Dear Reader

Every time I get to speak to a per­son about my book, I share two caveats. I thought it would be help­ful to put them in writ­ing, so I can share a link to this page instead.

These two caveats are:

  1. The “best” way to get start­ed invest­ing fal­la­cy
  2. The book’s ‘Chapter 4’ (the tac­ti­cal how-to to make your first invest­ment)

Caveat 1: Getting Started Investing

When you get start­ed invest­ing you’re doing three things:

  1. Building wealth
  2. Learning about invest­ing
  3. Trying to fig­ure out how to stay moti­vat­ed

It’s “com­mon guid­ance” that peo­ple get­ting start­ed should buy a low-fee index fund, set­up auto­mat­ic deposits, and for­get about it.

I agree in prin­ci­ple with this idea, but in prac­tice not so much. At least, not exclu­sive­ly.

Slight Tangent

If I pur­chase I stock I pay a com­mis­sion once, even if I hold it for 10 years, while a low-fee index fund charges me that same low-fee every sin­gle year. So, the idea of low-fee being bet­ter for long term hold­ings is disin­gen­u­ous.

The counter argu­ment by the way is that an index fund reduces risk, and it’s a good argu­ment which is why I think a low-fee fund is a good way to start, but not the only thing investors should start doing.

Back to the Point

I don’t like this idea of “for­get about it” or “don’t look at your state­ments” as a way to man­age your invest­ing anx­i­ety.

A bet­ter way of man­ag­ing anx­i­ety is chang­ing your sto­ry by chang­ing your per­spec­tive AND then using your new per­spec­tive to devel­op a con­fi­dence about invest­ing that will serve you for decades. I think this con­fi­dence-build­ing and per­spec­tive-chang­ing are relat­ed. After all, if you don’t change your per­spec­tive and instead act like a pro­fes­sion­al trad­er, of course you’re not going to devel­op mas­tery (unless you are a pro­fes­sion­al trad­er and are good at what you do).

Let’s break this down into three ele­ments:

  1. Motivation
  2. Education
  3. Mastery

As I was writ­ing, I thought of a metaphor along the lines of “teach a per­son to fish, rather than giv­ing them fish.”

Let’s say you go fish­ing. Within a few min­utes of get­ting out there, you hook a fish. And anoth­er. “Great!” you think. And, you’d be right. Great. But unre­al­is­tic.

At some point the fish won’t bite. At some point the sea will kick up. As some point, it might even rain. Fishing isn’t much fun… though as the say­ing goes, it’s still bet­ter than a day at work.

That’s your per­spec­tive. If you can learn to love the sway of the boat, or the feel­ing of sun on your face, then even if you go fish­ing but don’t catch any­thing, you’re going to keep fish­ing. But in the finance world equiv­a­lent, peo­ple will shout that learn­ing to love the sun or the fact that you have no phone sig­nal has noth­ing to do with being bet­ter at fish­ing.

Learning to love the sway of the boat or the feel of the sun on your face has noth­ing to do with fish­ing and every­thing to do with invest­ing. Click To Tweet

Why don’t peo­ple invest? There are prob­a­bly a few rea­sons, but one is def­i­nite­ly that it goes against our nature to keep doing things that don’t earn a reward. And, with invest­ing there are times when the mar­ket is down.

How many months will you go, con­tin­u­ous­ly putting mon­ey in as each month you look and see you have less than the start of the month?

So, peo­ple respond by say­ing, invest auto­mat­i­cal­ly and don’t look.

They solve the moti­va­tion prob­lem by not look­ing.

I don’t know, any­time I’m told not to look at some­thing, not only do I look, but it stays on my mind cre­at­ing anx­i­ety (or antic­i­pa­tion).

Why not find some­thing else to mea­sure, some­thing that doesn’t pro­voke anx­i­ety?

The Power of Habit is great for under­stand­ing the psy­chol­o­gy of moti­va­tion. Simply, it defines habit form­ing behav­ior as cue, habit, reward. The reward is crit­i­cal, and that’s why peo­ple can’t be moti­vat­ed to invest with­out dip­ping into their reser­voir of will when their invest­ments are going down. It takes ener­gy to work against this habit, ener­gy many of us don’t have.

In The Elephant in the Room has a Paycheck, instead of focus­ing on the ‘pile of mon­ey’ I focus on the ‘pay­check’ that mon­ey gen­er­ates though div­i­dends.

Management tries to avoid div­i­dend cuts, and we can make them more rare by invest­ing in div­i­dend aris­to­crats. Looking at your total pay­check means that regard­less of “how the mar­ket is doing” with each invest­ment (and div­i­dend rein­vest­ment, and div­i­dend raise) your pay­check goes up.

Your ris­ing pay­check is the reward that rein­forces the habit.

With the pay­check you have exter­nal moti­va­tion to par­tic­i­pate in build­ing wealth, which means you might be curi­ous. Which means you can look. By look­ing, you will learn.

Learning more, espe­cial­ly when you’re young, will build a life­time habit of eval­u­at­ing your wealth and invest­ing habits through each life stage, ask­ing for help when nec­es­sary and feel­ing mas­tery around the top­ic because you’ve been look­ing, and you’ve learned.

So, with The Elephant in the Room has a Paycheck you have a pos­i­tive moti­va­tor (actu­al­ly more than one — because you can track the Raise as well, and the raise is sur­pris­ing­ly high — who doesn’t like rais­es?), learn as you go, and devel­op a mas­tery about finan­cial terms so that you set your­self up for long-term wealth accu­mu­la­tion through each life-stage.

Caveat 2: The Tactical How-To

When I wrote the book, Stockpile didn’t exist.

Stockpile, among oth­er cool things, allows investors to get start­ed with just $5 (you can even get a $5 bonus for new accounts if you use this link). Investors can choose from any of over 1,000 stocks or ETFs. Getting start­ed is as sim­ple as fill­ing out an online form.

I want­ed to make sure that read­ers not only had a plan for invest­ing, but had a step-by-step guide to get start­ed. Which means I need­ed to sug­gest a method for buy­ing stocks.

Without Stockpile, I focused on an “old school” way of buy­ing stocks direct­ly from com­pa­nies. Buying stocks direct­ly still works, but (big but!) there is usu­al­ly a min­i­mum of $250 to get start­ed, there’s a lot more fric­tion as you often have to fill out a form and mail it in, and the web­sites are gen­er­al­ly poor qual­i­ty. Not to men­tion that for each com­pa­ny in which you wish to invest you’d have to go to their web­site, and fig­ure out what their “ver­sion” of the rules/fees are.

Here’s a quick sum­ma­ry:

Buy Shares with Stockpile:

  1. Minimum invest­ment to get start­ed: $5
  2. Minimum addi­tion­al invest­ment: $5
  3. Friction: Low, com­plete­ly online set­up
  4. Investment selec­tion: Simple, one site for over 1,000 invest­ment choic­es
  5. Web/App investor expe­ri­ence: Amazing

Buy Shares Direct from Company:

  1. Minimum invest­ment to get start­ed: $250 or more (gen­er­al­ly)
  2. Minimum addi­tion­al invest­ment: $25, $50, or more (gen­er­al­ly)
  3. Friction: High, even those with dig­i­tal process­es sim­ply emu­late paper process­es
  4. Investment selec­tion: Complex, each com­pa­ny has their own direct pur­chase rules, and if you invest in mul­ti­ple com­pa­nies you could end up with mul­ti­ple web­sites to use to man­age your port­fo­lio
  5. Web/App investor expe­ri­ence: In my expe­ri­ence, the web­sites are ugly, com­plex, and have poor mobile app solu­tions

It goes with­out say­ing that if I were to rewrite Chapter Four, I’d rec­om­mend Stockpile rather than direct stock pur­chas­es.

And of course if you have a bro­ker­age you pre­fer to use, you’d want to make sure you can rein­vest div­i­dends (Robinhood, for exam­ple, does not). Additionally, tra­di­tion­al bro­ker­ages have high­er com­mis­sions that Stockpile (and Robinhood of course!) and you have to buy an exact num­ber of shares, instead of Stockpile’s approach allow­ing investors to pur­chase frac­tion­al shares. Meaning, if you’re just get­ting start­ed with a mod­est amount of mon­ey to invest, Stockpile is a bet­ter option than a tra­di­tion­al bro­ker­age. However, if you’ve already bought some shares you can sim­ply turn on “rein­vest div­i­dends” and begin your Elephant’s Paycheck Blueprint.

Free Email Course

If you’re not com­mit­ted enough to spend $20 on a book, even though it’s beau­ti­ful­ly print­ed, you can always sign up for my free email course which cov­ers a lot of the same mate­r­i­al (and does ref­er­ence Stockpile instead of Direct Purchase Plans).

Give it a try?

Money Making Money

I wrote a free email course specif­i­cal­ly for peo­ple who want to get start­ed invest­ing. In it, I will teach you how to get start­ed with as lit­tle as $10 using Stockpile, and then walk you through my unique met­rics designed for you to have fun and stay moti­vat­ed to build a healthy invest­ing habit.

Course atten­dees can down­load a spread­sheet tem­plate that I’ve cre­at­ed to high­light these met­rics. I even share a tuto­r­i­al that you can use to set­up your own track­er.

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