What if my job keeps me very busy but I want to invest well too, a question from Dr. Brad

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This question is timeless and important. Whether you are earning a large income, medium income, or a small income it is important to put your money to work for you; it is important to build a machine that adds passive income to your life. Consider those dollar bills you earn to be machine parts. If you can take those parts and build two or three portfolios that generate money for you, that’s ideal. At first, it may be a small amount of money. But as time goes by and your portfolio gains compound, the size of the machine, and how much money it kicks out, becomes life-changing. Remember too that while I endorse a savings account, if you are not growing your money it is being reduced in value by inflation. So, you have a bit of a financial obligation to get that money into the right spots – both as a good defense and as a good offense! Play defense against inflation so your hard-earned dollars aren’t eroded in value, and play offense so you can get ahead. Ideally, you achieve financial freedom, but at a minimum you improve your quality of life and create more opportunities.

Why two or three portfolios?

Because that works well. One portfolio is a 401k and one portfolio is a growth portfolio.

If you do not have a 401k consider changing companies – it’s that important. Tons of companies you probably live near have great 401k plans: Starbucks, Walmart, and tons more. If you drive for Uber, or do similar independent contract work, you can set up a Solo 401k or a SEP IRA. If you work for a small business that has no 401k, you can set up an IRA. (And if you already have a 401k you can also set up an IRA and have both.) You can establish either a Roth IRA if you want to be taxed now or a Traditional IRA if you want to be taxed later when you use the money. If you decide to be taxed now, it is likely because you expect to have a higher income (and be in a higher tax bracket) when you’re 60+. Being in a higher tax bracket means you pay more tax on that accumulated IRA money when you use it. But if you think you are going to have a smaller income (and be in a lower tax bracket) when you’re 60+ then likely a Traditional IRA makes sense. Think about when you want to get taxed, or how important your money is to you now versus later, and pick your IRA accordingly. So a 401k and/or an IRA gets you 1-2 portfolios. Great job! With these portfolios I would personally be moderate-to-conservative, not aggressive, when you pick what stocks will be in it. For that reason, I recommend picking mutual funds and/or index funds. Mutual funds have a manager that moves stocks in and out; index funds invest in stocks listed on an index like the S&P500, so whatever companies are in that index are in your index fund. They are both good options. And don’t overpay either! How much you are charged is required to be listed. Paying 1% is outrageously high for a moderate-to-conservative option. You should be in the 0.05-0.85% range. A company like Vanguard is famous for having good mutual funds and index funds for cheap.

Why not be aggressive?

Well, we are about to be moderate-to-aggressive with a growth portfolio. This will be your second or third portfolio. The reason why I love having two (or three) portfolios is because this last one, the growth portfolio, is fun. And, it has you actively participating in the market. This is good for two reasons: One, you learn when you do. Two, you leave your 401k and/or IRA alone. For young people the importance of this is less obvious. But as you grow older you will indeed feel the pressure of “What to do with my 401k?”. At that point, I would ask: “What was the goal of your 401k?”. If your goal was retirement, and you have that nailed, then you did it. That portfolio met its goal! Congratulations, now treat that portfolio like it met its goal and get very, very conservative and protective of it. Don’t get greedy here and worry about missing out on market gains. This will keep you up at night. And you may be gambling your retirement with a looming market crash. You are older and want to retire. If your portfolio goes to crap, you may not be able to retire! This is why a growth portfolio is so great. Whether you are young or old, the growth portfolio keeps you in the game. You are participating and you feel good about that. You enjoy the gains, but don’t have that critical retirement money vulnerable. Psychologically, it is very healthy too. You’ll sleep well at night knowing you have your cake, and you’re just decorating it now with delicious frosting.

If you are young, then the growth portfolio keeps you away from your retirement portfolio too, which is great. But you likely aren’t as tempted or worried about your 401k and/or IRA. With those you should set it and forget it. Review it once per quarter, or even once per year, and see if you like the direction it’s going. Compare it to the S&P500. If you are paying a management fee then it should be beating the S&P500 most years. Let’s say 3-4 out of 5 years (60-80% of the time) the managed money should beat the S&P500. If it doesn’t consider switching funds, managers, or just changing over to an S&P500 index fund, which will almost exactly match S&P500 gains. So you can’t make this call after one quarter or even one year, unless the year was absolutely atrocious. If the S&P500 is up 20% and I’m down 10%, then I’d make a change. But if I’m up 15% I let it ride another year and compare again. Remember, this is your hands-off account. Don’t get in there and muck it up!

So back to the growth portfolio. My growth portfolio is aggressive, and it always has been. I want companies with 20%+ revenue growth every quarter, every year. Many of these companies are not profitable yet. That is a very common characteristic of high growth companies. But when you build a portfolio of quality growth companies, they build and build and build their sales by spending their money (reinvesting in their own company) until they are at a massive size, then they change gears a bit, slow their growth spending, and rake it massive amounts of profits. Companies like Microsoft and Amazon do this. There are tons of other examples too.

What does a well-constructed growth portfolio look like financially?

If you start with $100 in a savings account and add $500/month to it for 30 years at 0.03% (the average interest rate for a US bank savings account as of 2021) you have $180,886.10.

But with inflation eroding your money like it has the last 30 years, just to keep up and have the “same” amount/value of money you’d need $369,140.45 after 30 years! So you are down $188,254.35! Another way to say it is $180,886.10 now is the same as $369,140.45 in 30 years, so you definitely don’t want to finish that 30 year period with $181k. You want to invest! That’s an amazing difference/erosion due to normal inflation. I think savings has a purpose, which I outline in my eBook (here), but you cannot get carried away with it.

The amazing compounding dollar!

But what if you invest and have a growth portfolio?

If you start with $100 in a growth portfolio and add $500/month to it for 30 years at just 10% annual gains you have $1,132,228!

If you start with $100 in a growth portfolio and add $500/month to it for 30 years at a reasonable 15% annual gains you have $3,470,394!

If you start with $100 in a growth portfolio and add $500/month to it for 30 years at an excellent 20% annual gains you have $11,527,315!

So I think we’ve covered why investing is important with this example. You literally must invest. The money game, and its inflation, requires it. Plus, the reward over 30 years is immense!

Growth companies are almost always tech companies.

But don’t think of tech as being exclusively digital or software based. That’s just what most “tech” looks like today. Henry Ford’s production line was technology, and Rockefeller using the 80% “waste” that results from making kerosene and turning it into gasoline was technology. Tech looks different over the decades and centuries. Heck, a wheel was technology at one point, and so was an ocean-fairing wooden ship. Whatever is creating massive earning leverage, solving massive problems, and scaling on massive levels can be tech. Tech typically advances product and services, revenue, and quality of life. Typically. Tech definitely massively advances capability.

So you should have a growth portfolio, but you have no time! Don’t give yourself an out. You must solve this like you solve getting to work on time. It just has to happen. So what can you do?

Be resourceful.

You need the most bang for your time!

Take 1 week and spend all of your free time researching where to get the best bang (gains) for your time. 1 week. Then go that route. Commit to it and return to it each week to evaluate how the week went. You are building a new habit here – evaluating how the week went takes about 5 minutes. You can do it on the crapper. Skip one IG sesh, and add this habit to your life. Obviously, Friday, Saturday, or Sunday are the best days to review the past week. Perhaps your first porcelain trip of Saturday, you make a growth portfolio evaluation moment. Hey, we live in a day and age when you can do this! Be happy about that.

What resources are out there for you to research during that 1 week? A lot. Google is massive and can be overwhelming, but if you have good search skills and can stay on task then use it.

Twitter is another great resource.

Yep, Twitter. Twitter is what you make of it. FinTwit is an entire world inside of Twitter full of people sharing useful investing information. Start searching for people who you feel comfortable with. They should not be rash or drastic whatsoever. They should be positive, knowledgeable, analytical, unemotional, and excellent communicators. If they don’t meet those criteria, move on! Look at their interactions with replies too. They must be quality. This is insight into their emotional stability. Great investors aren’t wild and fly off the handle.

Here are two good examples: @Naval is a great follow for wisdom and @BrianFeroldi is a great follow for all investor mentality. Read their stuff and see what good FinTwit tweets look like. They are very insightful, positive, and enjoyable. From there, look at who they follow. Start picking out people from their follows that give specific investing advice. Now you are leveraging your resources.

There are immense numbers of people on Twitter doing full-blown, quality, analytical stock research. Leverage their work. Leverage their knowledge. Most of what they offer is 100% free. On occasion, they publish a newsletter or similar for less than $10/month full of deep dives on companies. Two really good paid options are @Investing_City (he’s on the expensive side) and @JonahLupton (he’s on the cheap side). Now, you get deep dives for free or cheap. There are a lot of cheap investing information options on Twitter, it’s great.

You did no research, except to find the great researchers. Now you are being resourceful with your time and leveraging other people’s work! This really pays off. That move alone is investing in and of itself. You invest some money for great investing research and advice. You can then go copycat it. Skip some stocks if you don’t like them, get exposed to other stocks in the process, and get good at poking around. You are now productive on Twitter. Create and put all these follows in a Twitter Stocks list. Open that list once per day as a new habit. Again, checking it on the pot helps a lot. It doesn’t take any time away from your day. Major hack. Find what works for you. I also read a lot at the end of the day. But that’s me. Actually, I read all day long. It’s a habit. But since you don’t have a lot of time in this scenario, the Twitter List is an important step.

Use me too.

By all means, use me as one of your investing resources too. You already found this article, so find me on Twitter @OBInvestClub. Everything I’m doing is free. I have a newsletter that covers a lot of stocks and important market information. You don’t have to dig deep and learn everything there is to know about investing if you leverage an audience of people extremely passionate about it already! I am already doing the work, so I decided to share it. There are a lot of people doing this.

Lastly, I’ll say this. You already have a job. You need to do human activities too like eat, laugh, and enjoy your day. I do tons of investing work… then I go do fun people stuff! I think you should too.

So here’s a major secret.

Go get good at a few things. Get really good. Work hard at it, enjoy that you’re doing it, be glad about it. Then do fun stuff. And learn to leverage the resources around you, like the people addicted to investing and sharing their research… or the baker addicted to baking and sharing their pastries… or the entertainer that makes you laugh your butt off….

In this way, we all take care of each other. One person is great at one thing; another person is great at another thing. Sometimes what is offered is free, and sometimes what is offered costs a few bucks. But you are already in the habit of consuming free, or paid, things… so ensure you add quality investing information too, come back to it regularly, and it’ll become a habit.

I’ve spent almost none of your time in my solution to this  problem of wanting to invest but having little time. And that was the crux of the task.

Now go make your crap time your investing time! “I’m a crap investor” is your new favorite phrase!

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