The Trick to Getting Started Investing

This morn­ing I’m think­ing about key points of the Elephant’s Paycheck Blueprint. I’m always work­ing to fine-tune how I intro­duce peo­ple to what I’m try­ing to share. What’s the trick to get­ting start­ed invest­ing?

It’s hard to get start­ed. Where do you even begin?

A key point is the abil­i­ty to get start­ed mod­est­ly. Like with a few hun­dred dol­lars. Yeah, right? That’s crazy. Most places want you to invest thou­sands, or more, just to get some per­son­al atten­tion.

With a few hun­dred dol­lars you can build healthy habits soon­er because you can get start­ed eas­i­er and faster.

The trick is how to moti­vate peo­ple when there are such small amounts at play. Even if I could mag­i­cal­ly help you earn 10% on a $250 invest­ment, that’s not much in terms of improv­ing your life. I mean, I went to the movies over the week­end and it cost $27. If I helped you earn 10% a year on your invest­ment, you could­n’t even go to one extra movie as a result. That’s not life chang­ing.

In fact, 10% would be a great return. So, we need to mea­sure what mat­ters, and what mat­ters is not the absolute return (the $25 in my exam­ple) but the % increase. And, we need to antic­i­pate the impact of com­pound­ing of that return. For exam­ple, if you rein­vest­ing the first year’s $25 gains, the sec­ond year earn­ing the same 10% would give you $27.50, and the third $30.25. Still not life chang­ing, but an increas­ing larg­er part of the mon­ey you start­ed with.

To put that $30.25 in con­text as a per­cent­age, that’s 12.1% of your ini­tial invest­ment!

Now, I can’t guar­an­tee 10% returns (let alone 10% returns 3 years in a row!). But, I can help you under­stand how to find sol­id returns that present them­selves with reduced risk as mea­sured against our invest­ing goals (less risk than the gen­er­al pop­u­la­tion of stocks).

So, if we get year-over-year pos­i­tive returns, and do it in a way that max­i­mizes safe­ty, the next trick is to moti­vate you to hold out for a few years (or more, many more) so that com­pound­ing and rein­vest­ing have time to juice your returns. That’s per­haps more dif­fi­cult, but gets eas­i­er over time. Researchers assume that peo­ple don’t want to think long term. I dis­agree. We buy 30 year mort­gages. As par­ents, we save 20 years for our kids’ col­lege. We plan our careers with an expec­ta­tion of work­ing almost 50 years. We can think long term when oth­er bar­ri­ers are out of the way. Fear of not know­ing what to do, and under­stand­ing how well we’re doing are two of those bar­ri­ers.