In my opinion there is only one way to make money in the stock market (or in anything else such as swing trading, index, options etc.) - buy low, sell high.Jin+Guice wrote: ↑Sun Sep 16, 2018 10:23 pm
I agree that the record high should be an opportunity, my problem is I don't know enough to know how to take advantage of it. I don't even know what a swing trader is or what you mean by "for indexers, this is a time of leverage." Record highs aren't great for indexers who are still buying, assuming that a crash will come. Are you currently still buying index funds or are you stacking cash?
I have begun purchasing S&P 500 index because it is my opinion that risk vs. reward is in my favor as the market correction is probably within a few years and when the given investment horizon is 20-30 years
I am making monthly contributions in small, equal amounts to dollar cost average realizing that when s&p500 index moves up, I will own less shares but when s&p500 index moves down, I will own more shares with a consistent monthly purchase in equal amounts.
About 5% of my monthly excess cash after expenses is used to purchase the s&p500 index. If the market (s&p500 index, accordingly) corrects within a few years, I will increase the contribution toward 15% of excess cash. If market does not correct, then I will stay at 5%.
To me, the most important rule in investing is to have a continuous and consistent positive cash flow that can be put to use - this means having a job, no debt and using the money that is leftover after covering all living expenses.
The choices I have with this excess cash are: 1. spend it 2. save it 3. invest it. 4. give it away
What are the right choices? I do not know. I clearly have no idea how long I have left but there is a high probability of reaching the average life expectancy of 75 years. So I chose to act accordingly to save and invest the excess.
In my opinion, index is not any different. I believe that population will continue to increase in the next 30 years**. I do not believe that we will run out of natural resources in the next 30 years.
If there are more people 30 years from now, then the economy must be larger to support them. Then the s&p500 must move higher, because it reflects the economy.
If I am wrong, then I've lost 5% to 15% of my excess cash each month for the next 30 years. Fortunately, rest will be in savings. If I am right, then I have bought low as the market corrects within the next few years and sold high 30 years from now.
**Actually there is a bit more to it than this, because I know that the millennials and gen-z are larger than gen-x at around 79M, 73M and 65M respectively (2015 figures). Gen-X are retiring and the rest are entering the labor force, spending money.
2009 US census estimates US population in 2050 to be between 423 million to 458 million, depending on the level of international immigration, low or high, respectively. If current immigration rate is maintained, population of US will reach 399 million by 2050. If international immigration stops, then population growth will pretty much stop.
"The extent to which the U.S. population is projected to grow is partially determined by the level of net international migration. Where net international migration is the highest, the population is projected to grow the largest and remain the youngest. In contrast, under lower assumptions of net international population will grow at a slower pace and age more quickly."
Whether people realize or not, having more young people to replace those exiting the labor force will have a significant impact on our economy and programs such as social security and medicare just to name a few.
https://www.census.gov/content/dam/Cens ... ment09.pdf
IMHO, the easiest way is to work, save money and have 25x of annual expense in savings. Or devise a system where at least basic necessities are taken care of so that it doesn't require spending.Jin+Guice wrote: ↑Sun Sep 16, 2018 10:23 pm
I want to learn about investing because I'd like to have the freedom that comes from earning some or all of my income passively. I'm currently working a job I don't like that pays a lot and has a lot of flexibility to stack cash. I'm not sure this is the right decision. I'm especially not sure if risking it in pursuit of growing it is the right decision. Winning the lottery would change my mind, I'd be much more concerned with capital preservation, which I feel is much easier to do.
I am already very frugal, I'm a noob investor but I'm not a noob to frugality. I agree that having few material wants will always trump a high net worth or investment skills. I want to learn how to invest to increase my freedom. Once we start accumulating money investment is a game we are forced to play, due to inflation. Why not play it well?
Thanks for your lengthy replies and taking an interest in my investing journey. I've been thinking about your responses all week.
Most people take multiple approaches in combination to arrive at this solution - such as drastically reducing their standard of living to minimize annual expense, growing their own food, living in an RV, moving to an area where dollar goes further, repairing instead of replacing when things break, having some rental income to offset, having some dividend income to offset, etc.
In one way or another, they all require some form of work. Investing itself is a lot of continuous work. The closest to the purest form of passive income, such as dividend, interest and pension - even here the price one pays is risk. Dividend could be cut or suspended, interest rate may go down, pension could disappear, etc.
I do not believe investing in the stock market alone is the best solution unless one has had sufficient time for compounding and margin of safety to work for them - usually taking several decades (to at least reach 25x annual expense). Compounding requires time.
Other than hitting the lottery or betting on the roulette table, I do not know of a way to establish passive income overnight.
Every action has consequences. Therefore know the consequences of each action. More importantly, know the likelihood of each consequence and choose the consequence that is likely and in your favor.
p.s. Never underestimate the power of doing things in parallel. Learning to invest is one of them.