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  • Writer's pictureJohn Lim

MF 327 : Moving forward with investing

Updated: Mar 20

Today, I look at some basic considerations for investing. More at

[NOTE: I do not give investment advice. Investing involves risk and you should always do your research or speak with an investment professional beforehand.]

Moving Forward is also available on Apple Podcasts, Stitcher Radio, Google Play, Spotify, and now Amazon Music.

An ironic prologue (but not really)

I recorded this week's episode on Wednesday, March 3rd and scheduled it for a normal Thursday air date. If you've followed the podcast, you'll know that I've moved to a more just-in-time recording schedule since season 6. This week's topic, investing, is one that I got several requests for early in the year. I initially planned to record it for episode 324 but the website migration coupled with other topics I wanted to talk about caused me to push it back to this week on episode 327.

The day I recorded it, the market was slumping a bit. But wouldn't you know it, the very next day that it aired, the market tanked amidst growing concerns about rising bond rates and anticipation over the upcoming labor report.

If you happened to tune in that day, you might have scratched your head thinking "why is this guy talking about investing on a day like this?"

Around this time last year, I was a guest on Alissa Carpenter's show to talk about financial literacy and investing basics. You can check it out here. At that time, the market was steadily rising, despite uncertainty surrounding the pandemic.

So, which was the better day to talk about (and learn about) investing?


Look for opportunities no matter what the market does

Last year, the market was doing the opposite of what we would have expected with a calamity like the pandemic. Stocks that traded in everything from EV to online shopping to virtual and mobile communication technologies experienced increases that seemed to have no ceiling; reaching staggering heights throughout 2020. The podcast I recorded with Alissa was a good entry point for new investors and if you had started then or were continuing to build your investment portfolio, you likely experienced some nice gains last year.

This past Thursday, it seemed like the sky was falling. Every high growth stock was crashing and just when you thought it couldn't go any lower, it did. I opened up the Apple stocks app and saw so much red with just one or two green specs that it looked like a lopsided Christmas lights display. It was not a fun day.

But if you happened to be starting out or had some extra funds to invest, then you had a pretty good entry point. The market offered you a plethora of stocks at rock bottom prices. This “sale” continued into Friday as stocks continued to drop, even for companies that recently reported great earnings or high growth. It seemed that no company or ETF or fund was immune to this week's pullback.

If you've been investing for a while, you've experienced dips and crashes like this before, be it 2008, 2015 or 2017. But no matter how many times you’ve been through it, it still stings like getting a shot from the doctor. Days like this are the ones when you just want to shut off your phone and avoid your 401k or brokerage account.

However, they are also filled with investment opportunities. Stocks that you may have been following but were too expensive to buy in 2020 are suddenly at much lower prices. Think of it as a less festive “black Friday sale.”

Where do you begin?

Let's take a step back. The point of this week's episode is to share some basics on investing. For now, let‘s put aside where the market is currently, (I know it’s easier said than done!) and start with some fundamentals.

There are two extreme opinions that I often hear from people who don't invest.

"Investing in the stock market is like gambling at a casino."

"Only rich hedge funds make money in the market."

While both statements have elements of truth in them; investing is a risk-bearing activity and generally speaking, the more money you have to invest, the more opportunities you can take advantage of, I don't believe either statement is true.

Investing when done prudently and without emotion, FOMO syndrome, or fad chasing can be a powerful way to build wealth towards your long term goals. Moreover, if you work for a company that has a 401k, pension or other retirement plan, investing is already part of your wealth-building makeup. If you don't work for a company that gives you access to those instruments, investing can still be a part of your financial health. It will require more active legwork on your part but it can be done in a way that's responsible and minimizes or reduces your risk.

Know your budget

Start by understanding your "balance sheet." Simply put, a balance sheet is a snapshot of a company's financial health. It showcases assets, liabilities and the difference between the two. Similarly, as a person or household, you have money flowing in and out. The inflow can be your paycheck, interest income from a savings account or extra money that comes from a side gig or hustle. It's the money that comes to you or your bank account every week, month, or year. The outflows include bills, mortgages, debt payments, and expenses, including luxuries like buying lunch or subscribing to a streaming service. To understand your balance sheet, track your inflows and outflows. You can do this on a piece of paper, a spreadsheet, or any number of programs and apps specially designed to do this. Once you have the inflows and outflows, look at the difference. If your number is positive, that's a sign of good financial health. You not only cover your obligations but have money leftover which you can save or invest. If your number is negative, you are accruing debt and it‘s time to cut expenses (reduce outflows), increase inflows, or both. Your goal should be to make the equation (inflows - outflows) into a positive number.

Invest only what you're willing to lose

This is where investing is similar to gambling. If you have that positive number, you can save it for a rainy day (always a good idea) by putting it into a savings account, investing, or ideally both. Investing gives you greater opportunity to make your money work for you but it also carries greater risk than putting it into a bank account or a US-backed instrument such as a treasury bill or savings bond. Know that when you invest in a stock, mutual fund, or other instrument, you may lose part or even all of your investment. I don‘t say this to scare you but to give you an honest picture of the risks involved.

Know your investment personality, including risk tolerance

Investing is like dating. Who you match up and click with will vary from person to person. Similarly, investing comes in many forms and modes and not everyone will be the same in how they go about it. Some questions to consider in determining your investment personality.

  1. How much time do you have to invest?

  2. How much do you have to invest? (and what does your balance sheet look like?)

  3. Are you looking for immediate or long term gains?

  4. What is your risk tolerance?

  5. What are your goals? (do you want to buy a house, save for your kids college education, retire early?)

There are many more questions to consider and I've listed some resources below that can help you figure out your investment personality.

Work with someone or do it on your own

Part of figuring out your investment personality is also deciding how you want to invest. If you're starting out and have no idea where to begin, consider working with an investment or wealth advisor. If you work for a company and have a 401k plan, you may have an account manager or representative assigned to you from the financial services firm that handles your company's retirement plan. Speak with them and make it a habit to look at the reports you get from them every few months. The benefit of these plans is that the money is taken from your paycheck so you don't have to think about it. However, that doesn't mean you shouldn't think about it at all. Understand where your money is being invested and work with your account manager or rep to make necessary adjustments along the way.

If you don't have a 401k or employee retirement plan, you can find investment professionals to help you assess your current financial situation and map out a long term plan to invest and build your wealth over time. A common misconception is that financial and wealth planners only work with the super rich. That's simply not true. There are many financial advisors that work with people across many income levels. As with finding a doctor, do your research and find one that's a good fit with your situation and your goals.

If you decide to do it on your own, I recommend that you don't just jump into it. With the rise of investment apps, platforms, and fee free trading, it's very easy to get started. However, investing is a serious endeavor and when it comes to your money, you want to make informed decisions.

There are lots of great books you can read on investing and free online courses to teach you the basics. I've listed some of these resources below. Start with educating yourself on the fundamentals.

Second, understand that investing is an ongoing activity. If you decide to invest and manage it yourself, you will have to keep up with how the companies or funds you invest in are doing, the broader market, and the news. National, international, and even local events will have an impact on the market and individual stocks. Prices rise and fall on any number of these. The upside is that so much information is available out there for you to research.

Practice before you invest

Once you do some research and decide which stocks, funds or ETFs you are interested in, try practicing before you actually invest. There are great simulators out there that will allow you to do this without using real money. See how well you do researching and picking stocks. Or if you're curious about the latest "hot stock" that's trending on Twitter, this is a chance to find out if it's truly a worthwhile investment. When I was in college, I did this with a spreadsheet and stocks I picked out of the newspaper. Now, you have apps and simulators that mimic the real thing according to what's happening in the market on a real time basis.

Be sensible

When it comes to investing, I follow the "invest only what you're willing to lose" combined with the "invest what you have on hand" rule. I never invest on margin (borrowed money) and I don't do shorts or options. Others do and may do very well but I know my risk tolerance and my investment personality limits. Too often, I hear people boast of quick profits and "making a killing." The reality is that when you're starting out, you'll make mistakes. You'll pick stocks that you think are winners but end up losing. You'll buy a stock at one price, only to see it drop after you purchase it or you'll sell it right before it shoots up an additional 20 points. I've made these mistakes and many more. As mentioned above, practice trades are a good way to get a feel for the market, to sharpen your skills, and assess (and build) your risk tolerance. Once you start for real, don't invest more than you can handle.

In fact, you may only have $5 or $10 to put into the market. Nowadays, a lot of investment apps allow you to purchase what are called "fractional" shares: portions or fractions of stocks based on a specific dollar amount. If you only have a small amount to put into the market, consider this as a way to invest in stocks or ETFs that may be expensive or trade at a premium price. The benefit of this is that you're taking a gradual approach while removing some of the sting out of an uncertain or volatile market. By buying portions at different prices and market conditions, you flatten your average cost over time. You can also save funds to buy whole shares when the market goes down as it did last week. Market crashes and dips are opportunities to buy stocks at a discount. Regardless, I see investing as a long term activity rather than a one-time bet.

Know the responsibilities with the rewards

Finally, it's important to understand that when you sell a stock or investment, there are tax consequences that come with it. Work with your investment advisor, your accountant or do your homework to understand the federal and your state‘s capital gains laws and rules. As we approach tax season, brokerages and investment firms that you invest with will provide tax statements, itemizing investment activities, sales, and proceeds that are calculated into your tax responsibilities.

Investing doesn't have to be scary and while it's never completely risk free, you can empower yourself through research, planning, and if necessary, working with a professional to make it a healthy, productive part of your wealth building strategy.

Some recommended reads on investing

  1. The Cold Hard Truth on Men, Women, and Money by Kevin O'Leary (****)

  2. Beating the Street by Peter Lynch (****)

  3. Learn to Earn by Peter Lynch (****)

  4. One Up On Wall Street by Peter Lynch (****)

  5. Jim Cramer's Get Rich Carefully by Jim Cramer (*****)

  6. The Intelligent Investor by Benjamin Graham (***1/2)

  7. The Little Book That Still Beats the Market by Joel Greenblatt (*****)

  8. The Little Book of Market Wizards by Jack D. Schwager (****)

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