Who is the fastest self made billionaire ever? While it took Warren Buffett 55 years to join the billionaire’s club. Jay Walker literally did it in less than a year, he launched priceline.com, during the.com bubble, and his net worth instantly jumped from zero to billions. But that wasn’t sustainable. Because when the bubble burst, his net worth crashed, as well, Buffett is still on the top of the list, and he doesn’t seem to go anywhere, anytime soon.
That’s the kind of wealth you want to build. The game of money isn’t easy. It’s tough, competitive, and ruthless. And if you don’t know the rules, you are doomed to fail. The problem with most people is that they might work super hard their entire lives, but end up poor at the end of the journey, because they don’t know how to let their money make even more money. In other words, they don’t know how to invest,
let’s assume that you have been saving money and have an extra $1,000 in your bank account. That is already an achievement because nearly 70% of Americans don’t even have an extra $1,000. So instead of spending it on another useless gadget or a pair of shoes that you would wear once and then keeping your wardrobe for many years before you finally throw it away.
Let’s assume that you’re going to invest that money. But the question is, how do you invest your first $1,000? Do you invest in real estate or the stock market? What kind of stocks Do you buy? Is $1,000 is enough to start investing. We’re going to answer all of these questions, and many more<
To understand what investing is and how it works. Consider this example. Let’s say you work so hard and save $300,000 you can pay a visit to a Ferrari store and get yourself a luxurious car and let everyone know how successful you are. You can buy real estate and rent out every month you will receive at least $2,000. If you decide that you no longer want to keep receiving the $2,000 paycheck every month, you can sell it and get back your initial investment. In fact, the value of your investment might even be appreciated.
So you will sell it for a higher price. And that’s how money makes money. But you can’t buy real estate for $1,000. That’s not even enough for a downpayment. However, that doesn’t mean you can’t invest the $1,000 elsewhere and let it grow. The easiest way is just to deposit it into a savings account and generate interest. But why would the bank pay you for keeping your money in the bank? Shouldn’t they charge you instead?
Now, you see, the bank is going to take your money and loan it to someone else at a higher rate. And we’ll share with you a portion of that profit. That’s how banks work In short, the only problem with this strategy is that interest on deposits account is so low that it doesn’t worth it, the highest rate you probably can get is point 8% which means that if you invest $1,000 into a savings account 12 months from now, you will receive an extra $8, which is extremely low because the Fed targets an inflation rate of two to 3%. Which means if you’re not getting at least two or 3%. Over time, the real value of your $1,000 will depreciate which means you can buy with it less goods every year.
But why interest rates are so low on deposits account, because interest rates in general are low this year, since the pandemic force the Fed to lower them to encourage everyone to borrow money and spent a year or two from now once we get out of this recession, the Fed will increase interest rates to one or two or even 3%, which means interest rates and savings accounts will rise as well.
2. Buy Government Bond
Your second option is to buy government bonds. A government bond is security that’s issued by the government to raise money to support government spending. Say the government wants to build a school, but it doesn’t have the money to do that. So it issues and I owe you a piece of paper that says whoever owns the security is out this much of money plus interest by the US government.
Of course, this is an oversimplified example. But that’s the point. In short, government bonds are heavily influenced by interest rates. So since interest rates are extremely low this year, government bond rates are less than 1%. But two years ago when interest rates were high, government bonds rates were as high as 3%, which is not bad since the government bonds are the safest investment you can ever make. Any investment carries with it a certain level of risk. If you’re loaning money to the US government. What are the chances The US government will default on its loan for the US government to go bankrupt, the entire US economy might have to fail. That’s why US government bonds are considered the safest investment in the world.
3. Investing In The Stock Market.
But if you want to make a higher return, let’s say 1020 or 30%, then you have to consider investing in the stock market. For example, Amazon’s stock price increased by over 80%, just this year, Google’s stock price rose by almost 30%. Tesla stock increased by 721%. Yes, you heard that right. 721%.
Then the question is, why would anyone invest elsewhere, when they can double or even triple their money in the stock market, that’s there is risk. When it comes to government bonds, for example, there isn’t much risk. In fact, it’s risk free to a certain extent. But when it comes to individual companies, there is a risk that the company might fail, it might report negative earnings, pretty much any negative news can drive the stock price down, the company might release a product. And if the public doesn’t like it, that can make some negative headlines, which can drive the price down.
So with higher returns comes more risk. Apple is a well established company, and its chances to fail are way lower than Tesla, for example. But it also has less room to grow than Tesla. That’s why Tesla grew by 721% this year, but Apple by just 70%. What you have to determine for yourself is how much risk you can take without going nuts. If that $1,000 is all that you have left, maybe risking it all isn’t the wisest option, because if things turn south, you can end up losing most of it.
4. Investing in an Index
So one way investors minimize the risk in the stock market is by investing in an index. The most famous one is the s&p 500, which tracks top 500 US companies. So an index fund would basically invest in these top 500 US companies, some of these companies will definitely fail, but others will grow. Judging by historical data, the average return rate for the s&p 500 since the 1920s was around 10%. This means buying a share of these index funds means you’re buying a tiny share in the top 500 US companies.
My three top favorite index funds are VOO or Vanguard 500 index funds, triple Q, an index fund by Invesco and fidelity, zero, total market index funds, all of them are great and invest in pretty much the exact same companies. But how do you buy shares in these index funds? I mean, where do you start?
First, you need to find a broker, someone who is qualified to sell these stocks. In the past, it was always someone, you had to pick your phone and call him and ask him to sell you some shares. Remember The Wolf of Wall Street, he would spend his entire day calling people and try to sell them worth stocks
. But thank God, we are in 2020. And things are much better and easier. brokerage firms created apps so that you can buy shares from the comfort of your smartphone, such as Robin Hood, webull, and so on. All you have to do is download one of these apps and sign up and you can start investing right away.
That’s a good way to start, I tried my best to make this blog post as simple as possible so that whoever wants to start investing can start right away. Often what happens is that you want to start investing, but you have a million questions and you start googling this and that and get exhausted after some time. And then you just give up and try again a few months later, maybe so I try to answer all of your questions here in this short Blog post . So if you have found this blog post helpful, share with your friends.