the total stock
market. It was created by Vanguard.
● SPY - This is an ETF that gives you exposure to the S&P 500. It
was created by SPDR.
● DIA - This is an ETF that gives you exposure to the Dow Jones
Industrial Average. It was created by SPDR.
● QQQ - This is an ETF that gives you exposure to the Nasdaq. It
was created by Invesco.
When you invest in one of these ETFs, you buy the entire basket, or
index, of stocks. This allows you to be passive because you don’t have
to worry about picking the best company to buy.
How do you win as a passive investor? By creating an automated
system.
Every week, two weeks, or month you want to automatically purchase
more of the investments you have. This way, every time you get paid,
you’re buying more assets.
The great news is many apps on the internet have automated this. And
some apps will allow you to start investing with as little as just $1!
As a real estate investor, you can also follow a similar passive investing
approach.
However, now you’d be investing in a real estate fund. These funds are
not found on the stock market. They’re commonly known as
crowdfunded real estate investment deals on the internet. Off the
internet, they’re commonly known as syndicate deals.
Now, you’re investing into a fund that either: gives you ownership into
someone else’s real estate project, or gives you exposure to someone
else’s real estate deal.
In either case, you don’t have to worry about managing the property or
dealing with tenants. You invest some money and you make money
when the property or properties you’re invested in make money.
This brings us to being an active investor.
In the stock market, this means you will be investing in individual
companies.
To do so, you’ll want to research the stocks you want to invest in. That
means studying the financials (balance sheet, cash flow sheet, income
statement), researching the products, learning about who is leading the
company, etc.
You are investing in a business. You want to know everything you can
about the business before you buy into it.
When you buy one share of Amazon, you become one of the owners of
the Amazon company.
So you want to do your research to confirm it’s a good investment, at a
good price, before you buy.
Again, there are many apps on the internet that let you start investing in
companies with as little as $1.
As a real estate investor, this means you’re going to buy real estate
properties to operate yourself.
This doesn't mean you have to manage it yourself. You can hire a
property manager to relieve yourself from the day-to-day duties of
owning a rental property.
But you, as the owner of the property, are the one responsible for the
property.
This will take more time and effort on your side. Yes, it is more work.
But, it also comes with benefits as well.
The benefits include: tax breaks, cash flow, and appreciation.
These are just some of the topics we cover in great detail in our Market
Insiders app. You’ll get access to classes taught by Jaspreet Singh,
coaching calls, and our community.
If you’re ready to take your financial education to the next level, our
platform can help you with that.
Thank you for reading and happy investing!