One of the most common questions I get is this, “Let’s say you have this amount of money, where and how can you invest it for the best returns?”
When I first got asked this question, I quickly turned into financial advisory mode and got it wrong like everyone else would. I started thinking of asset allocation, the best assets that would give me the highest returns and the like.
With time, and as I have repeatedly answered this question, I have come to realize new findings. I have realized that there is something wrong with not only my answers to the question but also with the question itself. While these answers give investors the wrong understanding of what successful investing is about, the question makes them take the wrong approach in investing.
Let’s say you are currently obese and your girlfriend who you told your family you would soon propose to has told you she won’t get married to you until you cut down on your weight.
You come up with a plan that will help you shred those unwanted layers of fat as fast as you can since she is a hot gem and another rich guy may snatch her before she is actually yours.
Even if you pick the right combination of workouts, eat the right diet, partner with the best fitness trainer and even go to the best gym, but only turn up in the gym for one day, your goal of losing weight would remain but a dream and your girl would be gone.
But even if you never chose the perfect workout routines, didn’t have a fitness trainer, didn’t manage to go to the gym and instead worked out from home but you turned up everyday for a long enough period of time, you would surely shed those kilos.
This is What Matters the Most in Investing
Your actions and decisions in the short term or when getting started do not impact your investing journey that much.
When most people are asking the question of where they would best put their money, most of the time, they are looking for the best way to scale the wealth ladder in the shortest period of time and with the least bumpy of rides.
What they do not realize is that the best way to scale the wealth ladder is not a one time decision. It’s a lifestyle that you have to adopt.
In investing, what happens in the short term does not matter much. What matters is your performance in the long run.
In atomic habits, James Clear writes,
“It doesn’t matter how successful or unsuccessful you are right now. What matters is whether your habits are putting you on the path toward success.”
You should be far more concerned with your current trajectory than with your current results.
When getting started with investing, where you put your money, your timing of the market, and the allocations of your portfolio do not matter that much.
“Just keep buying. This is the investing mantra that can change your life. These three words can make you rich. What I am talking about is the continual purchase of a diverse set of income producing assets. You should think of buying investments like you buy food- do it often. Make it a habit to invest your money like you make it a habit to pay your rent/mortgage.”
In investing, most people are focused on the noise. They want to know how to beat the market, how to time the market, which is a well balanced portfolio and many more. Even though those factors may impact their returns in the short time, their wealth creation will be impacted by how often they buy income producing assets.
Unless the money you are talking about is a very big amount, an amount that your investing returns cannot achieve or beat through the years, then it does not matter how you get started with investing.
Provided you adhere to the fundamentals of investing, your returns in the short term will not alter your long term journey of wealth creation.
Focus on the Right Things
While everyone else is focusing on the noise, do the one thing that will help you the most in your investing journey; build an investing lifestyle that is maintained by your savings habit.
For most of us, we will never win lotteries or receive those huge sums of money that can instantly change our lives financially.
Most of the money we invest is the accumulation of savings from our regular incomes. Our only way of building wealth is by saving from our regular incomes and then investing the amount in income generating assets.
Moreover, most of the returns from investing are realized from compound interest. And compound interest feeds on the one thing that our question limits it to; time.
Just like your time in the market is more important than timing the market, you have to adopt the lifestyle of an investor. The best way to amass wealth is to do it slowly and let it be fuelled by compound interest. You have to pay your dues by building an investing lifestyle backed up by a rigorous savings habit.
For if yours is the lifestyle of a successful investor, wealth creation will never elude you.