How I Invest My Money

A few days ago my younger brother asked me how to invest money in stocks (he saved a bit from his first job and didn’t know what to do with it).

I don’t like to give investment advice, especially to friends and relatives. But he insisted, so I gave him a few pointers. I’ll share what I told him, because I do believe that having a basic understanding of personal finances and the stock market is a crucial skill that everybody should learn.

You might object that money doesn’t have anything to do with living a calm and peaceful life – but I disagree! Having no money is incredibly stressful! Conversely, having sufficient savings and a solid investment portfolio means you don’t have to worry about money all that much. Most long term relationships fail because of money problems. With money, you can buy more awesome stuff, travel and make experiences, you can buy a house, you can fix your health, and most importantly perhaps, you’ll earn the freedom to quit your job if you don’t enjoy it anymore, and possibly even retire early.

Alright, here’s what I told my brother (Disclaimer: this is over-simplified of course, and only reflects my personal opinion. I’m no financial advisor):

  • If you can, automatically wire part of your salary (as much as you can spare) to your brokerage account every month. On that note: Choose a broker with low trading fees! (I use Interactive Brokers). You should keep enough cash for emergencies, though
    • 60% in an ETF on the S&P 500 (something cheap like VOO. This way you’ll be investing in the 500 largest U.S. companies)
    • 30% in an ETF on “the rest of the world” (something like VEU, which invests in the largest companies outside of the U.S. – this is important for diversification purposes)
    • 10% in more high-risk investments (you can try stock picking, or crypto, for instance.

(Note: I’d say start simple and don’t trade around much, just rebalance from time to time to keep this approximate portfolio allocation. You can always go more complex and trade more once you’re more experienced. If you’re approaching retirement, you should probably go for less stock and safer investments or cash instead. Bonds aren’t really worth it right now though, in my opinion)

  • When should I buy? Of course it’s ideal if you buy when the market is down, but you’ll fail trying to time that. So the right answer is usually: Invest right now. Time in market beats timing the market. That means it’s best if you start early and continue growing your portfolio, instead of waiting for the next crash to happen. You can dollar cost average by investing in your ETFs automatically every month, but I’ve read that this doesn’t really give your better returns
  • When should I sell? The simple answer would be: Never, unless you need the money.
    The more nuanced answer is: Sure, if you had some godmode cheats and knew all the right times to sell, you’d be rich very soon. If you’re well-informed and smart, you can try to time your selling, e.g. if the fundamentals of the companies you’ve invested in have changed or you see a bubble. But for most people that’s too difficult, and again, the longer you can keep your feet still and let your money work for you, the better (unless our world and the economy implode in a few years – the probability of this happening is not 0%)
  • Which high-risk investments should I consider? I personally dislike crypto, but I have a bit in Ethereum (there’s a good chance the crypto hype isn’t over yet). Investing in China is also interesting (there’s no doubt that they’re becoming the next economic superpower), but it’s very risky (e.g. the Chinese state interfering, US sanctions and the like). I personally prefer to invest in big tech blue chips like Microsoft, Amazon or Adobe (I know, they’re already very expensive, but software and the internet are “winner take all” and I predict that these companies will continue to crush everything and profit from their monopoly-like positions. But the portfolio is already very US- and tech-heavy as is, so you might want to do something else. For instance, investor legend Peter Lynch recommends to invest in companies and industries where you have an information advantage, maybe due to your job).

Alright, I’ll leave it at that for now. I obviously just started scraping the surface here (and if you’d want me to, I’m happy to write or talk more about this topic).

You don’t have to follow what I wrote, but I’d encourage you to start thinking about money as a tool to reach more freedom and peace of mind – and to start investing, if you haven’t already!
Good luck!

­čś┤ What might help you find calm

I took this picture last week-end (we were hiking in Alsace, France)

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