How to Start Your Investing Career

January 10, 2018

I’ve gotten a lot of emails lately from people (mostly admitted beginners) wanting to know what to do with their money.

There are several paths to take.

One path is to buy a stock that you think will be around for the next twenty years and hold it for two decades. To me that feels like putting all your retirement money on red at a Vegas roulette table, but it’s an option.

For example, it’s not unreasonable to think that Microsoft (MSFT) will be around for a long time. It’s also not unreasonable to have thought that same thing back in 2000.

But MSFT shows both the good and bad of buying and holding. From 2000-2015, it would have been horrible (chart here). If you cashed out during that period, you would have lost money or gained nothing.

The last few years, though, have been great. Buying and holding paid off (recently).

Overall, a buying and holding strategy on MSFT would have brought in about 4% per year and that’s not great. I wouldn’t recommend doing such a thing (even though there’s a chance it could work).

Another path would be to buy mutual funds.

The next question, of course, would be: Okay, what mutual funds do I buy?

My answer is: I don’t have the first darn clue.

Maybe you should buy the hottest fund from last year. Maybe you should buy the one that wasn’t and hope for a bounce back. Maybe you should buy a bunch of them. I’m an educated man, but I’m afraid I can’t speak intelligently on which mutual funds are going to perform well in the future. What I do know is that 96% of mutual funds fail to beat the market.

A third path might be to follow a guru. I’ve watched Jim Cramer for years. Hasn’t everyone? I love watching his takes and I’m always impressed by his knowledge. But while entertaining and fun, his picks have underperformed the market since 2001.

Which leaves us with just “buying the market”. Buying and holding a stock may or may not beat the market (unfortunately, probably not). Mutual funds probably won’t beat the market. Cramer won’t beat the market.

So maybe we should just buy the market!

That’s a fine option. It will put you ahead of most investors and it’s simple to do. Just go to Vanguard.com and buy VFINX (or another index fund). That is a great path for a beginner.

But there are other things that do a lot better. And we’ll talk about those things in the video tomorrow.

Subscribe to my YouTube channel here to make sure you get the video.

Hope to see you there.