You’ve worked hard to build up your savings account. There’s no reason why you can’t put that capital to work for you. The stock market is an incredibly powerful and convenient tool that allows you to do just that.
But how do you actually go about using this tool to grow your savings?
The Standard Advice
- Hire a professional to do it for you. Unfortunately, when you account for fees and commissions, most money managers fail to beat the returns of a passive index fund.
- Buy and hold a low cost index fund or ETF. The downside here is that you would be vulnerable in the event of a major stock market crash. Depending on the timing and severity, you may have to wait DECADES to be made whole. It took over 15 years for the Nasdaq Composite Index to reclaim dot-com era highs and 26 years on, Japan’s Nikkei index still sits at BARELY HALF the level it was at the end of 1989.
- Dollar cost average into a low cost index fund or ETF. This is better, but it still relies on the assumption that the market WILL bounce back in the timeframe you need it to. If you have A LOT of time, that has generally been a good bet. However, I’m not convinced that it will be ALWAYS be a good bet.
Personally, I’m not willing to settle for mediocre returns from an expensive money manager. I’m also not interested in patiently waiting for my account to recover from a market crash. Been there, done that. No thanks. There is another way.
- Buy stocks that are going up
- Sell stocks that are going down
- and DO-IT-YOURSELF!
It really is that simple. So why don’t more people do it? There are a lot of reasons, but for now, let me just address the two excuses I hear most often.
Excuse 1: “It’s too hard”
Repeating this statement is like holding up a white flag. I mean sure, you have to apply yourself and do some work. You do have to learn about managing risk and your emotions. It shouldn’t be a surprise that something worthwhile will take some effort.
But let’s be honest: this isn’t brain surgery. Hell, I can do it! My background is computers and music, not Wall Street. Seven years ago I didn’t know the first thing about stocks. If I can figure this out, there’s no reason why you can’t as well.
Learn the rules of a trend following system like the 821x and then study charts. See how a big winner looks at it’s buy point and vice-versa for big losers. It’s not hard, it just takes practice and repetition to identify the best setups.
Excuse 2: “I don’t have time”
Do you have time to watch TV? Do you have time to play video games? Do you have time to surf the web? I could go on but I won’t. Just answer the following questions and be completely honest with yourself.
Is it worth investing the time it takes to develop a valuable skill that will ultimately lead to increased personal freedom?
Is the short-term sacrifice worth the long-term benefit?
If your actions are not congruent with your answers, perhaps you need to spend some more time on this to figure out the truth. For example, if you continually engorge on junk food, one would have to seriously question the veracity of any claim you make about wanting to lose weight.
Another thing to keep in mind is that the first step is always the hardest and most time intensive. Once you get past the learning curve of a system like 821x, it really should only take a few minutes a night to look through charts and enter orders if any. The cost in time spent is miniscule in comparison to the potential benefits.
So get busy. Don’t be afraid to make some mistakes. Lose the excuses. You can do it!