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Stop Finding Excuses Not To Invest
The hardest part about investing – is investing. Whenever you start any new endeavor, it is natural to be nervous about it – What if you do things wrong? What if you lose money? What if you make mistakes?
I have news for you. You will. You will make mistakes, and you will lose money. Failing is how we learn. Not only is it "ok", it is inevitable. Even the most experienced investors will make mistakes. The reason is that investing is about buying portions of businesses that exist in the real world. The real world is a very messy place where things don't always go according to plan.
Don't let this hold you back. People will come up with all sorts of reasons not to invest. They think it is too complicated, they don't know what to invest in, and they overthink everything. Stop finding excuses not to invest, and start finding excuses to invest.
It's OK to Start Small
It is very easy to dismiss small amounts of money as being irrelevant.
One of the most common reasons people fail to invest is that they feel like the amount they are investing isn't enough to make a difference. If you invest $1,000 in a 10% yield, you are getting $100 in income/year. That is only $8.33/month. Many people will look at that, compared to how difficult it is to save $1,000 in the first place, and decide that they will wait until some unknown point in the future when they will theoretically be able to invest a lot more. The problem is that by the time they get to the future, the amount they need to be investing to get on track is a lot higher.
I see it all the time when Realty Income Corporation (O) raises its dividend; yet again, people will be in the comment sections complaining about how small the raise is. O has made a habit of making many small dividend hikes.
Here is what your O income would look like if you invested $1,000 in it 30 years ago and never put another penny into it again: Source
Portfolio Visualizer
The income just climbed, in part due to O's strategy of many small, frequent hikes and in part due to reinvestment. $1,000 invested turned into nearly $2,200 of annual income.
This is the power of compounding your income. Think about that: $1,000 today could generate you $2,200/year in recurring annual income in 30 years, and that is assuming you don't do anything else to save for retirement. For some perspective, the average social security recipient in 2024 will be receiving $22,884. So, by making just a one-time investment of $1,000 at age 35, a retiree today could have a 10% bonus on their social security check!
Now, your aspirations are probably higher than that. $2,200/year doesn't sound like a lot of money, but if you are one of those who is reliant on Social Security to pay your bills, I assure you it is a lot. But likely, your goal is to do much better. You can do much better by making investing a habit, and the earlier the better.
Waiting to invest is a costly mistake for those trying to save for retirement. If you ask any retiree for their biggest investing regret, most of them would say some form of "I wish I would have started earlier". Why? Let's look at the one-time investment scenario in O:
If you had waited until 2004 to invest in O, you would have needed to invest over $5,000 to get the same results as 1994; if you waited until 2014, you would have needed to invest $16,000 to have over $2,000 in annual income today. Time is a friend for investors due to the power of compounding. If you are young and have time on your side, appreciate it.
Develop Healthy Habits
I recently watched a few episodes of "My 600-Pound Life", a show that follows people's journeys as they go through weight-loss surgery and attempt to lose weight. Many gain weight right back, as weight-loss surgery is ineffective if it isn't supported by healthy habits. It is essential that the patient changes their lifestyle, eats healthier foods, and commits to exercise – not as a "diet" but as a permanent change in their lifestyle. Changing your habits is hard, but it can be done.
For your financial life, it is similarly important to reduce your bad habits and cultivate your good ones.
One of the challenges I faced when first investing was that brokerage accounts required minimum deposits, which for me, was a substantial portion of my income at the time. Additionally, once I satisfied the minimum deposits, the trading fees were large relative to the amounts I was trading. Today, we live in a world where you can invest as little as $1 and buy partial shares with no trading fees. Take advantage of this reality.
If you believe you don't have enough income to invest, find $10/month. Then go through your budget – how many streaming services are you paying for? Cut one out, there is another $10/month.
The key is to make investing a habit that you engage in every time you get a paycheck, a tax refund, an inheritance, or another source of funds. If you start with dollars now, you are more likely to increase it to tens, hundreds, and even thousands of dollars in the future.
The hardest part of investing is starting to invest. Yet, at the same time, the earlier you start investing, the easier it is.
Staying Motivated
Once you start investing, it can be easy to lose motivation. Maybe the market goes through a downswing, or maybe you run into some personal financial challenges and those funds are sitting there appearing to be the "easy button" to solve them. Retirement seems so far away when you are 20, 30, or even 40 years old that it is easy to put it on the back burner.
One strategy that I've seen people use to motivate themselves is they focus on "paying bills". If you pay $10/month for a streaming service, focus on building up $10/month in dividends. Then, start working on your next bill. Start with your smallest bills, and since you are reinvesting all your dividends, your income will grow faster. This method is psychological since you aren't actually taking the money out to pay a bill, but it is effective because you are setting tangible goals that are achievable in a short enough amount of time to keep you motivated. Think of those stupid time-waster games that you might have on a phone or tablet. Your only "reward" is some pixels on a screen telling you that you "won" and a list of digital "achievements". With investing, you can create those achievements for yourself – small targets that you can reach routinely. Yet, unlike the game that will someday be forgotten, your rewards will be very real and very tangible when you retire.
How Much Should You Target?
There is a lot of investment advice out there about how much you should aim to save up for retirement. The problem is that so much of it focuses on the big number – you should have $1, $2, or $5 million. The reality is that nobody knows how much you need when you are talking about the big number.
For example, if your target was $2 million and you retired on January 1st 2022, by the end of 2022 you would have had only $1.6 million if your portfolio matched the S&P 500. So if you "needed" $2 million to retire, does that mean you need to unretire?
This is the core problem with trying to set a gross dollar target for retirement. The stock market is a volatile place, and $2 million today isn't going to be $2 million tomorrow. It could be more, it could be less, you don't know.
This is why I created The Income Method. Instead of big vague targets that will change daily, you know what your income is. Your income is what you lose the day you quit working, so your income is what you are looking to replace. If you are making $60,000/year, then your goal should be to generate $60,000/year when you are retired.
Will Retirement Be Cheaper?
Some people seem to believe that expenses will go down in retirement, and some expenses will. You might not commute as much, so, that saves car expenses. Maybe your plan includes paying off any debt so you don't have a mortgage or car payment, which can really free up your monthly cash flow. Likely, you have accumulated some assets over your life, and downsizing might be something that appeals to you, which can save on monthly expenses and provide a lump sum of cash. Some expenses will be less, and some might go away entirely.
On the other hand, you will encounter new expenses. Healthcare is a huge one. It's expensive, and it is something that you don't want to be cheap on. Additionally, you will be amazed at how many hours there are in the day once you stop working. When you are working, you are paid to be active, and it is required to pay the bills. When you are retired, finding ways to stay physically and mentally active is up to you, and a lot of the things you could do cost money.
So, when you retire, replacing your existing income should be your starting point. While some expenses might come down, others will be going up. Also, don't forget that investing doesn't stop when you retire. You still have a future, so make sure you earmark at least 25% of your income for reinvestment. This will ensure that your income keeps growing, and it will ensure that you have a cushion to protect you from the inevitable bumps in the market. If you start investing in your 30s, you could be investing for 40 to 70+ years. In that long of a period, you will see many recessions, several black swans, and a few things that were "never" supposed to happen.
Conclusion
There are big things in life that are worth a lot of effort to achieve: finding a good partner, raising children, owning a house, finding a fulfilling career, and retiring. These are all things that take decades of effort and sometimes sacrifice. However, they also provide us with the richest rewards that we will experience.
If you want your retirement to be the "golden years", the most important step is to start early. As I've discussed today, time is a powerful tool. A little bit invested today is the same as investing a lot in the future. More importantly, investing early and often, will help you develop good financial habits.
Make sure you set goals that are achievable and keep you motivated. I discussed focusing on covering small bills and building it up until your income stream is enough to cover all of your bills. Building an income initially is difficult, but as you reinvest, you will find that it accelerates as time and the power of compounding work their magic.
Finally, I recommend setting an income goal as opposed to a large number. This is more precise because you are targeting to replace what you will lose in retirement, and it is less exposed to the emotional whims of the market. It is also a number that is more tangible to most people. Often, investment advisors will scare people away by throwing around incomprehensible numbers. Someone hears, "You need $2 million", and they can't imagine it, so they don't even try.
When you focus on building your income, you will be shocked at what you are able to achieve. As your income grows, that big number that represents the liquidation value of your portfolio will rise as well. It will not grow in a straight line. It will oscillate all over the place like a roller-coaster. But overall, it will trend upward as your income grows.
Focus on growing your investment income every year, and with time, you will find that it is meeting and even exceeding your working income – that is the point when you know you can retire. Maybe you will want to, maybe you won't, but you will have that income available, making you free to make the decision that is right for you and your family.
Are you ready to become an income investor?
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