Welcome to the journal.

You are among an incredible group of people, around 1,100 of you.

We have 18 year old’s fresh out of high school earger to start making money.

We have 20-40 year olds, some single, some married with kids young kids (like me), all progressing through the challenges life throws at us.

Some of you are in your 50s, 60s, and 70s, retired and golfing a lot.

There are absolute beginner investors, and some of the smartest financial minds I know.

People that have net worth’s from zero to several millions of dollars, and some of you in the hundreds of millions.

All this is to say, we have one helluva mix of curious and bright minds in this group.

Given the various reader profiles, threading the needle each week to help everyone is hard to do, and some of it won’t always apply to you, but it almost certainly applies to someone you know.

Those long time readers and contributors, thank you.

To new friends, welcome.

Onto busines:

Eddie

Back to basics today - a quick rundown of the why, what, how and when to invest.

Inflation, as defined by the Oxford Dictionary: “a general increase in prices and the fall in purchasing value of money”.

For good or bad, our society is based on an inflationary economic system. No matter how hard you work, no matter how much you save, every penny you save will get eroded by inflation.

To put the inflation context into real numbers. At 6% annual inflation, $10,000 today will buy $972 dollars worth of stuff 40 years later.

And that’s in developed societies. My wife Mj is from Venezuela. They had 1,000,000% inflation. Their currency is worthless, and their economy was destroyed, 90%+ in poverty.

Therefore, saving is a noble goal, but not enough. You must invest.

The only way to beat inflation is to invest in assets that do better than inflation, i.e. stocks, and that compound into exponential multiples of your original investment.

Using the American Stock Market 10% long term average return as a reference, $10,000 invested at 10% grows to $452,000 over 40 years. Over 65 years, $4.9 million.

Stocks represent ownership of businesses that are traded on public exchanges. Think Apple, Google, Amazon, Caterpillar.

When you buy a stock, you legally become a part owner. As an owner, you participate in the profits, dividends, and growth of the company.

In the short term, stocks move based on investor sentiment. Happy people buy more. This creates more buyers than sellers in “good times”.

In the long run, stocks increase because they earn a return on invested capital.

Invest money - expand business - sales minus expenses - what’s leftover is profit - the “return” - either reinvest that cash in the business to expand more, buy back stock, or pay a cash dividend to owners.

Stocks have infinite upside, since companies can theoretically keep growing and growing.

Sad people sell more. This creates more sellers than buyers in “bad times”. Stocks go down.

In the long run, stock value reflects business results and future profits. Businesses come and go. The average age of a public company is 18-20 years. Remember Blackberry, Blockbuster, Nokia? They are either gone from existence (Blockbuster) or shadows of their former selves (Blackberry, Nokia), basically competed into nothing burgers. Even brand names Nike and Lululemon are down 75% from all time highs.

Realizing you don’t need to be a stock picker to be a great investor is the first principle. A wonderful invention called the Exchange Traded Funds (ETFs) solves this.

An ETF is a combination of hundreds of stocks all packaged into one instrument. They trade on the public stock markets, just like regular individual stocks. They go up and down with emotions, but over time, the basket goes up.

The great thing about an ETF like the SP500 (XSP) is that while winners come and go, the basket has a darwinian rebalancing mechanism, the good ones grow larger and the laggards get removed.

So investors like you and me can just buy the one ETF and participate in the self correcting innovation machine that is corporate America, without the need to be a professional stock picker (heck, 95% of pro’s fail to beat this index over time anyway).

This constant reallocation of money ensures that you’re always investing into the best companies!

Lastly, they are very low cost. XSP costs 0.09% of your invested amount per year. That means it costs you $9/yr to invest $10,000 in the worlds best companies all at once.

You need to open a brokerage account. Wealthsimple is my preferred platform. Easy as using the apple store - for dummies like me it works flawlessly for my needs.

Takes 5 minutes, follow the prompts, open your required accounts (TFSA, FHSA, RRSP, non-reg, RESP), connect your bank account, transfer money (they also have cash back chequing accounts, no fee visas, and business accounts).

Once the money lands, you can start buying the ETFs. SP500 is a great place to start. There are thousands of ETFs out there, my advice is to keep it simple (I go through all of this in much more detail in Simply Investing).

Helpful tip, set up automatic contributions, automatic purchases, and automatic dividend reinvestment. If you automate it once, it becomes a flywheel to grow your portfolio.

Early, and often.

If you are young, you have so much opportunity to build crazy wealth; $6,000/yr for 40 years in a TFSA at a 10% compound interest rate turns into $3.2 million.

If you are a parent to a small child, you can put your kids on track to become multi millionaires (read last weeks journal entry on the $11,000,000 baby).

But, even if you are older, it is still imperative to invest. Don’t make any excuses like “it’s too late to change my fortune” - it’s never too late!

Utlimately, if you invest zero, you will end up with zero.

Putting all your eggs in one basket. Timing the market. Gambling. Making investment decisions based on your friends tips and what CNN and Fox News are saying.

In short, emotions are the great investors worst enemy.

The rules to win the game are simple, but most people overcomplicate it and therefore they lose.

Earn more, spend less, invest the difference in diversified ETFs, early and often.

That’s it for today,

Hope it’s helpful!

"It is our choices, Harry, that show what we truly are, far more than our abilities."

—J.K. Rowling

How do envision the world in 20 years? Where are you then?

Me? Probably riding on a flying skateboard.

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