Who is the fastest self-made billionaire ever?
While it took Warren Buffett 55 years to join the billionaires club, Jay Walker allegedly did it in less than a year. He launched Priceline dot com during the dot com bubble, and his net worth instantly jumped from zero to billions. But that wasn’t sustainable because when the bubble burst. His net worth crashed to swell. While Buffett is still on the top of the list and he doesn’t seem to be going anywhere any time soon. That’s the kind of wealth you want to build.
The game of money isn’t easy. It’s tough, competitive and ruthless. And if you don’t know the rules, you are doomed to fail. The problem with most people is that they might work super hard their entire lives, but end up poorer than on the journey because they don’t know how to let their money make even more money. In other words, they don’t know how to invest. Let’s assume that you have been saving money and have an extra thousand dollars in your bank account. That is already an achievement because nearly 70 percent of Americans don’t even have an extra thousand dollars.
So instead of spending it on another useless gadget or a pair of shoes that you would wear once and then keeping your wardrobe for many years before you finally throw it away, let’s assume that you’re going to invest that money. But the question is, how do you invest your first $1000? Do you invest it in real estate or the stock market? What kind of stocks do you buy is a thousand dollars is enough to start investing. We’re going to answer all of these questions and many more.
What is investing and how does it work?
Consider this example. Let’s say you worked so hard and saved $300000. You could pay a visit to a Ferrari store and get yourself a luxurious car and let everyone know how successful you are? Or you can buy real estate and rent it out every month. You will receive at least $2000 if you decide that you no longer want to keep receiving the $2000 paycheck every month. You can sell it and get back your initial investment. In fact, the value of your investment might even depreciate, so you will sell it for a higher price. And that’s how money makes money. But you can’t buy real estate for a thousand dollars. That’s not even enough for a down payment. However, that doesn’t mean you can’t invest the thousand dollars elsewhere and let it grow. The easiest way is just to deposit it into a savings account and generate interest. But why would the bank pay you for keeping your money in the bank? Shouldn’t they charge you instead? Now you see, the bank is going to take your money and loan it to someone else at a higher rate and would share with you a portion of that profit. That’s how banks work, in short.
The only problem with this strategy is that interest on a deposit account is so low that it isn’t worth it. The highest rate you probably can get is point eight percent, which means that if you invest a thousand dollars into a savings account 12 months from now, you will receive an extra eight dollars, which is extremely low because the Fed targets an inflation rate of two to three percent, which means if you’re not getting at least two or three percent over time, the real value of your $1000 will depreciate, which means you can buy with it less goods every year. But why interest rates are so low on deposit accounts is because interest rates in general are low this year since the pandemic forced the Fed to lower them to encourage everyone to borrow money and spend a year or two from now once we get out of this recession. The Fed will increase interest rates to one or two or even three percent, which means interest rates and savings accounts will rise as well.
Your second option is to buy government bonds. A government bond is security that’s issued by the government to raise money to support government spending, say the government wants to build a school, but it doesn’t have the money to do that. So it issues. And I owe you a piece of paper that says whoever owns the security is owed this much money, plus interest by the U.S. government. Of course, this is an oversimplified example, but that’s the point. In short, government bonds are heavily influenced by interest rates. So since interest rates are extremely low this year, government bond rates are less than one percent. But two years ago, when interest rates were high, government bond rates were as high as three percent, which is not bad. Since the government bonds are the safest investment you can ever make. Any investment carries with it a certain level of risk.
They’re loaning money to the US government. What are the chances that the US government will default on its loans? But for the U.S. government to go bankrupt, the entire U.S. economy might have to fail. That’s why U.S. government bonds are considered the safest investment in the world. But if you want to make a higher return, let’s say 10, 20 or 30 percent, then you have to consider investing in the stock market. For example, Amazon stock price increased by over 80 percent just this year. Google’s stock price rose by almost 30 percent.
Tesla stock increased by seven hundred twenty one percent. Yes, you heard that right 721%. Then the question is why would anyone invest elsewhere when they can double or even triple their money and the stock market? That’s where there is risk when it comes to government bonds, for example, there isn’t much risk. In fact, it’s risk free to a certain extent. But when it comes to individual companies, there is a risk that the company might fail. It might report negative earnings. Pretty much any negative news can drive the stock price down.
The company might release a product, and if the public doesn’t like it, that can mix some negative headlines, which can drive the price down. So with high returns comes more risk. Apple is a well-established company, and its chances to fail are way lower than Tesla, for example. But it also has less room to grow than Tesla. That’s why Tesla grew by 721 percent this year. But Apple by just 70 percent. What you have to determine for yourself is how much you risk you can teach without going nuts. If that thousand dollars is all that you have left, maybe risking it all isn’t the wisest option because if things turn south, you can end up losing most of it. So one way investors minimize the risk in the stock market is by investing in an index.
The most famous one is the S&P 500, which tracks top 500 US companies. So an index fund would basically invest in these top 500 U.S. companies. Some of these companies will definitely fail, but others will grow. Judging by historical data, the average return rate for the S&P 500 since the 1920s was around 10 percent. This means buying a share of these index funds means you’re buying a tiny share in the top 500 US companies. My three top favorite index funds are the V00 or Vanguard 500 Index Fund, QQQ Index Fund by Invesco and Fidelity ZeroTotal Market Index funds. All of them are great and invest in pretty much the exact same companies. But how do you buy shares in these index funds? I mean, where do you start?
First, you need to find a broker, someone who’s qualified to sell these stocks. In the past, it was always someone you had to pick your phone and call him and ask him to sell you some shares. Remember the wolf of Wall Street? It would span his entire day, calling people and trying to sell them worthless stocks. But thank God, we are in 2020 and things are much better and easier. Brokerage firms created apps so that you can buy shares from the comfort of their smartphone, such as Robinhood. We all and so on. All you have to do is download one of these apps and sign up and you can start investing right away. In fact, if you use the link below to open a Webull account, you will get two free stocks. Just a disclaimer. It’s an affiliate link, but you’re going to get your toll free stocks. Isn’t that amazing?
That’s a good way to start, I would say. Check the link in the description. I tried my best to make this video as simple as possible so that whoever wants to start investing can start right away. Often what happens is that you want to start investing, but you have a million questions and you start Googling this and that and get exhausted after some time. And then you just give up and try again a few months later, maybe.