Two people with identical incomes and spending habits will have very different net worths depending upon whether and how they invest their money.
Let’s say it straight-up: It’s really hard to save money, so why on earth would you want to put it at risk by investing? The answer is somewhat counterintuitive. That’s because keeping your long-term money in cash and/or savings accounts essentially guarantees that it will lose its “purchasing power” over the long run due to inflation. Here’s an easy way to think about it. Suppose you flop on your bed and don’t get up for 30 years… when you finally do try to stand up, your muscles will have atrophied.The same thing happens to long run your money muscles when you don’t invest. It atrophies.
This doesn’t mean you should invest all your savings. Keeping an emergency fund AND funds for nearer terms expenses “liquid” (fancy word for in checking/savings accounts, money market funds, and CD’s) is vital. However, with the money that you won’t be spending for the next 7-10 years (retirement money for most of us) you’ll want to invest it so that it has the chance to grow faster than inflation – and keep your money muscles buff!
This topic can feel overwhelming. However, by using the simple, straight-forward resources listed below, you will learn 90% (or more!) of what you need to know to be a successful long-term investor.
The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Market Returns by John Bogle. This is an investment classic. Written by the founder of Vanguard Investments (the financial version of your local COOP / farmer’s market on steroids) it thematically is the most impactful investing book that I’ve ever read. If you think you need to find the next hot stock or big trend, or need to engage in frenetic day trading to generate solid investment returns, guess again. This book explains the true way to invest like the best.
Investing Made Simple: Index Fund and ETF Investing Explained in 100 Pages or Less by Michael Piper. I love Michael Piper’s books. He has self-published information packed books – all with 100 pages or less – on subjects ranging from investing, to retirement planning, to social security. You’ll see his work recommended on other pages of the “financial wisdom” section” of this website as well. A CPA by training, Michael brings a fresh – and precise – perspective to essential topics. He also has a weekly blog where he shares the best 5 to 10 personal finance articles he’s read that week. If you enjoy expanding your money knowledge, his Oblivious Investor blog is well-worth signing up for.
A Short History of Financial Euphoria by John Kenneth Galbraith. Ahhh, human nature. It routinely creates drama in various realms of daily life. When human nature interjects itself in the financial markets… oh my, lots of financial pain can be felt! If you are reading this page during one of the inevitable periods where financial markets are “frothy” and everyone is talking about the next biggest thing (hello Bitcoin, I’m speaking to you!) take an hour or two and read this slim volume. It will take you back to the time of Tulip Mania in the Netherlands through the Junk Bond crisis in the US. What you’ll see is despite being more than a century apart and in different countries, the underlying driving forces of human nature (think: greed and fear) are remarkably similar.
Prefer to garner your investment lessons in movie format? Watch these delightful dramas, each of which does an excellent job of giving a fictional depiction of historical periods in time where financial markets have gone wild: Tulip Fever (2017), The Big Short (2015) and Margin Call (2011).
Harvard Grad and former financial advisor Kelly Gushue has created a variety of programming through her company, Personal Finance Warrior, to help women develop the skills they want and need to become successful investors. Kelly is a gem of a human being and I highly recommend all of her offerings. Another Harvard Grad, Alice Finn, has written a delightful book that is a great compliment to Kelly’s courses. Called Smart Women Love Money: 5 life-changing rules of investing, this book perfectly describes how I personally invest.