Investing in Yourself: How to Maximize Your Earnings

Introduction:

Investing in Yourself: How to Maximize Your Earnings. Are you tired of watching your hard-earned money stagnate in traditional investments like the S&P 500, which typically yields a modest 7% annual return? 

What if I told you there’s a more powerful and immediate way to boost your income? Welcome to the world of fast lane investing, where the focus shifts from merely investing in stocks and shares to investing in yourself and your own abilities. 

By enhancing your skills or starting your own business, you can unlock the potential for exponential earnings. 

In this article, we’ll explore how investing in yourself can dramatically change your financial landscape and why it may be the best decision you make for your future.

The Ultimate Guide to Investing for Beginners: Navigating Your Options

Imagine you’re ready to dive into the world of investing. You might have a bit of money saved; it’s probably not enough for a house, but you decide you should probably invest it in something. You could invest in:

• Stocks
• Shares
• Equities
• Government Bonds
• Corporate Bonds
• Real Estate
• Foreign Exchange
• Crypto
• NFTs
• Futures
• Fine Art
• Watches

There’s a vast amount of information available on investing today. You may have come across advertisements on platforms like YouTube featuring experts discussing day trading and foreign exchange, promoting ways to profit through these investments. Amidst this overwhelming information, many people fear losing the hard-earned savings they’ve accumulated. With that in mind, this guide serves as a comprehensive introduction to investing for beginners.

Overview of the Guide: This video will be divided into four distinct sections, which are time stamped below for your convenience, allowing you to navigate easily.

1. Fundamentals and the underlying philosophy of investing.
2. Strategies for investing in stocks and shares.
3. Part Three: Addressing common fears and questions about investing (e.g., what if I lose all my money?).
4. Part Four: Fast lane investing, an alternative approach to traditional investing to build wealth.

Part One: The Principles and Fundamentals of Investing The Objective of Investing 

Let’s begin by exploring the essential purpose of investing. The goal is for your capital to generate additional income over time.

• Let’s say you start off with $1,000 that you’ve saved up through your hard-earned labour.
• You could put that money:
  • Under your mattress
  • In a bank current account

The Problem with Saving: Inflation
The issue with saving is that there’s this thing called inflation that you might have been reading about in the news.

Imagine you have $1,000, which could currently purchase a MacBook Air. However, in a few years, due to inflation, that same MacBook Air might cost $1,200. Over time, money tends to lose its purchasing power, which is why investing is crucial. When you invest, your money can grow independently.

How Money Grows

This brings us to the next question: how does money magically grow in the first place?

• Generally, the philosophy behind investing is that you buy something now and that something makes you more money over time.
• There are two ways in which the thing you buy can make you more money:

Rental Income:

• Purchasing a property involves an initial investment.
• Renting out the property provides a consistent monthly income.
• Ideally, the property’s value appreciates over time, increasing your overall investment return.

If you hadn’t bought the house and just had that money sitting in a bank account, you’d be losing money because inflation would eat away at your savings.

Understanding Asset Classes

Now, houses are an interesting example because you get rental income, and it’s easy to imagine what that looks like. You might think, “Since everyone pays rent, this is a consistent way to earn money.”

But with most other asset classes, you don’t have this equivalent of rental. Instead, a lot of these things you’re buying and then hoping you can sell them for a higher price over time. The main exception to this is some stocks and shares, which we’ll discuss a little later in the video.

• Common Asset Classes:
  • Stocks
  • Shares
  • Equities
  • Hedge Funds

Part Two: Reasons and Methods for Investing in Stocks and Shares

We’ve got various investment options available:

• Index Funds
• Bonds
  • Government Bonds
  • Corporate Bonds
• Alternative Investments
  • Watches
  • Fine Arts
• Cryptocurrency

You might have heard of people investing in crypto and either gaining lots or losing lots. In my case, I lost quite a bit of money because crypto has crashed recently. Many aspects of this can become quite complex in no time, which is why we will clarify the key points.

Why Focus on Stocks and Shares?

For the rest of this video, we’re going to talk about investing in stocks and shares, as this is the main kind of investing that normal people like you and me can access fairly easily.

• You don’t need a large sum of money, unlike the typical investment required for buying a house.
• You don’t need to take on huge amounts of risk like you would with crypto.
• You don’t need to be an accredited investor to invest in companies or other complex investment opportunities.

Understanding Stocks and Shares

Usually, when people talk about investing their money, they refer to buying stocks in companies like:

• Tesla
• Netflix
• Amazon

When you invest in stocks and shares, you are essentially acquiring fractional ownership in the company. For example, if I wanted to buy shares in Apple, it’s a publicly traded company, meaning the public can trade Apple stock.

• In a dream world, I would just go to apple.com, buy a stock of Apple, and own a percentage of the company.
• In reality, I need to work with someone called a broker.

Once I use this broker platform, I now personally own a piece of Apple.

Ways to Make Money from Stocks

You can make money from stocks and shares in two different ways:

1. Capital Appreciation: You hope that the price of Apple or any stock you’ve invested in will rise over time. For example, 10 years later, you could sell it for much more than you bought it. Fingers crossed!
2. Dividends: Some companies will pay dividends to their shareholders.
   • For example, in the UK, British Telecom (BT) gives out dividends.
   • When you own a piece of BT, you’re not just hoping that the price will rise; they pay out profits to their shareholders.
   • If, hypothetically, you owned 20% of BT, every time they declare a dividend (possibly every three months), you’d receive 20% of the profits they distribute.

In reality, most of us won’t own 20% of a huge company like that because it would cost billions. Instead, we might receive dividends like $10, $15, or even $5.47 here and there. If we invest in multiple companies paying dividends, it feels like receiving free rental income, which is essentially profits from these companies coming into our account every month.

Choosing the Right Stocks

At this point, you can buy stocks in different companies and own a small percentage. But how do you decide which companies to invest in? Should you put all your money into:

• Apple
• Netflix
• Disney Plus
• Shell
• British Petroleum
• Ralph Lauren
• Unilever

Opinions vary on this matter, but I’ll cite Warren Buffett’s view, which aligns with my own:

• If you’re a beginner in investing, unless you are a financial professional who does this full-time, you should not try to pick stocks.
• The average person doesn’t have enough knowledge to know which stocks to buy or when to buy them.

Investing Basics: Index Funds

Understanding Index Funds

Investing can be daunting, especially with the myriad options available, such as stocks, bonds, and alternative investments. You might have heard of people investing in watches, fine arts, or cryptocurrencies, with varying degrees of success. In my case, I experienced a loss when crypto crashed recently. 

Navigating through these options can get complicated quickly, which is why we will simplify things. In this discussion, we’ll focus on investing in stocks and shares, which are accessible for everyday people like you and me.

Why Invest in Stocks and Shares?

Investing in stocks and shares offers a relatively low barrier to entry compared to other investment avenues like real estate. Unlike investing in a house, which often requires a large amount of capital, or engaging in high-risk ventures like cryptocurrency trading, stocks can be bought in smaller quantities. 

You don’t need special qualifications to invest in stocks, unlike angel investing or private equity. Stocks are the basic way people invest their money. they’re often referring to purchasing shares in companies like Tesla, Netflix, or Amazon.

How Stocks Work

When you invest in stocks, you are essentially buying a percentage ownership in a company. For example, if I wanted to buy shares in Apple, I would be purchasing a fraction of that company. 

While it would be ideal to buy shares directly from apple.com, that’s not possible. Instead, I would need to go through a broker or a trading platform. After completing this transaction, I own a piece of Apple.

You can earn money from stocks in two main ways:

1. Capital Appreciation: This means you buy a stock hoping its price will go up over time. If I buy shares of Apple today, I expect to sell them for a higher price in the future. Fingers crossed!
2. Dividends: The second method is like making money from renting out property. Some companies share a portion of their profits with shareholders as dividends. For instance, British Telecom (BT) in the UK pays dividends to its shareholders. If you own shares of BT, you’re entitled to a portion of the profits they distribute. If, hypothetically, you owned 20% of BT, you would receive 20% of the dividends declared, usually quarterly. However, most of us will never own such a significant share in a large company, but you could still receive smaller amounts like $5, $10, or $20.

Choosing Which Stocks to Buy

Now that you know how investing in stocks works, you might be wondering how to choose which companies to invest in. Should you put all your money into Apple or Netflix? or Disney, or diversify your portfolio with companies like Shell, British Petroleum, or Ralph Lauren? Opinions on stock selection vary widely, but I’ll share my perspective, which aligns with Warren Buffett’s. If you are a beginner, you should avoid trying to pick individual stocks unless you’re a financial professional who dedicates time to analyzing the market.

The average investor typically lacks the knowledge to determine which stocks to buy or when to purchase them. Relying on intuition or popular opinion isn’t a sound strategy. There are financial professionals whose full-time job is to conduct this type of analysis, and even they frequently miss the mark.

The Power of Index Funds

So, what can you do instead of stock picking? Enter index funds. Index funds allow you to invest in a broad market without the burden of selecting individual stocks. An index fund tracks a specific stock market index, meaning it aims to replicate the performance of that index.

What is an Index Fund?

An index fund is essentially a basket of stocks that reflects a particular index. For instance, one of the most recognized index funds in the U.S. is the S&P 500, which includes the top 500 companies by market capitalization. This index shows how healthy the U.S. stock market is. Investing in an index fund helps you reduce risk and lets you share in the market’s performance. If you invest $1,000 into an S&P 500 index fund, your investment is diversified across all 500 companies in that index, weighted according to their market value. For example, if Apple represents 6.4% of the S&P 500, then $64 of your investment would go into Apple stock.

Advantages of Index Funds

1. Diversification: Investing in an index fund gives you immediate exposure to a wide array of companies, reducing the risk associated with individual stock investments.
2. Lower Fees: Index funds usually have lower management fees compared to actively managed funds, making them a cost-effective investment option.
3. Simplicity: You don’t have to constantly monitor the market or research individual stocks. Investing in an index fund is a passive strategy that can lead to solid long-term gains.
4. Performance: Historically, index funds tend to perform better than most actively managed funds over extended periods. According to numerous studies, the majority of funds that attempt to beat the market underperform the index they are trying to surpass.

A Practical Approach

Warren Buffett often recommends that individual investors, particularly those who don’t have the time or expertise to research stocks, should consider investing in index funds. He believes that investing in the S&P 500 is a sound strategy for most people. Over time, as the market grows, your investment is likely to grow as well, eliminating the need for you to become a market expert.

Final Thoughts on Index Funds

In conclusion, index funds provide an accessible, low-cost way to invest in the stock market without the complexities of stock picking. By investing in an index fund like the S&P 500, you are placing your trust in the overall growth of the market rather than relying on the success of individual companies. This approach simplifies your investment strategy and is backed by historical data indicating its effectiveness.

How to Start Investing in Index Funds

How the hell do I do that? Do I just go on S&P 500.com forward slash buy and purchase some index funds? Again, it’s not quite how it works. You need a bit of a middleman. And that’s where online investment platforms come in.

Finding the Right Investment Platform

The specific platform you choose will vary depending on the country you are in. If you want to find a stocks and shares investment platform in your country, just Google it. In the UK, there are many choices. I personally use Charles Stanley Direct. which I started using back in 2015, and Vanguard, known for being a big and reputable option.

For individual stock investments, I now use Trading212. Fun fact: this video is sponsored by Trading212! As you can see, I’m recording this on a different day, but it’s worth mentioning.

Getting Started with Trading212

If you want to get started with investing, Trading212 genuinely is the app I recommend. It’s user-friendly and offers the capability to trade stocks and shares. Plus, if you’re in the UK, you can open an ISA (Individual Savings Account) through the app. One of the coolest features of Trading212 is that you can practise investing with virtual money. This means you can learn about market ideas without risking any money. When you feel ready to invest for real, switching from practice to real investing is as simple as a button click on the app. You can deposit funds easily through Apple Pay (up to £2,000) or via bank transfer afterward.

Explore Investment Pies

Another excellent feature of Trading212 is its Pies. This allows you to view investment portfolios created by other users, often referred to as finance bros. You can see how they’ve allocated their funds, for example, dedicating 10% to the S&P 500, 20% to the FTSE 100, and varying percentages to individual stocks like Apple or Tesla.

What’s great is that you can track the performance of these investment pies over time. If you like a particular pie, you can replicate it in your own account. This means that if you invest, say, £100 into that pie, the amount will be split according to the allocations set by the creator of the pie.

Commission-Free Investing

While I recommend investing in a broad stock market index fund, like the S&P 500, keep in mind that Trading212 is commission-free. Signing up is completely free, and you don’t have to pay anything to start. You can find Trading212 on the app store for both iOS and Android devices.

If you use the coupon code ALIALI when signing up, you can receive a free share worth up to £100. It’s an excellent opportunity to get started with some free money. Check it out through the link in the video description or search for Trading212 on your preferred app store.

Thank you to Trading212 for sponsoring this video!

Part Three: Common Fears, Concerns, and Questions About Investing.

One of the first things to address when it comes to investing is the fear of losing money. You’re broadly very unlikely to lose money because Vanguard or major index funds like it won’t just collapse overnight. Your investments can increase or decrease in value. Here are some common concerns people have when they begin investing:

• Fear of losing your investment: A lot of people worry about, “What if my investment goes to zero? If you invested $1,000 in the S&P 500 just before the 2008 crash, the market could fall by 60%. That would mean your $1,000 would be worth only $400.
• If you sell at this moment, you’re accepting the loss. This means you’ve literally lost money because you bought in at $1,000 and sold at $400.
• However, if you hold on, the market tends to recover over time. By 2012, the S&P 500 had bounced back to its previous levels and continued to rise. The lesson here is that long-term holding can often protect your investments from short-term downturns.
• Long-term growth: Over time, stock markets tend to rise despite short-term volatility. It’s similar to buying a house: if you try to sell it too soon, you might lose money, but if you wait 20 years, the price is likely to increase unless some catastrophic event occurs.
  • The longer you invest your money, the more it can increase. This increase is known as compound interest. Is often called the eighth wonder of the world because it can lead to big increases in your investments over time.
• Chances of a full collapse: People sometimes ask, “What are the chances that all 500 companies in the S&P 500 will drop to zero value overnight? The reality is, it’s highly improbable that this would occur. If all 500 of the largest companies in the US lost their value, there would be much bigger problems in the world than the value of your stock market portfolio.
  • Each day, employees at these companies create value. Take Apple, for instance: its employees are constantly working on new products, researching new technologies, and adding features to existing products like the iPhone. This continuous innovation means that the company’s value is likely to grow over time.

How Much Money Do You Need to Start?

A common question people have when thinking about investing is, “Do I need to be super-rich to start?” The answer is no. You can begin investing with surprisingly little money. The exact amount you need depends on which platform you’re using, but here are a few examples:

• Vanguard: If you’re using Vanguard, you can start investing with as little as £100.
• Trading 212: For platforms like Trading 212, you can begin with as little as £5.

Different platforms in different countries have various minimums, so it’s a good idea to research what’s available and most reputable in your country. Many platforms today are designed to make investing accessible to the everyday person.

Other Investment Categories: Real Estate and Crypto

Beyond traditional stocks and shares, there are other categories of investments that you might consider. These include real estate and cryptocurrencies:

• Real Estate: I also invest in real estate, and I own a few properties. However, buying real estate typically requires more upfront capital, such as a deposit for a mortgage. For most people, this kind of investment isn’t feasible until they’ve already built up significant wealth.
  • Real estate can be a great way to build long-term wealth, but it requires a much larger financial commitment compared to stock market investing.
• Cryptocurrency: Another investment I have some exposure to is cryptocurrency. Currently, the total value of my crypto portfolio is £200,000. However, I’ve lost £65,000 in value, meaning I initially invested £265,000, and it has since decreased to £200,000.
  • When investing in cryptocurrency, use only the money you can afford to lose. Crypto markets are very risky and can change fast. Don’t see it as a way to get rich fast. It can be profitable, but there are also significant risks.

Stock Market Investments: A Reasonable Approach

Investing in the stock market, especially in broad index funds like the S&P 500, is a time-tested strategy for building wealth over the long term. Even though I’m not a financial advisor, this approach has been endorsed by many seasoned investors like Warren Buffett. It’s a reasonable way to grow your wealth steadily without taking on the kind of high risk associated with more speculative investments like cryptocurrency.

The basic idea behind stock market investing is that your money works for you over time, thanks to the companies within the index growing and creating value. Every day, employees at major companies are working to innovate, solve problems, and grow their businesses. As these companies grow, so does the value of your investments. While the market may experience short-term dips, history has shown that over the long term, it tends to rise.

You might be thinking, “What if I’m not ready to invest yet? What if I’m worried about using my savings?” A simple way to learn about investing without risking real money is by using demo accounts on platforms like Trading 212. These accounts let you practice with fake money, helping you understand the market without risking your own money.

Once you’re comfortable and ready to invest real money, you can seamlessly switch over to a live account and start with small amounts. Platforms like Trading 212 even allow you to begin with as little as £5. You can deposit money quickly through Apple Pay and bank transfers.

Stocks and Shares vs. Fast Lane Investing

Stocks and shares offer a way to increase your wealth over time. However, when considering fast lane investing, the focus shifts from investing in someone else’s business, such as Apple, Amazon, or Google, to investing in yourself or your own business. The average annual return of the S&P 500 is around 7%, meaning that if you invest $1,000 today, it might be worth $1,070 in a year. This brings up a critical question: can you make more than $70 over the next year with that $1,000?

Often, the answer is yes. There are two main ways to invest in the fast lane:

• Investing in Your Skills: One approach is to invest in your ability to make money. For example, imagine you are a healthcare assistant earning £15 an hour, and you invest £100 in a course to become a phlebotomist, which could allow you to earn £25 an hour.
  • In this scenario, within just a few hours of work, you could recoup the £100 investment, and every additional hour thereafter would yield an extra £10. This results in a return far exceeding the 7% you’d gain from the S&P 500.
  • By investing in your skills, you increase your value to the market, making this a more lucrative investment than simply relying on stock market returns.
• Investing in Your Business: Another option is to invest in your own business. This applies if you have or want to start a business. The quickest way to build wealth, within a decade rather than 70 years, is by owning and growing your own business, rather than funnelling your money into companies like Apple or Tesla.
  • For instance, you could start a coffee shop, an online business, or even a YouTube channel. Alternatively, you might consider learning a high-demand skill like web design or coding to start a service-based business or develop a product like an app.
  • In doing so, you control the potential for returns, which could easily surpass the modest 7% average you might expect from stock market investments.

The S&P 500 vs. the “S&Me” 500

In an interview with entrepreneur Alex Formosy, who has built a $200 million empire, he emphasized the importance of investing in yourself, coining the term “S&Me” 500 as a play on the S&P 500. Essentially, you’ll get a higher return on investment by developing your skills, starting a business, or improving your capacity to make money than by sticking to market investments.

His advice mirrors the idea that investing in yourself should be a priority. The return on investing in yourself or your business is typically much higher than the 7% stock market average. If you’re considering a faster path to wealth, this philosophy advocates placing your time, money, and effort into personal growth or business ventures.

Practical Example: Starting a YouTube Channel

For example, if you’re interested in using your education and skills to start a YouTube channel and treat it like a business, you could see significant returns by following a structured approach. You might want to consider my Part-Time YouTuber Academy course, which teaches how to systemize and scale a YouTube channel as a business. The course is ideal for those who want to turn their channel into a source of income, rather than just a hobby. It helps you focus on creating content that grows over time, builds an audience, and eventually generates revenue.

That said, I always recommend using free resources first, especially if you’re short on funds. There’s plenty of valuable information on YouTube itself for anyone willing to put in the time to learn.

Why Education and Business Are Superior Investments

To sum up, the idea of fast lane investing involves actively increasing your earning potential and/or building a business where you can generate returns that are far superior to those offered by traditional market investments. Here’s why:

• Skill-Based Investments: When you invest in your education, you create the ability to earn more, as illustrated in the phlebotomist example. This concept applies to any skill that enhances your earning power, whether it’s learning a trade, acquiring new qualifications, or improving existing expertise.
  • With this approach, you’re not only recouping the initial cost of the investment, but you’re also setting yourself up to earn more over time. The key is that this return compounds as you continue to use and build upon your skills.
• Business Ownership: Starting your own business gives you control over your financial future and growth trajectory. Whether it’s a side hustle or a full-fledged enterprise, owning a business allows you to reap rewards that would otherwise go to shareholders if you were investing in another company.
  • While starting a business involves risk, the potential returns are typically much higher than the returns you’d see from passive investments in the stock market. With a business, you’re in control of decisions that directly impact profitability, growth, and scalability.

Is Fast Lane Investing Right for You?

If you’re interested in the fast lane approach, it’s worth doing some soul-searching to determine whether you’d prefer to invest in your skills or a business venture.

• For those who enjoy learning and improving, taking courses or gaining certifications might be a great way to boost income quickly. On the other hand, those who prefer entrepreneurship may find that starting a business—whether physical or online—can lead to faster wealth accumulation than simply relying on stock market returns.

Fast Lane Investing: Build Wealth Quickly Through Self-Investment

While slow lane investing in stocks and shares is a valid method for building wealth over decades, fast lane investing, whether in your skills or your business, offers the potential to achieve financial success in a much shorter time frame. If you’re intrigued by this approach, consider exploring opportunities to invest in yourself or start your own business.

And if you’d like to learn more about this fast lane investing mindset, check out my review of The Millionaire FastLane by MJ DeMarco. It’s the best book I’ve read on how to build wealth quickly—not in a get-rich-quick way, but by creating lasting value over a 10-year span instead of a lifetime.

Conclusion:

In conclusion, investing in yourself is one of the most powerful strategies for maximizing your earnings and building long-term wealth. Whether it’s through improving your skills, starting your own business, or taking courses to enhance your abilities, the potential for higher returns far exceeds traditional stock market investments. While the S&P 500 may average a 7% annual return, investing in your personal growth can lead to exponential increases in your income. By dedicating time and resources to your education and entrepreneurial ventures, you not only enhance your market value but also create opportunities for financial freedom. Remember, the most valuable asset you have is yourself, so take the leap to invest in your future today.