This article is written by a software engineer for software engineers! You might be wondering, why should I listen to this guy? First, I do not claim to be an expert. This article is not a get rich quick scheme, it doesn't even contain any affiliate links. The advice in this article is applicable for anyone, however, as my background is in software development I can only write about my own experiences. This guide will outline a fairly low risk and pragmatic strategy on how to invest money in the stock market.
As a software developer, you will never be poor. The wage of a software developer is pretty good compared to most careers. This means that at some point in your career you will likely ask yourself, what should you do with your new wealth? I know I did when I started my first job. Having a great system to invest your money will help you attain financial freedom sooner. This will allow you to retire earlier, and more importantly, be more in control as to where you spend your time.
I have been investing in the stock market for 15 years. In that time I've been through two pretty turbulent times, however, nowadays, I am getting to a stage where I could make a full time living from it. This is why I say this is not a get rich overnight process. 15 years of investing can result in making enough passive income so you do not need to worry about paying your day to day bills from your 9 to 5 anymore. In this post, I will share the system that I use to invest in the market. The system that I am about to outline is super simple. Anyone can follow it today, regardless of how much money you earn.
Before we get going, as all investing posts say, this post does not contain professional financial advice. Do with this information what you want. From my experience, you will not become a millionaire overnight by following this system, however, if you consistently follow the process for many years then you are pretty much guaranteed to make money following it. As well as explaining the system that I follow, I will also share some important concepts and ideas that anyone new to investing needs to know about before starting to invest.
Investing money in the stock market can seem daunting at first. When I started investing I was very nervous. I had inherited $1000 and I worried I would lose it all. I obviously didn't lose everything, however, getting over that first hurdle was hard. Talking to people over the years I think this fear of losing money is very common. No one wants to lose money, however, being comfortable with the market's gains and losses is an essential part of stock market investing. Having the right mindset and having the correct understanding of how the system works is the most important part of investing. Without understanding why things go up and down, you may be tempted to sell your stocks when things are looking bleak.
When COVID hit in 2020 and the market crashed, I lost over 30k in a single month. This is the hardest part of investing, learning to do nothing. How do you think you will cope if you had 100k, 200k, 500k in the market? The highs and lows only get steeper the longer you invest. Being comfortable with the rollercoaster up and downs is the hard part. One way to improve your mindset is education and having a plan.
Having the right mindset will prevent you from selling your investments when things look bleak. Most investors tend to fall into the trap of buying high and selling low, do not do this. This advice goes against the mantra 'buy low, sell high'. Everyone falls into this trap at times. Even with good research and experience, I have fallen into this trap several times (I assume I will again at some point!). Take when Bitcoin went to 20K for the first time around 2018. Due to all the hype, I invested in some coins. The crypto market crashed badly a few months later. While it was crashing I sold all my coins as I didn't want to lose everything. As of writing bitcoin is over 40K a coin. All I had to do was nothing and ride out the storm and I would have made money. Instead, I panicked and sold everything, this is how you lose when investing. At the time of writing Bitcoin is doing really well again and people are investing in crypto in droves again. When it crashes next time those same people will sell when it goes down. This is the classic definition and cycle of buying high and sell low. You want to invest when the chips are down. You want to buy at a sale price rather than full retail!
When things go down, you need to double down and invest more or at least hold, rather than sell. When things go up, you want to invest less. This is easier said than done. When you lose 30K in a month and things are continuing to go down, you might want to sell to save yourself losing another 10k. Selling seems the best idea at the time so you make an emotional decision. This is why mastering your mindset sounds easy, however, it is really hard. Masting your emotions when it comes to money is really hard. Getting used to the risk takes time and experience. Just don't sell anything no matter how bad things look!
Getting an education on investing is easy as there are lots of good resources for investing out there. Below lists some essential topics you should understand before you start investing.
The economy: A great video to watch to understand why the stock market goes up and down is this amazing video How The Economic Machine Works in 30 minutes by Ray Dalio.
Index Tracker Funds: Index tracker funds are the type of investments that you start invest in. Indices like the S&P 500 or the Nasdaq are good starting point. These funds use a computer to follow the best companies in a certain sector. This means index tracker funds have lower fees compared to funds managed by fund managers. These savings in fees will save you thousands of pounds over your investing career!
The second benefit of an index tracker fund is reduced risk. As you are investing in hundreds of companies your portfolio risk rating is also lowered. If one company goes bust you will not loose everything. You would only lose if all companies in the US went bust at the same time and you sold your stocks! Lastly, you can invest in a fund with minimal research. My investing business takes me about 10 hours a year to manage. The system is that simple!
My final suggestion is that I recommend you pick a large US-based index tracker fund to invest in. See my related video why ☝️☝️☝️
Read more about Index tracker funds here.
Dollar-cost averaging: Instead of investing a large lump of money once or twice a year, it has been proven you will likely make more money by making smaller monthly investments instead. Read more about it here
Compound Interest: Read more about it herehttps://www.investopedia.com/terms/c/compoundinterest.asp)
So my final system outlines go like this:
- Invest in a US-based index tracker fund
- Invest as much as you can afford every month, say 10% of your salary
- Start today, the sooner you start the more you will make
Follow this simple system for 15-10 years and you will be able to replace your 9-5 wage with the profit you make from the stock market. It's that simple! They're obviously a lot more advice I could share with you. If you would like to see more post on finance on this blog, please leave a comment below 🎤 ⬇️ 💥
Happy coding 🤘