First, let’s look at the calculation that blew my mind and was extremely eye-opening. If you start with 0 and invest 500 units for 35 years into something that on average has an 8% annual return at the end of those 35 years you will have 1 000 000 units. 🤯
Einstein, unsurprisingly, was correct by saying: “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it”.
Before we move on, let me set the stage and say this. I am very risk-averse. Being so, I try to follow Warren Buffett's rules of investing. “The first rule of investing is - don't lose money. And the second rule is - don't forget the first rule”.
First, I started by creating a solid foundation that can enable me to start investing. For me, that is in the form of saving up an emergency fund of 3-6 months worth of expenses. After that, I look at any outstanding debt I have to pay. My personal take is everything that has 4% interest or above needs to go ASAP.
From here my investment strategy is quite straightforward. I do what is known as the Jack Bogle's strategy. Buying low-cost index funds held over a lifetime with dividends reinvested and purchased with dollar cost averaging (DCA).
Personally, I believe that investing is a long-term strategy. Anything short-term is speculation and I try to stay away from it.
Practically speaking, I have a brokerage account to which I transfer money and buy index funds on a monthly basis - thus the DCA strategy.
My plan after I reach a certain number, let’s call it X, is to use the 4% rule and become financially free.
I can nerd out for hours and hours about why I chose this route over any other possible one like buying real estate, crypto, individual stocks, etc. I won’t do that here. If you want to chat, don’t hesitate to reach out. As I said in the title, this is the way I invest and this is not financial advice.
Hopefully, at least someone can find value in reading this article.
Keep a growth mindset and take care!