I should start off and say that I’m not a financial expert, but I do dedicate a good amount of time learning finance, managing cash, and investment planning - both in business and my personal life. In business school, one lesson that has always stuck with me is “Keep your eye on cash”. A simple but powerful statement that has served me well both in business and at home. I consider finance just another tool to generate additional revenue for me and my companies.
Over the last year, the stock market has been on a wild ride. First with the massive sell off in March 2020, followed by a massive recovery. In the middle of all this, so called “Meme” stocks like GameStop and AMC having huge swings in stock price - making some people rich, while others losing fortunes. With such great volatility, we’re all susceptible to making decisions based on fear and greed. Which brings me to the main point behind this article.
Two books have changed the way I think of investing that has made me not only a lot more wealth, but a sense of calm and passive approach towards investing. They have allowed me to ignore the ups and downs of the market - freeing up valuable time to focus on more important things like running a business for example - which in turn, produces more wealth since I have more time to dedicate to it.
This first book is Nick Murray’s Simple Wealth, Inevitable Wealth. In this book, Murray the makes a point that wealth isn’t made from investment performance, rather managing behavior with investing. In other words, you can lose a lot of money when emotions are involved. Perhaps more importantly, this books teaches you how to find a good financial planner and how best to work with them. A good financial planner is not one that promises the best returns, but one who can help you plan from a long-term perspective, not in prediction.
If you’re new to investing, I highly recommend reading this book first and find a financial planner that will work with you as you start your journey to building wealth.
I am a big fan of index funds. Both books in this article mostly describes investments in index funds. Index funds are a collection of individual stocks (or bonds) that typically follow a sector in the stock market. For example, the S&P 500 is a collection of large fortune 500 companies and the Russell 2000 which tracks small publicly trade companies. They were popularized by John Bogle in the 1970s. Investing in index funds is a passive, hands-off, diversified approach to investing with very little fees.
One of the most popular index fund out there is VTSAX or Vanguard Total Stock Market Fund. This funds invests in the entire U.S. stock market and is the focal point of JL Collin’s excellent book The Simple Path to Wealth. To grossly summary this book, Collins says we can put most, if not all, of your investment money into VTSAX and take comfort that our investment is well diversified and can expect a good return on investment over the long-run. Obviously there is much more to this book, but it is the simplest of simplest investment advice. Collin’s makes a great case for this investment approach and backs it up with his own experiences.
When I first read this books years ago, a light bulb went off and it became all to clear what I should do. I felt I could finally let go of stressing over picking the right stocks and the misery of losing money from my own mistakes. Instead, I can just put my money into a couple index funds and not worry about the day-to-day market activity. And it’s paid off big time. Over the past year, I calmly watch the market tank and recover all while adding more money into index funds along the way.