investing in mutual funds

As the President and CEO of Thrive Real Estate Investing naturally one of my preferred investment methods is Real Estate. However there are many other ways to make money investing. And even if you have absolutely no experience or knowledge in investing you can still start now.

The average person thinks that investing and finance is so complex because honestly people in this industry try to make it sound complex because they want your money. They use language that you don’t understand and because it sounds so complicated you just give them your money because you buy into the fact that “they” are the experts.

You don’t need to wait to invest. You need to start now.  In fact, start today, stop waiting.

The problem is this. Let’s be honest, it’s unlikely that we are going to discipline ourselves to begin to invest on a consistent basis. It’s just like that workout you’ve been meaning to start doing again. So what’s the solution? You make one decision, one time and automate it.

How? Take a percentage of what you make and save it. I recommend 20%. Pretend it’s a tax and you’re never going to see it again. Mentally it helps make this transition easier.

Here’s the great thing. If you begin to save 20% with every dollar you make and you compound that money over time, the numbers are incredible. If you invested only $10,oo0 dollars in 2008 into the index you’d be sitting on $30,000 right now, and the best part is you did absolutely nothing. I’ll talk about investing into the index shortly.

Now once you take this first step of automating your investing, now you need to take a second step and educate yourself.

A big myth in the investing world, are these so called experts out there who tell you that they can beat the market. Over any 10 year period of time, 96% of mutual funds will not even match the market. In a recent interview Warren Buffet stated that in his will 90% of my money would not go into any mutual fund but straight into the index.  With the index you get a piece of some of the largest companies in the world but it costs next to nothing to get in.

The trap we often fall into is by saying, I have a family, I’m busy with my job, I have a busy life, so I’m going to hire someone to manage my money for me. Guess what only 4% of people you will hire are actually going to beat the market. 4%. Bad odds. So whose really the expert?

Now let’s talk about fees. I hear a lot of investors say, “Oh fees don’t matter, I’m only paying 1%”. According to Forbes Magazine the average fee is 3.12%. So that’s B.S.

Why are fees important? Because just as your interest grows and compounds, your fees grow and compound also. Let’s say you have 3 people. One person gets 1% in fees, another person has 2% and the third person has 3%. Let’s hypothetically say they all get the same return. They start off with $100,000 at the age of 35, and after 30 years they all get compounded interest at 7% (that’s the average).

The person who paid 1% in fees will have $574,000 dollars.  The person at 3% will have $224,000 dollars. Which is 77% less money. So a mutual fund with 3% fees is basically paying someone 77% of your money.

So what’s the solution? Well a better option is to own the S&P 500 (an example of this is the Vanguard 500). You can own a piece of all the 500 biggest companies such as Apple, Exxon etc. It costs you .17 to do this, as opposed to a Mutual Fund where you may pay 3.17. That’s like buying a Honda Accord for $20,000 or paying $350,000 for the same car. Sadly this happens EVERY day to people because investing and finances seem complex and they don’t know how to look at this properly.

So, the moral of the story is simply take the time to educate yourself a little and start investing today. Don’t wait, your future depends on it.

 

Sean Wrench, is the President and CEO of Thrive Real Estate Investing. He’s a 20 year veteran in the Investment World and Real Estate Investing. He is also a sought after Motivational Speaker and Published Author.