How To Invest For Beginners (European Investor)

Summary

In this video, the speaker, a seasoned investor, shares practical advice for beginners on how to start investing with as little as €100. Drawing from personal experience on Wall Street, he emphasizes the importance of choosing reliable investments, such as stocks and real estate, while avoiding speculative bets. He introduces the concept of 'twin-engine' investments, which provide both capital appreciation and cash flow. The speaker highlights the power of index funds and ETFs, particularly in Europe, and explains how to begin investing in these assets. Throughout, he emphasizes the value of long-term investing and the importance of compounding interest.

Takeaways

• 😀 Start investing as early as possible to benefit from the power of compound interest.
• 😀 Focus on investments with two profit engines: price appreciation and cash flow (e.g., real estate and stocks).
• 😀 Avoid speculative investments, such as gold or Bitcoin, which rely solely on price movements for profits.
• 😀 Real estate can be a good investment, but it requires a lot of time and effort for management, making it less passive.
• 😀 Stock investing can be passive, but it’s challenging to pick the right stocks, as success is concentrated in a few companies.
• 😀 Consider investing in index funds or ETFs, which allow you to invest in the entire stock market and outperform most professional investors.
• 😀 The average return on global index funds is around 9% per year, benefiting from diversification and compound interest over time.
• 😀 Market timing is a risky approach, and most investors who try to time the market end up missing profitable opportunities.
• 😀 You don’t need to be a professional investor to succeed; even regular people can outperform experts by investing in index funds.
• 😀 In Europe, you need to focus on European-based ETFs and use platforms like justetf.com to find the right investment options.

Q & A

What is the main challenge new investors face when starting out?

New investors often struggle with determining which investments to choose, which platforms to trust, and understanding the tax implications. There's also confusion caused by conflicting advice on different types of investments like real estate, stocks, Bitcoin, etc.

What is the key distinction between speculative investments and long-term investments?

Speculative investments rely on the hope that the price will go up, and you make money only if the price increases. Long-term investments, on the other hand, focus on earning cash flow from the investment, such as rental income from real estate or dividends from stocks, offering stability even if prices fall.

Why are real estate and stocks considered the best long-term investments?

Real estate and stocks are considered twin-engine investments because they generate both capital appreciation (price increase) and income (cash flow). Real estate provides rental income, while stocks offer dividends, making them less risky than speculative investments like gold or Bitcoin.

What did the mentor on Wall Street mean by the 'twin-engine' investment?

The mentor referred to investments that generate both price appreciation and cash flow. For example, owning stocks provides dividends and potential price increases, while real estate provides rental income and the potential for price growth.

What are the risks of investing in single-engine assets like gold or Bitcoin?

Single-engine investments like gold or Bitcoin only generate returns if the price goes up. If the price falls, investors can face significant losses. These types of investments are more speculative and less reliable for building long-term wealth.

What is the advantage of index funds and ETFs for new investors?

Index funds and ETFs offer a way for investors to gain exposure to a wide variety of stocks, minimizing the risk of picking individual stocks. They are a passive investment strategy that has historically outperformed most professional investors, allowing regular people to invest easily with low fees.

How does compound interest work in investing?

Compound interest means that the returns on your investment are reinvested, allowing you to earn profits on both your initial investment and the returns you’ve already made. Over time, this leads to exponential growth in your wealth, especially if you start investing early.

Why is market timing considered a mistake in investing?

Market timing, or trying to predict the best moment to invest, is risky because markets are unpredictable. Successful investors know it's better to invest regularly and let the market recover from downturns, rather than waiting for the perfect moment to jump in.

What mistake did the speaker make during the 2007 financial crisis?

The speaker's mistake during the financial crisis was not investing when the market was down, missing an opportunity to buy stocks at a low price. He learned that waiting for the market to stabilize and trying to time investments often results in missed opportunities.

How can Europeans invest in U.S.-based ETFs like SPY or VOO?

While popular U.S. ETFs like SPY and VOO are not available to European investors, they can invest in European equivalents. Websites like justETF.com provide a database of ETFs that are accessible to European investors, allowing them to invest in global markets through funds like the iShares Core S&P 500 ETF.