Hello Free Financial Advisor readers! I’m Marvin from Brick By Brick Investing, a blog that focuses on teaching the average joe how to invest in the stock market and grow their wealth in order to achieve financial independence. It’s my pleasure to have you as my audience today. If I could explain one thing to investors it would be this…
Investment returns are not the number one factor in regards to building wealth through the stock market. Now before you strike me down and start to curse my name hear me out. I pride myself in being completely honest with you and if our roles were reversed I would want you to do the same. Here are the three things that you have complete control over that matter most.
Earn More Money
While some make the noble attempt to educate themselves financially it has been my experience that they prematurely start investing and in return lose a substantial amount of money. I would advise instead of focusing all that energy chasing hot stock tips, attempt to be the best in your field. Strive hard for that promotion at work or for that bonus and when you achieve success allocate your increase in income to your overall portfolio. I would much rather see a safe low risk return of 6-8% on a portfolio of $100k+ than a high risk return of 15-20% on a portfolio of $10k.
Throughout college I worked hard and was able to levy that hard work into a favorable job market where I obtained a very coveted job skill. In return I was able to start making a large sum of money compared to my peers that I graduated with the year before. It wasn’t easy, there was a lot of sacrifice not only from myself but from my family as well. I basically sacrificed three years of my young adult life in order to acquire a nice salary. Now I am able to make low risk trades and investments and compound my wealth.
Increase Your Savings Rate
Stop trying to keep up with Joneses and stop living above your means. Eliminate your debt and spend less than you earn while investing the rest. I believe a good bit of us have been deployed and lived under basic conditions. Therefore I believe it is safe to say you can do without some of the luxuries that deplete cash from your wallet. I personally recommend that individuals should strive to save 50% of their income AFTER tax.
Time and time again I hear that this cannot be done but I did it for two years of my life. In fact I use to save 80% of my after tax income before I got married. I will never forget the day my wife discovered that I used shirts on hangers as curtains for my room, her facial expression was priceless. For six months I had nothing more than a mattress, laptop, and gorilla case in my room. These are the things that allowed me to save so much money at a young age. Since then my wife and I have come to happy medium and we save 50% of our after tax income and indulge in some luxuries but if it were up to me we could save a lot more.
Choose A Great Financial Advisor
While no fault of their own a lot of individuals believe all financial advisors are created equal, but the harsh reality is they are not. It is imperative that you verify potential advisors credentials, fee structure, and capabilities. Some advisors may try to use a broad stroke with all their clients and you need to verify that your potential advisor has a plan for your specific situation. Do not feel that you cannot ask questions. In fact you are interviewing them for a job to manage your investments. Ensure that you leave no questions unasked and make sure you understand the answers that are given to you. Albert Einstein said, “If you can’t explain it simply, then you don’t know it well enough.”
Increasing Investment Returns Can Be Simple
If you do these three things I guarantee you will outperform 90% of your peers in terms of investing and ensure a successful retirement. These are the things I live, preach, and teach.
Photo: Tony Crider
I could not agree more about diverting your attention to your work as opposed to working on making big investments. My strategy in investing has always been to hit singles and keep moving forward. Going for the home runs always ends up losing money.
I like that analogy a lot. All to often people swing for the fence when they start investing and as a consequence end up going home and never playing again.
“I will never forget the day my wife discovered that I used shirts on hangers as curtains for my room, her facial expression was priceless.” Lol! I had something very similar when my wife discovered that I was using milk crates as my dresser. Many years removed I see her point, but I was just on my own. That said, great thoughts here Marvin. it really is not rocket science, but so many completely miss the boat.
Glad to hear I wasn’t the only one John! You are right it only made sense as we were on our own and I wish I had the idea of using milk crates.
I had a friend that was making almost a quarter million dollars per year after bonuses, etc and his TV sat on a reinforced cardboard box. He didn’t care what it looked like and worked too much to want to go furniture shopping in his free time. =)
While you’re working the greatest addition to your retirement fund is what you’re putting in, not what the investments are making. It almost (I said almost) doesn’t matter what you invest in in the early days. What matters most is (a) that you start as early as possible and (b) do as much as you can. In the long run, like you said, getting those promotions and putting away those raises, those are much more effective in building the nest egg.
I agree 100% and couldn’t have said it better myself!
I would add, educate yourself about investing. Even if you want to defer to an adviser, the more you know the more you can guide your adviser and tell if they’re BSing you.
Well said, educating yourself financially is a must especially in this day and age. If every citizen had basic financial and economic education I believe America would be in much better shape!
I spent a lot of time on my asset allocation years ago and now just tweak it occasionally. It is working well for me.
Proper asset allocation should be one of the staples for any portfolio.
An additional thought would be to find and capture all of the “free” money available to you. Max out every match or reduction in fees that you can. You’ve worked hard for your money, so take the guaranteed returns when you can.
Great point. I get a guaranteed 100% every year on the money I put into my 401k plan. =)
I would bet that people probably made fun of you for your makeshift curtains but you get the last laugh when they are still working to a ripe old age to pay off all the stuff that seemed necessary.
Ha! That’s an understatement, all of my friends and co workers gave me the nickname of “Scrooge Mcduck” because they rarely saw me spend a penny.
I like the first step: Increase Your Income! I try to stick with my asset allocation and rebalance quarterly.
I feel that increasing your income is the one thing that we have the most control over. A lot of people think you are only suppose to work 40 hours a week. I say if you’re highly motivated get 2 jobs, whatever you need to do to make more money.
My question is, what is wrong with using shirts as curtains😀
You and I would get along just fine Greg! =)
I think everyone should have a goal of earning more money. Let’s face it: most people have life goals that require quite a bit of money. Instead of trying to get there through taking on higher risk, why not try to earn more? Your point makes a lot of sense.
I couldn’t agree more DC.
Love this post, Marvin. It all comes down to priorities, doesn’t it? I think that if alot of the “keep up with the Joneses” group could see your life now, they’d be more than willing to make some relatively short term sacrifices to get to a place where they could have a peaceful financial life. Thanks for the motivation and great tips!
Sure does, it’s amazing how quickly people want satisfaction without putting in all the work.
Very inspiring regarding your college story; we need more who think like you do. Any chance you could share what exactly you did, and what you learned from the experience?
Hey Mike! One of these days I might divulge the skills I learned but I want to keep a little bit of anonymity online. I will say that while my fraternity brothers enjoyed spring breaks down in Florida and late nights with other sororities I found myself working diligently and taking internships whenever I could.
Marvin, you’ve definitely strike a chord with me on the first 2 steps. I’m trying to earn more by doing some freelancing, on top of my day job and as a part time tutor. Time is a concern but I will try my best to manage. Great pointers!
If only there were 28 hours in a day and I only needed 5 hours of sleep! I am going to try my hand at freelancing as well.
Great philosophy! I’m in agreement. I’m putting my energy into earning more at the moment, and over time I hope my investment knowledge will grow along with my income to help guide those initial investments. For now, I just trust people like Average Joe to show me the ways 🙂
Glad to hear it Jacob! I would also advise you to try and learn from your advisor.
I found it great to freelance articles to bloggers and websites that will pay. After refining my writing and building my portfolio I can charge $30-100 per article. Most people think that is too much when you can get them on Fiverr for $5. The right people though will recognize the quality of writing and know the value of the work. This keeps the orders to a manageable amount so it is not taking too much of my free time. That extra money is invested, saved, spent, etc. It helps for sure.
This is great to hear Scott. I believe that by creating and/or adding value you will always be able to find work in this world.
I would also add: pay attention to fees. Even something that seems like a small fee can make a big, big difference over time as your portfolio grows.
Absolutely Julie!!
Well that’s new I must say, using t-shirts on hangers as curtains but it sounds like you did whatever you had to in order to reach your goals. Good for you I say. We save close to 50% of our after tax income right now and I can clearly see how it all adds up. Thanks for the tips.
haha yeah I still smile back at those years. Simple living at its finest, now my house is filled with all sorts of kids stuff. Granted, we got it all from thrift stores. Glad I could offer some tips.
I think that the only way most people could save more is by earning more. If you can’t do that in your main job then look to try and find a 2nd job. It doesn’t have to be forever but it will make a massive difference to your finances if you do – even in the short term.
I wouldn’t necessarily say earning more money is the only way to save more money but its certainly a sure fire way to do so. I think if an individual changed their view on “things” and a few small principles they could cut a decent amount of spending from their budgets