Ready to Change Your Life by Investing?

By Bunmi Olayanju
MBA

On the road to growing in the grace of giving (2 Corinthians 8:7), make sure you don’t overlook investing—an effective way to increase your personal wealth. After all, increased money coming in gives you the opportunity and the choice to use that increase as a blessing. Look at it this way, every day, millions of stock market trades are executed all over the world. In 2019, transactions valued at over $23 trillion were executed in the US stock market alone¹. Now that’s a staggering amount of money and assets changing hands! Although most of these transactions are executed by institutional investors, retail investments are very sizable as well.

According to a Business Insider article², individual investors accounted for 10% of stock market trades in 2019 and that percentage is growing. Are you on the sidelines and wondering if you’re ready to join the ranks of these retail investors? Here are a few pointers to see if you’re prepared to become a retail investor.

First, you have formed the habit of saving money

Don’t save what is left after spending. Spend what is left after saving.
Warren Buffett

Do you have money set aside for emergencies such as your home heater unexpectedly going on the fritz or your very reliable car blowing a gasket? Emergency savings, also referred to as a rainy-day fund, offer a much-needed lifeline to help you cover unforeseen expenses that could otherwise derail your investment plan. There are always competing needs for every dollar, but it is prudent to make saving money a priority. As Kevin O’Leary, Shark Tank investor noted, “the world wants to take money from you, it’s not easy to commit to saving and investing instead. You have to have the discipline of finding $100 and putting it to work, no matter how hard it is to say no.”

Second, you recognize investing is a long-term game

Are you looking to make a quick buck in the stock market? That’s not investing! Successful investing in the stock market doesn’t happen in a day. It’s a result of what happens daily, compounded over time. The Bible says, “wealth gained hastily will dwindle, but whoever gathers little by little will increase it” (Proverbs 13:11). The market will have good days and bad days but the former usually outlasts the later—on average, the US stock market has returned 10% a year. In the words of investing guru David Booth, “resist the temptation to be shortsighted. Consider being a long-term investor. Rather than focus on what the market did ‘that day,’ look at what it did that decade. Investing is a lifelong journey. Making money slowly is much better than making—then losing—money quickly.”

Third, you know the difference between a paper gain/loss and a realized gain/loss.

A paper gain or loss reflects the change in value of an investment as a result of change in the price of the asset. A gain or loss is only realized when the asset is sold. Daily movements in stock prices create a lot of “winners” and “losers” on paper. Wise investors don’t put much stock (no pun intended) in these day-to-day gyrations. A buy-and-hold strategy has repeatedly trumped a penchant for trading more frequently—after accounting for taxes, trading and other cost.

Fourth, you’re willing to make lifestyle adjustments to free up money for investing.

The goal of investing is to defer current consumption in favor of a larger payout in the future. Needless to say, if you consume all available resources, there will be nothing left to invest. Over time, you should aspire to enlarge your investment capital and one way to do so is to exchange a consumption-first mindset for an investor-first mindset. Employer-sponsored programs like 401(k) and 403(b) are designed to encourage developing an investment-first mindset by enabling participants to put aside pre-tax dollars for investing.

Still pondering if you’re ready to start investing? Take the short quiz below.

1. Do you have an emergency fund?
2. Do you have a long-term view of investing?
3. Do you consider taxes, trading and other cost when measuring the gain/loss on an investment?
4. Do you have an investment-first mindset (e.g., you are willing to defer splurging on a big-ticket item like a new car or exotic vacation and put the funds away for retirement or to shore up your kid’s college fund instead)?

If you answered yes to these 4 questions, then you may very well be ready to join the investor ranks and in turn, increase your giving potential!

Notes:
1. The value of shares traded is the total number of shares traded, both domestic and foreign, multiplied by their respective matching prices. Source: Stocks traded, total value (current US$) - United States | Data (worldbank.org)
2. Retail Investors Comprise 25% of Stock Market Post-COVID, Citadel Securities Says (businessinsider.com)