I have been investing for over 15 years. I have some experience investing as a millennial (albeit an older millennial). I have learned some good investing lessons throughout the years (especially in my 20’s), and I have yet to learn many more. Investing and meditation have many similarities, including the 7 factors of enlightenment (or investing). I realized that there are stages of investing, and I have cycled through all of these stages, embarrassingly enough. Some are fortunate to reach the path of enlightenment (the 7th stage) without having to go through the earlier stages of investing.
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Here are the 7 Stages of Investing:
Stage 1: Too Scared to Invest
The first stage is being wary of investing. The idea of DIY investing scares you. You would much rather keep it in a high-interest savings account earning 1.05-2.3% interest instead. You don’t want to lose your hard earned money, but you forgot to factor in something called inflation, which will erode at your hard earned money over time.
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Related: Step-By-Step on How to Invest your TFSA with Questrade
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Stage 2: Buy Whatever Hot Stock Tip You Get
I’ve done this. My ex got a hot stock tip at his workplace and said Suncor will go through the roof. I bought Suncor (SU.TO) at the top and even though oil is back up now, I’m still holding onto my shares (though it’s not very many shares) and it is still at about a 25% loss. I also watched Jim Cramer (this is many years ago) and bought whatever hot stock tip he dished out (including Activision (which merged into Activision Blizzard), Luxottica (designer eyeglasses manufacturer), and Coach). I think I got out of those positions relatively unscathed, but I was really trading too much and hence was spending too much on commissions.
Looking at my old ‘trading journal’ (yes I write all non-registered account trades out in a notebook, I am very old school), is like looking at my old diary. It’s quite cringeworthy. I have bought PSLV (Sprott Physical Silver Trust) which has plummeted in price, thankfully I got rid of it.
Stage 3: Start to Day Trade
Then I started to try day trading. This is after I went to an Online Trading Academy free seminar (I think they are affiliated with Questrade). Basically, they just tried to upsell me on the online trading academy course, which was $5000 to $10,000 (I forget the exact amount it was many years ago). After learning a few things from the seminar, I would get up in the morning before work, and try to make a few bucks while trading. It was stupid. Also, I don’t function very well early in the morning. I think Questrade made more money than me with my trading commissions, to be honest, even though their commissions are cheap at $4.95 a trade.
Stage 4: Buy Cryptocurrency, Weed Stocks, or Penny Stocks
I haven’t bought cryptocurrency or weed stocks, but I have delved into penny stocks in the past. And surprise, surprise, I have lost money.
Cryptocurrency was all the rage (and I think still quite the rage) but have a look at this chart I found from Crypto Currency Chart.
The peak of bitcoin was almost $20,000 a coin in December 2017 and now it is just over $7500 a coin at the time of writing (July 2018). The bitcoin bubble has burst. Back in December 2017, this Canadian couple put in more than $100,000 of their life savings into bitcoin mining.
Cannabis stocks are similar. In October 2018, the allure of ‘420’ will probably not be as alluring, as all Canadians will be able to legally use recreational marijuana. Weed stocks right now (even including Canopy Growth, or ticker symbol, “WEED”) have seen some people have huge returns, but it is primarily speculation.
Note: Just checked CGC (Canopy Growth) corporation ticker symbol and low and behold the price is about 30% lower than the peak mid-October.
Stage 5: Invest in Dividend Companies
I thought about putting investing in dividend companies closer to stage 7, but I think experiencing turmoil, or a market crash, is more important so one can appreciate the height of an investment portfolio. Some may argue that dividend companies should be stage 7, but I have come to think that investing in the index is a better way to go. There is less risk and more growth when you are not looking at individual companies. There is so much to keep up with when analyzing the fundamentals of individual companies. Don’t get me wrong, I love dividends and enjoy my passive dividend income on a monthly basis. I take a balanced approach and keep about 30% in individual dividend paying companies and 70% in index funds/ exchange-traded funds meant to track the market. Here’s my dollar cost averaging and dividends approach if you’re interested.
Related: The Ultimate List of Canadian Dividend Blogs
Stage 6: Experience a Market Crash
Many millennials started investing after the 2009 market crash and have not experienced what it was like. I’ve only been through one and, wiser, more experienced investors have been through more. I was not investing in index funds when it happened and I must admit, a lot of stop losses (I used to use stop losses) were triggered. Instead of buying more great companies, I waited on the sidelines for a bit after my stocks were sold off, as I was fearful when others were fearful and greedy when others were greedy.
As many people have said many times, it is not ‘if’ the next market crash will occur, it is ‘when’. You have to be prepared for a 25 to 35 (or more) percent pull down from your investments. You have to be prepared to see all red when you log into your brokerage account.
Stage 7 (Enlightenment): Invest in the Market Index
Finally, a sign of true maturity of a newish investor or a seasoned Canadian personal finance blogger. Invest in the market index. Forget about trying to beat the market, just join the market. Be one with the market. Invest regularly and consistently. This is why I dollar cost average on a monthly basis mainly with VXC ETF (asset allocation outside of Canada) with a set amount of funds I am allowed to ‘spend’ per month on my investments.
Passiv can help you rebalance automatically if you are too afraid to rebalance or don’t know how.
Related: Tangerine Investment Funds Review
Warren Buffett, the world’s most famous investor, has notoriously espoused the virtues of investing in the index instead of individual stocks, or even mutual funds or hedge funds.
“The trick is not to pick the right company, the trick is to essentially buy all the big companies through the S&P 500 and to do it consistently.”
— Warren Buffett
Readers, which step are you at on the 7 Stages of Investing?
Did you go through these stages of investing or was it just me and my ignorant investing style?
GYM is a 30 something millennial interested in achieving financial freedom through disciplined saving, dividend and ETF investing, and living a minimalist lifestyle. Before you go, check out my recommendations page of financial tools I use to save and invest money. Don’t forget to subscribe for blog updates, a free dividend yield spreadsheet, and the free Young Money Bootcamp eCourse.
36 thoughts on “The 7 Stages of Investing: Which Stage Are You At?”
I had a few issues with number 2, chasing the hot return when I was younger, but mostly skipped stages 1-4. I’ve been hanging around 5 and 6 the last 15 years, but I think 5-7 can all coexist at the same time with an investor. Some people will even throw in 3 and 4 with a small piece of their money. A lot of different approaches can coexist I guess is my point. It doesn’t have to be all or nothing. Tom
@Tom- Good point, it more of like a blended model I suppose. I think 6 is the big one that most millennial investors have not experienced yet and as I mentioned, I have only experienced one- I hope I react the right way when it comes!
Not sure if these comments are monitored still, but I just saw this article from pinterest and this comment sure aged well!
@seejoshrun- Hah, it totally did!
I used to watch that Jim Cramer ‘Mad Money’ show too, he would get passionate about buying that trendy stock at that time. I think that show is still on CNBC here in the US.
The one regret I had with crypto was that I had a chance to invest in Bitcoin when it was coming up around 2010/2011 but was skeptical about it at the time since I didn’t know the concept of it. And when it was the talk of the financial world last year, I was devastated that I could have sold it at its peak would have made a lot. In 2011 it was going for around less than a dollar for one bitcoin…ahhhh!!
I’ve been through most of these stages you have on here and you aren’t the only one whose been through all of them. Just like the market, we all had our ups and downs investing in it.
@Kris- Ahh less than $1 a bitcoin!? It’s usually fun and difficult to resist speculating, with a little portion of your money. At $1 a bitcoin buying 100 bitcoin wouldn’t have hurt your portfolio. We still get Mad Money on TV too, on BNN (Business News Network) but I haven’t watched it in a while since I don’t have cable.
I guess im still 5. Still havent experienced a big crash or went full force index funds. I keep debating that latter. maybe a 50/50 mix.
i tried the penny stock dope combo. It didnt go well and i learned my lesson. haha
@PassiveCanadianIncome- Lol, penny stock dope combo- was it a cannabis stock that was trading for pennies? Some people have done really well with weed stocks in Canada. A mix is the best (dividend stocks + indexing) for me, I find.
i had a yield chasing problem for short while. i also sold a couple of stocks that ended up 10 and 20x (lending tree comes to mind). with regard to the index i wonder which index is best. i wrote a post a couple of weeks ago detailing the american nasdaq index beating our s+p500 over the last 20 years by double. it astounded me when i pulled up the charts. i just bought qqq which tracks the largest 100 non-financial listings on the nasdaq exchange. i consider them stocks for the new economy versus some of the tired old industrials, miners, and big banks of the s+p500. it was eye-opening for sure.
investing sure is fun.
@freddy smidlap- wow a 10 and 20 bagger? Unreal! Yeah, I read your post, it was interesting as the S&P500 is like the ‘gold standard’ of indexes.
We skipped #4 llastbyear when it was very popular. It was tempting though considering the amount of money people were making. But then when it crashed we were glad we dodged that bullet.
Being on the older end of being millennials ourselves, we were around when 2008/2009 happened. It didn’t affect us with investing because we were both just finishing up college and trying to get jobs. Looking at what happened back then and some of the things people did or didn’t do is what we learned from though.
#7 is where we are today. And you’re right, we’re not trying to beat it. Just trying to stay in it for the long run!
@Kim- Thanks so much for sharing your investing journey, Kim! 🙂 It was certainly very tempting to get on the bitcoin bandwagon.
I will have one of each please!
Been there, done that:) I did lose quite a bit over the years by making foolish decisions, and I still do once in a while.
@Caroline- You’re doing fantastic now! $1000+ dividend income monthly!!!
I went from stage 1 straight to 7, not because I was particularly enlightened, but because I was blessed with a healthy dose of laziness from a young age, and the most effortless thing to do after doing nothing (step 1) is to go directly to step 7. I didn’t know that it was the wisest thing when I first started, but I was told it was the easiest, and that’s how I (fortunately) leaped over everything else.
@Miguel- You reached enlightenment- that is fantastic! It is great to hear that a lot of millennials are going straight to the index or robo advisors these days.
Hi GYM, very good summary. Yeah, I did the day trade a little bit right before the dot com crash, invested in the index funds first, then switched to actively managed mutual funds. At the end, I came back to the index funds again, and became wiser (I hope). It was a long journey of learning about investment and about myself. Now I feel peaceful about my portfolio, and don’t plan to make changes anymore.
@Helen- I would say you are wiser since you are FIRE already 🙂 I feel peaceful about my portfolio too, and am less quick to jump on a stock or buy it. It’s too easy to buy stocks these days with electronic brokerages. I remember the days when you had to call in, or it was $29.95 to trade one stock. It made you think more about buying the stock.
The only ones making money on weed stocks…were the ones who provided the seed money (e.g. pre-IPO funding) and the initial employees (e.g. founders, first few employees who got paid with stock options). I didn’t get the push for weed. Are people more likely to drink booze (or pursue non-sin lifestyles, like yoga, etc.) than buy weed? Seems like huge euphoria. Curious to see what happens in Ontario with the private store roll-out.
@Johnny Elle- Haha, yes, it’s very interesting to watch from the side lines. Grab the popcorn!
I started off at stage 7 then moved to 5, now I am a combination of stages 5 & 7. 🙂
@Matthew- Cool, I didn’t know you had some indexing Matthew 🙂 Combo is the best 🙂
I would use the analogy that building wealth is like making, baking and eating a cake!
It’s a piece of cake 🙂
1. Know specifically what you want to achieve and why.
2. Discover the best method from the super stars in the industry. Just like award winning chef’s enjoy sharing their recipes freely successful industry leaders are often happy to impart their life lessons to those interested to learn.
3. Use the right financial vehicles specific to your unique situation. Insurance is a cost but it maybe be less costly than self-insuring. A savings plan is good however an investment plan if you have a longer investment term may deliver higher returns.
4. Implement your strategy in the right order. Over borrowing when cash flow is tight is a recipe for financial disaster. Rather than over borrowing and everything going pear shaped, better to first consider establishing a regular savings habit, then an emergency fund, protect your assets, only then consider leveraging your wealth if appropriate and finally focus on paying down debt.
5. Use the best financial tools and strategies for your needs. Low cost investment managers, nil fee bank accounts, accountability coaching, suitable asset allocation, equites, property, own business, cash. Choose and implement what’s best for you.
6. Finally patience. If by your projections your financial independence time frame will take fifteen years, then stick with it and be patient. Trying to achieve it to fast is like turning the oven up to high. You’ll only risk getting burnt.Counting your investments is good and interesting, however if you it takes over everything else in your life, maybe ask yourself the real reason why you feel the need to check so often? Hint: It’s not the cake!
@Peter- Great minds think alike!! Have you seen my post on FIRE recipe? 😉 https://genymoney.ca/ultimate-recipe-fire-financial-independence-retire-early/
It takes a while to get the ingredients right but once you get them you just have to be patient and wait for the results! 🙂
Thank you for laying this all out so concisely. It’s funny how we jump back and forth. I got to stage 7 quickly and thats always been the bulk of my portfolio. I spend a decent chunk of change on crypto and weed, and I wasn’t smart enough to pull out at the correct time. We learn more from our losses than our wins. Though I got into WEED so early even at 40% retraction from the October heights, it might actually be covering all my other losses.
Charles @ http://www.thatcharleslife.com
@That Charles Life- Wow, that’s still really good! Hence the FOMO for Weed stocks on my part, haha 🙂 Yes, back and forth back and forth, its common to be simultaneously in a few different stages at once. Life is not linear and investing isn’t either (for many including myself).
I went from stage 7 (pretty much just Roth IRA and 401k) backwards to stage 4 (cryptocurrency) and dabbled in stage 3 a bit (with cryptocurrency). I’m mostly firmly planted in stage 7, but the stage 3 and 4 stuff is fun money that I can afford to lose. It’s almost like buying a lottery ticket except I think I know what I’m doing (although I really don’t, but it has to be more intelligent than the lottery, right?)
I’ve never done stage 1 or 2, and I kind of had stage 6 with the crypto crash this year. I didn’t have much invested in the 08 crash, so I didn’t really feel that. I’m kind of doing stage 5 right now, but I’m not chasing high yields.
But, like I said in the first paragraph, the vast majority of stuff I do is stage 7: index funds.
@JoeHx- Thanks for sharing your stages! It sounds like everyone is enlightened out there, doing stage 7. Or maybe I am preaching to the converted already (vast majority whom are PF bloggers 😉 )
I think I agree with this up until #7, especially backing it with a Buffett quote. He makes statements like that for the casual investor. However, if you read a lot on him, what he basically says is that the market can be beaten if you’re willing to be disciplined, learned, and patient. If you’re going to casually invest, then you’re 100% right that an index fund is the way to go. However, if you’re willing to put in the time, then #7 changes from “STAGE 7 (ENLIGHTENMENT): INVEST IN THE MARKET INDEX” to “STAGE 7 (ENLIGHTENMENT) VALUE INVESTING”. That’s a personal opinion, though. I like the post!
@DP- Thanks for the comment, I’m glad you agree until Number 7! Yes good point, maybe the 8th stage should be Value Investing 🙂
Great post! Thanks for sharing the knowledge and keep posting more.
I’m definitely at stage 1: too scared…