What a choice of date to write this post. For a moment I thought about postponing it but it’s even more charming to publish it on April 1st.

I want to summarize the very basics of investing that I think people who have no idea about the topic should know. This should serve as a quick reference that I can show my family and friends who want to get involved and need to know what they can expect and what they should aim for.

I spent a short time of my early career in insurance and finance and thus I was exposed to the the topic early. I also spent a fair bit of my learning time on this topic in the past years so I think I have a better than average understanding. I’m very far from being an “expert” and in fact, this post is here to tell everyone that expert level investing, or I should say “investing that produces expert level long-term results” is - contrary to what the finance industry will try to make you believe - a simple, solved game and doesn’t require one to involve (and pay for) an investment advisor or fund manager.

It is perfectly fine if you are not familiar with some of the concepts mentioned. This post is only meant to lay the foundations, you have the internet at your disposal, go and learn about the stuff you don’t know yet.

  1. Proper investing can be done for free on many platforms on the internet regardless of how little money you have - you can start investing 1€ for free right now completely legally in a safe, regulated environment
  2. Investing is really a solved game: a widely accepted view that is supported by massive evidence is that completely passive investing using index ETFs will produce the best results
  3. Many people are doing this style of investing, you should too, it is delightfully simple
  4. An index ETF is an easily tradeable asset. It’s a large mix (a couple hundred) of stocks or bonds defined by an “index” - a group of companies defined by a set of rules (like “the 500 largest companies in the US” or “The 100 largest companies in the world” or “the top 600 mid-sized companies”)
  5. A realistic nominal expected average yearly return is around 9% in the world’s leading currencies (USD, EUR) based on 100+ year historical data. This is what you can realistically expect
  6. The currency matters because inflation matters a lot - a 9% nominal yearly return translates to about 5-6% real returns in EUR or USD
  7. There are 2 main categories of tradable financial assets (“securities”): stocks which represent ownership of a company and bonds which represent a loan and which pay fixed interest
  8. Throughout history, the stock market has had the highest average yearly returns, not bonds, not gold, not real estate
  9. The price of individual stocks fluctuate wildly
  10. Diversification results in less volatility, but doesn’t eliminate it, which means there could be - potentially long - periods of time when the current value of your investment is less than it was before, but history shows that in the long run, stock markets keep rising and outperform all other asset classes
  11. You should not be surprised if you lose money in 1-2 year terms in the stock market
  12. You are almost guaranteed to make significant gains in 10-20 years time in the stock market
  13. Even though bonds pay fixed interest and so are viewed as a safer asset, the price of bonds is not static, they do change, sometimes by a lot
  14. A diversified portfolio of stocks is better for your long-term results than bonds and bonds are better than holding cash
  15. There is no free lunch: people claiming to know easy&simple strategies that consistently make you even just a few percent more are lying - if they did, they’d be doing it instead of selling this “knowledge”
  16. When people say “the market”, they refer to a broad, diversified index (most commonly the S&P 500 or the FTSE 100
  17. 80-90% of actively managed investment funds underperform the market
  18. yes.
  19. I’ll repeat that: 80-90% of ALL investment funds available to the public in the world - institutional, expert investors handling your money - underperform the market, the same market that you can invest in essentially for free
  20. There are people / firms known to have outperformed the passive investing style (“beaten the market”) consistently for decades, but even their returns are only in the 10-20% yearly range and it is very rare
  21. Good investment advice isn’t about “what asset to invest your money in” but about “how to do it in a disciplined way” and that prepares you for the possible and likely outcomes
  22. Your biggest investing enemies are your own greed and your fear of temporarily losing money
  23. Your “human capital” is the amount of money you will be able to earn (with work) during your lifetime. It is of paramount importance to try and increase your human capital - by studying and learning. It will be the basis of your investments

If there is one chart you should look at then it is one: it’s the S&P 500 over the last 75 years. There is a lot to learn from this chart so spend some time studying it.

If you are looking for a light, easy to consume, yet very informative source of personal finance knowledge then go check out Damien Jordan’s channel on YouTube.

If you already know the basics, value scientific rigor and want to learn about more advanced concepts, then go find Ben Felix on YouTube