Why Investing is the Skill of the Future

They will make you more prepared for the future labour market. They can help you make more money but there is one missing skill. The skill of saving that money and actually managing it.

As Kiyosaki said: Rich person is not one with a big salary, but one who has more assets.

Thus we need to learn how to create them.

Have a look at typical wealth distribution during a person’s lifetime:

All of us are focused on maturity and active working period—the best time of our lives. We are setting high career goals, plan luxury travels, looking for a prosperous future. However, such poor planning would be relevant in the beginning of the 20th century. Because those born in 1910 the expectancy was to live to 49 years of age. Most of the people at that time didn’t even think of any pension or retirement. They simply didn’t live that long. 

According to statistics, over the past 160 years, life expectancy (from birth) in the United States has risen from 39.4 years in 1860, to 78.9 years in 2020.

Life expectancy is increasing, biotechnologies prolong lives, but can you always work as effectively as now? Or do you even WANT to work later in life?

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🌚 Why care? The government offers retirement plans.

It will hardly cover your usual expenditures. There is also no guarantee that your pension fund won’t go bankrupt. Have a look at these headlines from news‍

• “the weak financial condition of seven US public pension plans threatens to deplete their assets by 2028”
• and most recent “A Michigan-based pension fund is suing Credit Suisse over failures related to the recent collapses of supply chain funds Greensill and family office Archegos”.

The official system is just too fragile and inefficient. Therefore, the situation calls to take responsibility for your own money and start managing it without intermediaries.

🌚 It’s difficult, I don't have any special education.

Investing has become easier and accessible so that more than a half of Americans (55% to be precise) own stocks.

And the number of retail investors is growing each year worldwide, over 10 million new brokerage accounts were opened in 2020*. Because more people are taking action to make their future safer. It’s like with a phone. Once you relied on an intermediary like telephone booth or agent to call, now you can use our own smartphones.

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🌚 Retirement is too far and maybe the least concerning matter for me.

That’s right, there are more acute challenges, such as replacement of our jobs with robots or algorithms or that pollution forces us to move to cleaner places, or sudden outbursts of virus makes us stay isolated, you name it.

With the world changing at such a high pace, all we need to prepare for is uncertainty. Nassim Taleb is one the most renowned writers (and former stock trader) who brings in these matters. In his book “Antifragile” he talks about surviving in such turbulent conditions. The best quality a person can have now is antifragility.

‍Antifragility means that something does not merely withstand a shock but actually improves because of it.

‍You can be very skillful and adaptive and thrive in times of crises but... it still takes time to find a job, move to a new place, learn a new skill. Transition periods require money to get through. Hence, saving appears not just a good habit to have, but a vital thing to do for your antifragility. Those who have savings feel more confident, can be more adaptive to uncertainty and thus, are happier.

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🌚 I have a savings account in a bank. Does it count?

It counts if you are satisfied with your yield. Because there is one thing we tend to forget—inflation. When you start saving, your money loses value over a period of time because everything rises in prices—that’s inflation. One of the ways to understand inflation is with the Consumer Price Index (CPI). CPI is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. The historical data for CPI is shown on the chart below.

It means that with $1000 now you can buy ~1,7 times less than in 1996.
Bank deposits offer near-zero rates which don’t help save your money.

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🌚 Alright, what other options do I have?

You need something that would beat the inflation and set the stream of passive income. Here’s what Americans choose:

Real estate seems to be the most popular asset.

However, if we compare the yield of real estate with the stock market (the second most popular choice) we notice that it’s not much higher. The chart below shows the rise of the real estate index and S&P 500 (an index that tracks the stock performance of 500 major American companies).

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🌚 Both of them beat inflation and look better than deposits, should I start investing in them now? 

Not yet. When choosing between these options, consider the amount of money you need to start and the effort it takes.

It’s clear that allocating money in different assets is a must for an investor. But for an easy start and faster capital gains the stock market is the way to go. Although investing in the stock market has this vibe of complexity or eliteness, in essence it’s just buying shares of companies. You can cash it out any moment by selling them.

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🌚 What’s the strategy with stocks?

A simple and conservative way is to invest in the whole market through the S&P 500 index. The more difficult and rewarding way is to pick individual companies. For example, Apple has risen 100% in the last year, and 4.7 times in 5 years.

So if you had invested $5,000 last year, you would have had $10,000 now. Or if you had invested in it 5 years ago you would have multiplied your savings 4.7 times.

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🌚 Is it safe?

It is as safe as the company you invest in, meaning that you can only lose your money if the company you invest in declares itself bankrupt. What is the probability of Apple going bankrupt? Or General Motors? Or Bank of America? And you can become one of the owners of those companies.

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The stocks of 500 biggest American companies have been growing at an average rate of 12,5% in the past 30 years. 

As the chart below shows, the cost of shares of the broad market rose 6 times in 25 years. It means that if you had invested $5,000 in 1996, you would have had $30,000 by now.

The index grows because companies in it grow in terms of money and number of customers.

Simple logic: you buy a new iPhone every year  -> the Apple revenue grows -> their stock grows -> your capital grows because you are a holder of their stock. And you buy a new iPhone next year with the profit you made.

Based on all these insights, millennials are actively joining the movement called F.I.R.E., which stands for Financial Independence Retire Early. It’s a movement of people devoted to a program of extreme savings and investment that aims to allow them to retire far earlier than traditional budgets and retirement plans would permit.

🌚 It’s just hype until a massive market crash. 

The whole investing thing is not just trendy but inevitable due to the rise of financial awareness and technological development that supports it. 

The stock market is actually more than 100 years old and reasonable investors have survived through many crises that happened since the 2000s and before. 

What has changed is that 20 years ago investing was difficult because there were no convenient platforms, little access to information, you had to call your broker and consult at each step. Therefore, fraud was more common. 

-> Now individual investors have all the power and tools for individual safe investments. 

It might be just tricky to navigate through all the information. 

If you want to:

• avoid drowning in the ocean of the financial world,
• have a quick start to become antifragile,
• sail towards your financial freedom,
• subscribe to a free fast-track course on investing.

By the end of the course, you will get results that none of the free courses even promised. You will be able to create your own investment portfolio. Free of charge.