🔎 Market Mysteries

We will never know if it's better to buy an investment today or tomorrow, so the most important thing is to get started. Time in the market is much more important than timing the market. Open an account. Start small. Stay diversified. Keep a long-term mindset.

Investing in the stock market is for everyone, but it might not always be the right time for everyone. We need to have our basic financial health in order to be able to start building our wealth. There are a few key steps the typical Scoop investor needs to take before starting to invest.

Pay off all of their high-interest debt. That means things like credit cards, where the interest rate is double-digit or higher. We don't have to be debt-free to invest. Investing alongside student loans or mortgages with low-interest rates is okay if you're making the payments. The deciding factor is the interest rate. Debt is essentially investing in reverse. Credit cards eat away at our wealth at +20% annually. The stock market has historically grown by 8-10% annually. So we can't really outgrow that negative draw.

Have enough cash set aside for emergencies, like losing a job or unexpected medical expenses. There's no perfect rule for how much to stash away, but many people consider saving six months of income or expenses.

Never invest money you'll need in the next 3-5 years. Investing takes time. Companies don't grow overnight. The market crashes. We have to be prepared to watch our money lose value in the short term to have a chance to watch it grow over the long term. You will watch it lose value at times. Be prepared for it.

Most people think about doing a mix. Investing for retirement is great, and retirement account investments can grow more quickly because they're excused from some taxes. But our retirement account money is locked away until we're almost 60. You'll likely want to have some money saved and growing for significant expenses, like paying for a home, car, renovations, or education.

Always check if your employer matches your retirement account contributions. Many employers will add $X to your account for every $X you contribute. That's free money. There's no other way to double your money immediately for free without additional risk.

An investment is an opinion about the future. Start by forming an opinion. As an investor, we can pick a particular company, industry, or economy we want to put our money behind. Often, the best place to start is with the broadest opinion. Do you think the whole economy will continue to grow and prosper? If not, why invest in it? Do you think a particular company or industry will be more successful than the rest? Read your scoops to understand the trends in the economy and find companies you believe in.

The typical Scoop investor starts by investing in the whole economy, buying every company so that as the economy grows, our wealth grows with it. For most Scoop investors, repeatedly purchasing a single fund that spreads their money across the whole economy is all they ever need. If we find a company we want to own more of, we can always add that in later.

Either way, it's essential to understand what you're trying to invest in. Different mutual funds, index funds, ETFs, etc., are all just different packaging of companies. Vanguard, Fidelity, iShares, etc., are all just different branding. You don't head to the supermarket without intention. You also don't start by saying I want a General Mills product. You say, "I need some graham crackers," then decide what to buy based on the brand's price and quality. It should work the same way with investing.

Pretty much, yes. "Brokerage" or "self-directed" accounts are like the supermarket. The same options are available at most stores, aka investment platforms. Figure out what you want, go to the aisle, and pick a brand. If we're going to invest in US companies, we might look up a US Total Market fund and select a trusted brand we've heard of, like Vanguard, Fidelity, or iShares. We’ll check to make sure it has billions of other people's dollars in it (Assets Under Management) and the fees (expense ratios) are low (less than 1% for most funds and close to 0.01% for index funds). In a brokerage account, we can also invest in individual companies by purchasing a share of that company’s stock directly.

Retirement accounts typically have a restricted menu. Your employer partners with one provider and allows you to choose from their branded packages for US companies, international companies, tech companies, etc.

The amount you invest is personal. It’s important to first focus on establishing an emergency savings, covering your bills, and understanding that this money should be considered locked up (even if it isn't technically locked up) for several years. After you figure out how much you want to stash away regularly for the long term, the rest of the decision is a question of market timing. The only reason you would wait to invest $1,000 every ten weeks instead of $100 each week for ten weeks would be because you think you’re capable of knowing the best day to invest.

No one is consistently good at timing the market. Even if they think they are, they may not have compared their portfolio to one that stayed in the market. You will never know the right time to invest, and the best times to invest often feel like the worst. JPMorgan looked at the growth of a $10,000 portfolio over twenty years and found that missing just the ten best days in the market cut the investor’s returns by more than half. And seven of the ten best days of those two decades occurred within two weeks of the ten worst days. Six of the seven best days immediately followed the worst days. Would you be able to invest during the worst day of the worst crash of the decade?

We’ve found the best thing to do is to take the emotion out of it. The money you invest today versus a month from now won’t likely look all that much different in 10-20 years. Investing in big lumps can more often fall victim to procrastination. Setting up automatic transfers into our investment portfolio ensures we don’t get in our own way. Spreading out your investments is called Dollar Cost Averaging (DCA).

At the end of the day, the most important thing is just getting invested. Charles Schwab did an interesting analysis over a twenty-year market cycle comparing different investment timing scenarios - investing each year at day 1, at the market bottom (optimal), at the market peak (unlucky), evenly over each month (DCA), or just keeping it in cash. Perfectly timing each bottom was obviously the best, but it earned only 12% more than Dollar Cost Averaging after twenty years. The most important insight: investing at the worst point of each year still ended up with three times the money of the portfolio left in cash. Simply being invested was most of the battle.

We’re here for all your questions - feel free to reply back!

Keep fighting,

The Scoop Team