2020 has been a wild roller coaster ride so far. As of today, the stock market has lost and recently gained back most of its value from the 2016 election; nearly 40 million people have lost their jobs due to a global pandemic; people are protesting in the streets against police brutality, and the world economy is in a recession. Yea, things are looking pretty uncertain right now. Learning how to invest money wisely in 2020 couldn’t be more important. Teaching yourself how to be a wise investor will not only help you through hard times right now but for any that the future has in store.
“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” – Warren Buffett
As far as the economy goes, there have been many people in history who’ve made fortunes during an economic downturn. They did so by focusing more time on their financial education. Don’t feel that you can’t succeed because the economy isn’t in a good place right now. Things will get better and there are opportunities at every corner.
Invest Money Wisely In The Stock Market
The stock market is the most important tool for building individual wealth today. It has been proven time and time again that with a good long term investment strategy, anyone can build wealth in the stock market. The S&P 500 averages an annual return of around 8%-10% in interest; easily outpacing any mutual or hedge fund.
The S&P 500 has such a good return since it is composed of the top 500 companies in the U.S. economy. There is no excuse as to why you can’t start investing and begin seeing returns this way. Check out my other post, Stock Market Crashes Aren’t as Bad as You Think, for a more clear understanding of investing in the market.
Every year your money can outpace inflation and guide you through retiring a wealthy person. Nevertheless, there are also a few things that you need to know before you start investing in the stock market.
“Confusing speculation with investment is always a mistake”.The Intelligent Intestor, Benjamin Graham & Jason Zweig, Pg. 36
The Stock Market Is Not a Get Rich Quick Scheme
To invest your money wisely in the stock market, you must first acknowledge a lot of the misconceptions surrounding it. Many people compare investing in the stock market to gambling. If done properly, there is no correlation between investing in stocks and gambling. The contrast is that one’s decision requires evidence and facts, while the other is based on speculation.
To put it in another way, think about your friend who is trying to open a pizzeria and asks for you to invest in it. You’ll get a portion of the sales and you will have a say in how the business is operated. Is this investing or gambling?
The correct answer is investing. If you trust your friend enough and have researched his or her skills and business plan; you are comfortable with them and feel that the business has a competitive advantage; then you’re an investor. However, if you don’t do your research and just blindly believe this person by throwing money into their business, then you are gambling.
This is almost like two sides of the same coin. Someone who knows what they’re doing can invest money wisely and make a profit. Yet, that same person can also not know anything and be a pure speculator or a gambler.
The stock market is full of businesses like your friend’s pizzeria. If you research the stocks you invest in and back up your claims with evidence then you are an investor. If you don’t do any research on stocks and just put your money into any company, then you are a gambler.
How To Invest In Stocks Properly
Now to invest your money in the stock market properly you have to act like an investor and not a gambler. You could follow my previous advice and just invest in the S&P 500 for a safe bet. You can do this by buying index funds that are meant to track the pricing of the overall market.
However, some people are confident enough in their skills to invest in individual companies. This is great and can offer you the ability to make tons of money off your investments. But remember, single stocks come with more risk, so you need to consider those risks before investing in them.
Stay Away From Penny Stocks
Penny stocks have been glamorized in pop culture as beeing a quick and cheap way to make a lot of money in the market. The reality is that penny stocks will get you killed and you should stay away from them.
Penny stocks are so cheap that investors with more money can severely influence their price by buying a lot of shares. Also the companies that these stocks represent are in their infancy: many will fail and you could end up losing all of your money.
Keep Up With Stock Market News
Any news about the markets should be consumed by you daily. It’s no secret that business news is imperative for investors. Warren Buffett had copies of the Wall Street Journal sent to him during his honeymoon just to keep up with the current stocks.
You must keep up with what’s going on and understand what it means for your investments. Read Wall Street Journal, Business Insider, Yahoo Finance, and watch CNBC. There is an abundance of current information out there that you must consume to be successful at investing.
Invest Wisely As a Trader Only If You Take The Time To Learn
Today, day trading has become highly controversial and even shunned by many investors comparing the practice to that of casino slot machines. I am not so much against day trading as other people are.
It’s just that I’ve witnessed people succeed at it and make money, simply because they knew how to do it. A big problem with day trading is that it attracts a lot of newbie investors who underestimate it.
Don’t make the mistake of thinking you can beat the market by trading for only a week. Take the time to learn how to trade before you jump right in and lose all of your money. I suggest taking online courses, reading books, and using trading simulators to perfect your craft.
Carefully Put Money Into Stocks You Understand and Have Researched
To buy stocks is one thing; but to buy companies based on analysis, hard research of their financial reports, business practices, leadership, and brand is a whole other thing. To purchase stocks as a wise investor, you must analyze every part of the company before putting a dime into it.
One of my favorite books on investing is the Intelligent Investor, written by Ben Graham, the mentor of Warren Buffett.
In his book, Graham advocates the importance of investing as a sense of security. He recommends investing no more than 75% and no less than 25% of your money into stocks if you’re an active investor. An active investor is someone who is actively looking for stocks to buy.
The remainder of your portfolio should be composed of mostly bonds, but it’s recommended that you throw in some real estate ETFs and maybe some precious metals as well. Doing this will give you protection against the market’s volatility.
It’s a misconception that people must have 100% of their money in stocks. The reality is that as you age, the amount of money you put into stocks should slowly decrease.
Invest Money Wisely In Real Estate
Real estate is the second most important tool that can help you build wealth. Real estate has been making people rich since antiquity, and it still does to this day. Learning how to invest money wisely in residential and commercial real estate can make a huge difference in your life. However, real estate is not the stock market. There are a few key differences between the two.
Some of them include:
- Less Liquidity- Real estate is much less liquid than stocks. It’s much more difficult to sell a house than it is to sell millions of shares of stock at once.
- Social Business– Real estate is very much a social business. It requires you to get out there and talk to people. Investing in stocks doesn’t; this might be one of the biggest differences between the two.
- Lower Returns– The stock market completely outpaces the real estate market in annual returns. That doesn’t mean that real estate returns are bad, but they just aren’t as consistent as stocks are.
- Less Passive– Real estate is great because it gives you control over your investment. You don’t control the companies you buy stock in, the CEOs and executives do. Yet, with that comes more responsibility. Real estate is more demanding and will require you to pay more attention on your investments than stocks do.
- More Capital Required– This might be the biggest bar to entry for most people in real estate and that is it takes a lot of money to get startet. Though this isn’t entirely true, stocks generally do have more options for you to get started with less money than real estate does.
The Best Investments For Real Estate Beginners
Many people will tell you that you can’t start investing in real estate unless you have a lot of money. Well, contrary to popular belief, having tons of money is not necessarily a deal-breaker. Don’t get me wrong though, it does help get you ahead as an investor. But let’s put it this way; it might actually benefit you to not have any money than to have money but no understanding of real estate.
The Reason? It’s having money that is the problem. When someone has money but no grasp of real estate investing, they can easily be taken advantage of. This happens all the time where wealthy people try investing and end up losing all their money.
Some of them are so afraid of losing their fortunes that they don’t even try. Having little money can ironically be advantageous since it will force you to learn the ropes before actually doing anything.
Low Capital: Consider a Lease Option
I had briefly talked about lease potions in one of my other posts, 5 Ways To Acquire Wealth Through Real Estate. They are basically rent to own home contracts that allow a tenant to lease a home with the option to buy the property.
Usually, lease options are sought out by homeowners who want to sell their houses immediately and have trouble doing so. Likewise, tenants with bad credit scores and low incomes are likely to try a lease option since they can’t qualify for a mortgage.
There are many ways to make money from a lease option but probably the most interesting method is to become a lessee. You can act as a lessee by signing a lease option with the property owner for the lowest amount possible. Then you rent out the property to another tenant and collect the cash flow difference.
The best part about doing this is that you don’t need a lot of money. The fee for the contract usually doesn’t surmount to a lot. As long as you find someone desperate enough to get rid of their property, you can negotiate the price. Plus, you won’t have the same burdens as a landlord since you don’t own the property: the tenant will be responsible for any damages or repairs on the home.
Sandwich Lease option
You could take it even further and invest in what’s called a sandwich lease option. This method is just a lease option on top of another lease option with you in the middle.
In this scenario, you are the middleman between two lease options. You lease an options contract from a seller, then you lease another options contract to a tenant. If the value of the property increases and the tenant ends up buying the home; you can walk away with the difference plus the rent you’ve been collecting the whole time.
So the idea that you have to be wealthy to invest in real estate is just false. Anyone with some money, education, and a little creativity can do it. It’s pretty common for investors to collect income from multiple lease options at the same time. The money you generate from these contracts will help build your capital, allowing you to buy more real estate.
Have an Excellent Credit Score
Your credit score is one of the best pieces of leverage you have as a real estate investor. Having a good credit score will allow lenders to know that you are qualified and reliable. You’ll have access to loans that you wouldn’t normally get, meaning that you could use the money of others towards your investments.
The latter statement is important because it reveals the secret of how so many real estate investors become successful: They use other people’s money. Try to understand this since it is such a vital strategy for so many investors. You don’t have to use your own money if you can get a loan from a bank or a private lender.
Banks and private lenders will be more willing to loan you money if have a solid credit score. Anything above 700 is considered good. You can start improving your score right now by paying bills on time, and by reducing whatever debt you have.
Get Cash From a Loan and Sensibly Rent Out Your Property
With your amazing credit score as leverage, you can qualify for certain home loans. Banks will also grant you lower mortgage rates as a supplement for your outstanding credit score. But that doesn’t mean you have to use those loans solely for houses you plan to live in.
With this new leverage, you could use a home loan to purchase a property with a rentable basement. Once you rent out the basement of your own home, congrats! You are now officially a landlord! But it’s not over yet, landlords have to learn how to invest money wisely too.
If you’re not careful you can get burned bad in real estate. The learning never stops as an investor, so you should always be reading and talking to new people; you might even find a mentor on the way.
The Wisest Investment You Can Make Is In Yourself
Finally, the best way to invest money wisely is to invest in yourself. Yea that’s right before you start thinking about stocks and real estate, think about yourself first. I realize that some people see this as redundant, but that just, even more, highlights how important it is. Think about all the famous entrepreneurs and successful people you know; I bet most of them spent a lot of time investing in themselves.
I’m willing to bet that’s all they did. Successful people never stop learning, it’s a never ending process. Investing in yourself is the wisest investment you can make because, in the words of Buffett, “you are your greatest asset”.
The greatest thing about investing in yourself, and one that people sometimes forget, is that there’s no risk! You can’t lose anything by investing in yourself. Investing in you will result in nothing but personal gain and and increase in skills and knowledge.
Education Is Key
I’ve talked about education many times before but I still can’t stress its importance enough. It is so important that you invest time and money into educating yourself.
You don’t necessarily have to go to college, although I would recommend it; it’s not a requirement. Education is more than just receiving a piece of paper. You have to absorb the material and make sure you understand it.
Many people blow through college without actually learning anything. Students will cram a good deal of information into their heads for exams but end up forgetting 90% of the material once graduation comes.
This is a big problem in our modern education system in general. If you wanna learn you have to be passionate about what you’re learning about. Then through practice, the material will become more clear to you. Einstein didn’t study physics because he had to, he did it because he loved it.
Newton didn’t invent calculus from his mom forcing him to study; he was extremely passionate about math and did it as a hobby. If you like whatever it is you’re studying, then learning will become more fun.
If college isn’t an option for you, think about reading books as an alternative. Not only do books help you learn, but they can change your brain chemistry. Reading books helps activate certain areas of your brain that wouldn’t normally be working. This can improve your intelligence and help make you a better problem solver.
The knowledge and wisdom you will gain from reading books are priceless as well. Buying and reading a book like The Intelligent Investor is more valuable than any stock.
Books are a compilation of someone’s life work and experiences compiled together in a few hundred pages. You essentially have access to a person’s life work and experiences in a book that you could read in a week.
That’s what makes books so powerful; and it is why they make the best self investment of all. The more books you read, the more knowledge will start compounding in your head. You can then apply all of that knowledge. to improve your own life
Invest Money Wisely In Online Courses
With the help of the internet, you could get access to numerous online courses offering lessons on anything. Online courses are like an education hack, think of a mixture of going to college and being self-taught. There are online courses for almost any subject, but most of them gravitate towards online work.
For example, if you want to get better at coding, online courses can help you with that relatively quickly.
You can even do it at your own pace, avoiding the annoying hassle of attending classes. But even though they’re convenient, you still have to do your research on them.
There are a lot of scammy, lackluster courses on the internet. Filter those out by knowing who you’re getting them from. If the person can’t seem to show you any proof of their skill, then you should probably look elsewhere.
Make sure an online course is reasonably priced and can provide what you’re looking for. Once you find the right one at a fair price, you could learn so much so quick.
To invest money wisely means to spend it on something that will give you a much greater value. High-quality online courses that can teach you hard skills are extremely valuable.
Make The Most Out Of College
If you do end up going to college, please try making the most out of your experience. I keep seeing time and time again people attending college and never fully investing themselves in it.
I’m guilty of this too. I feel like most of my college years were wasted doing irrelevant things. I wish I would have joined more clubs, participated in my school’s newspaper, and even talked to my professors more. All I did in college was study and socialize somewhat. This got me through school but it feels like I could have done so much more.
Too many people go into college without any clear goals or plans for when they graduate. I know it can be difficult to realize your interests so early in life, but doing so can save you a lot of time and effort.
A college degree by itself is an important tool for today’s job market. But what you absorb and experienced in college can arguably be even more important.
To invest your money wisely in 2020, you’ll have to educate yourself on a few things. Self-investment is the most important thing you can do right now. For the most part, it’ll be free; and even if you spend money on a book or for college, no one can take the knowledge you gain away from you.
While you invest in yourself, it would be a good idea for you to start learning about stocks and real estate. These are the two most important assets for building wealth that we have today. Take the time to learn about them and you will succeed as an investor. Try to avoid scams and new hot investments that are clearly risky and volatile.
If you stick with what you know and understand, for the most part, you’ll do just fine. And don’t let not having money stop you either. People with a lot of money mostly fail at investing since they get overconfident because of their wealth.
With less money, you will learn to invest more intelligently. Don’t let 2020 kick your butt; start learning to invest your money wisely right now, so that your future turns into a bright one.
These are only a few ways that you can become a wise investor in 2020. I’m sure there are many more. If you have any interesting ideas on how to invest money this year please feel free to share them in the comments below.