If you are going to invest in the stock market, do not make this mistake

In the last episode of the podcast, I had the pleasure of having Antonio Rico, better known as “The Intelligent Investor”, as a guest, who gave us an authentic masterclass on personal finance and investing in the stock market.

If you have not yet listened to our conversation, I recommend that you do so, because knowing how to manage and invest your money well is a skill that will be useful to you whatever you do and that can save you a lot of trouble throughout your life 🙂

As I mention in the interview with Antonio, I have been investing seriously in the stock market since 2012, since I think it is a fantastic investment vehicle for several reasons:

• It is comfortable. You can do everything online, from anywhere in the world and without leaving home. In addition, it is possible to schedule your contributions and forget about everything
• it’s liquid. You can sell your shares and shares at any time, and have your money back in your account in less than a week
• It is customizable. You can adjust your portfolio to your liking, depending on the risk and volatility you are willing to tolerate
• Does not require a large capital. You can start investing in the stock market with little money
• Doesn’t require you to be an expert. You can get good returns without having any idea of ​​the stock market and without having to keep an eye on the markets

However, despite all these advantages, it is important that you are clear about what the bag is for and what it is not for, in order to use it correctly.

The most common mistake when investing in the stock market

One of the most common mistakes made by people who are starting to invest in the stock market, and especially many of those whose goal is financial freedom, is to see the stock market as a tool to generate capital.

Unfortunately, it isn’t.

In fact, believe it or not, investing in the stock market is one of the slowest ways to generate income.

The proof of this is that if you invested €5,000 with an average return of 4% per year + inflation (the target return of Baelo HeritageAntonio’s fund), despite compound interest and all these stories, in 20 years you would only have generated a total return of €5,955.62, which is very little money for such a long time.

(You can use this calculator to do the simulation)

No, investing in the stock market is not a good way to generate income.

The true utility of the bag, for what it is really used for, is for two things:

1. Convert existing capital into recurring income
2. Protect your savings from inflation and make them appreciate a little each year

Only when you have good capital, good savings, can you appreciate the true potential of investing in the stock market.

For example, with savings of €500,000 you can “buy” a totally passive salary of €20,000 per year and dedicate yourself to living life.

And with a capital of €1,000,000, you can earn €216,652 in 5 years without lifting a finger thanks to compound interest.

Those are interesting numbers!

The key here is to understand that You will not get most of that capital and those initial savings by investing, but by working.

That before being an investor, you have to be a hard worker.

Of course, you can invest in the stock market what you save at work each month, and that will speed up the process.

But if you have a salary of €1,000 net, no matter how much you invest 50% and reinvest the profits, the road to financial freedom will be extremely slow (more specifically, 37 years to accumulate capital of €500,000).

Eye! With this I do not want to tell you not to invest in the stock market. Absolutely.

As I told you at the beginning of the article, I am the first to invest since 2012.

What I’m trying to tell you is that when it comes to using your money, give priority to increasing your income rather than buying shares or shares of an investment fund.

Because the fastest way to save enough to be able to live off the income or for your assets to increase a considerable amount each year is not to invest in the stock market, but to invest in earning more with your work.

As? Here are some ideas:

• form yourself to specialize and enter a sector that pays better, or to increase the value you bring to your company and be able to get a better position or a promotion.
• go to another country where the salaries are highest for your profession. For example, if you are a computer scientist, in the United Kingdom you can charge much more as contractor than in Spain.
• Start a small project in your free time that is compatible with your work and that generates extra income. You can create niche pages, provide freelance services, offer consulting sessions to private clients… there are many options.
• Create your own company. Although starting a business has its risks, if you manage to set up a business that works, you can earn more in a year than a lifetime working as an employee.
• Increase the profits of your company. If you already have a business, you can do many things to increase what you earn: hire to grow, reduce expenses, optimize processes, launch a new product, raise prices…

Realize that all these “investments” have a much higher return than the stock market.

For example, if you have a salary of €1,500 in your current company, of which you invest €500 each month, and in your spare time you create a niche page that generates €1,000 per month that you invest in its entirety, you will reach €500,000 in 19 years instead of 37.

If you go to work in England as a programmer and they pay you €8,000 a month as contractorof which you save and invest €4,000, in 9 years you will have exceeded half a million.

And if you decide to undertake, even if the first 3 attempts fail and you lose €10,000, if you do reasonably well with the 4th, you can reach €500,000 in profits in 4-5 years or even sooner.

Therefore, my recommendation is that never put investing in the stock market ahead of investing in yourself, your career or your business.

Never run out of training that could increase your salary, without trying to start a business, or without hiring a key employee that could grow your business just because you are investing the money you would need for it in the stock market.

Instead, give priority to increasing the income you generate each year from your work and, only when you don’t want or need to invest more in that aspect of your life, invest the excess money in the stock market or other assets.

That is the correct order.

Investments can be a substitute for your salary… but only after you have accumulated a large enough capital by working.