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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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.
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.
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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 40 something millennial writing about personal finance since 2009 and 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 a free dividend yield spreadsheet and the free Young Money Bootcamp PDF.