Hi. My name is Adam Bielecki. I am a software engineer by profession and also a passionate investor. I believe that you should have more than one source of income to lower the risk of ending up in poverty. I started learning about investments over 10 years ago and since then I have been actively participating in the Wall Street game as some people would call it. I am following principles that were established by the legendary investor Benjamin Graham who was a promoter of value investment, and Warren Buffet - the greatest mentor and the author of Intelligent Investor. By applying patience, knowledge and persistence I was able to produce satisfying returns. As you can see in the chart below 2018 was not a very successful year and I made some investment mistakes. That was a year of cryptocurrency bear market and very disappointing S&P 500 results therefore my portfolio was exposed. Luckily, due to diversification and cutting loses on some entries I managed to lower loses.
Why you should invest?
Before I can answer the question let’s take a look at how compound interest works.
“Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.” - Albert Einstein
The average annualized total return for the S&P 500 index over the past 90 years is 9.8 percent. Note this is an average hence some years it was -10%, some it was +20%. Let’s not be so optimistic and assume 7% annual return and 20 years of investment. In simulation we are going to use 10 000 $ of initial investment and additional 400$ a month.
You can calculate your own simulation on this website - CalculatorYou will be amazed at the difference if you increase return to 8%.
Investment is easier than you think
I personally use etoro as my main investment platform. It is extremely easy to use with intuitive user interface. You can open new positions for stocks, bonds, index funds, commodities, ready made funds of common assets such as banks, energy industry etc.
When opening new position you can set leverage of up to 50 (something I personally do not do and do not recommended as it is really quick way of losing capital). For instance if you open position for 100$ with x20 leverage, 1$ in price up movement would reflect in 20$ gain, but also 20$ loss if it goes other way). For each opened position you can set stop loss or take profit. For instance you opened 100 stocks of Bank of America Stock (BAC) at price of 28$ and you set up stop loss at 25$, when the stock price drops your position will automatically close to prevent further losses. It happens automatically and lets you sleep comfortably at night without having to worry about calling your stock broker. I personally like to keep good stocks forever as they pay dividends and will only reduce position or sell some if intrinsic price went way above my calculations. I like to use websites such as gurufocus.com and simplywall.st to find intrinsic value of a company. Also as Warren Buffett said owning stock is like owning part of a company - it is worth remembering.
Another useful feature is the capability to copy another successful investors. Investors returns are transparent and also the risk associated with a particular investment is visible so you can decide how much risk you are willing to take.
Risks and rewards
With any investment there is a risk, there is no doubt about that. However, there are a few ways to reduce risk to a minimum and maximise profits. For investing in stocks, index funds we can simply reduce risk by holding them for long periods of time i.e. 5+ years. To further reduce risk we can also diversify portfolio, which simply translates into not putting all your eggs in one basket. Having 20 stocks, few index funds, bonds, commodities such as gold, silver may greatly reduce exposure to risk. You can also copy investors that proved to be in low risk.