Learn to Invest: How to Make Money in your Sleep

in investing •  6 months ago

You’ve been diligently squirreling away a bit of each paycheck for as long as you can remember. But you’ve heard that your money barely keeps up with inflation in the bank, so what do you do with it?


Starting out investing can be a daunting and often overwhelming task. We’re talking about putting your cold hard-earned cash on the line. A wager, a gamble, a bet that whatever you have invested in will grow in value.

Unfortunately, most of us are quite risk-averse and the idea of ‘losing money on the stock market’ can be a scary thought. Especially when that money was earned putting in long hours at the office instead of sinking cold ones at your local watering hole.

Warren Buffet famously said

“If you don’t find a way to make money while you sleep, you will work until you die.”

Now this may be a bit of an overstatement, but the idea behind it rings true. Want to retire earlier? Go on those holidays you’ve always dreamt of? Or simply want to live more comfortably?

Well let’s get started making money in our sleep.

Still Your Mind

Before plunging head first into the vast oceans of assets and investing, you need to still your mind.

This is a broad concept to embrace on the small and large scale. Do it before you jump into reading or researching, before you open a trade, before you close a trade, before you make a decision to change your portfolio.

Take a moment to breathe before you dive down into the depths of the ocean.

Investing teaches you a lot about yourself and managing your emotions. It is something that you will learn along the way and it comes with experience, mistakes, and self-reflection.

A little excitement, anxiety, or fear is good; but as with all things balance is the key.
Excitement gives you motivation to research and look for new investments; but too much of it and you’ll get carried away chasing pump and dump penny stocks taking you all the way to zero.

Fear keeps you in check, it stops you from making those rash decisions based of greed and hunger; yet too much of it and you become stuck in a state of analysis-paralysis.

So how do we combat these extremes of emotion that lead to bad decision making?

Clear your mind, take a step back and gain some perspective. Before you have skin in the game, write down what you wish to achieve by investing.

  • What is your current financial position? Do you have any ongoing liabilities or responsibilities?
  • Why are you investing? What are your goals? What do you wish to achieve?
  • How much do you know about investing? How much time can you commit to reading and learning?
  • What sort of returns will you be content with? (Note I use the word content, not want or wish)
  • Are you a risk-averse or risk-neutral person? How much will losing an investment hurt you?

Should you ever feel an excess of excitement, greed, or fear coming over you simply reach for this document.

Take a deep breath, take a step back, and remember why you are investing.

Getting Your Toes Wet

There are multitudes of assets and investment products to choose from, so how do you pick your first one?

It almost feels like you’re at the races trying to pick the winning horse. The only problem is, the field you are picking from is thousands upon thousands of stocks, bonds, companies, currencies and investment firms. Where are the good odds?

ETFs. Exchange-traded funds are relatively low-risk low-fee funds that provide a diversified investment in one simple product.

Why are they low-risk? Because they are diversified; instead of holding a share in a single company, you are holding a share in 100 different companies. If one company goes bankrupt, you’ve still got the 99 other companies that are most likely doing well and account for losses of the bankrupted company.

Vanguard and iShares are two popular providers of ETFs and generally have products ranging from geographical regions to specific industries. You can track the overall market in the US, Europe, China, Australia, Japan, Hong Kong, the list keeps going. You can also track companies in a specific industry such as Healthcare or Telecommunications, but more on that later.

A local stock-market tracking ETF is a pretty safe bet to start off with. For example, in Australia this would be VAS which tracks the ASX 300 (there are many other companies with similar products, this is just an example!). The reason I say a local market tracking ETF is you will be able to follow the news easily and won’t have to deal with tax from investing offshore (we’ll tackle that one later!).

But you want to buy the next Apple or Google?

ETFs sure sound boring but they’re an important part of any portfolio. Sure, finding the next Apple would be exciting and make you a very rich person. But throwing money around willy nilly is a great way for things to go pear-shaped!

Give yourself time to learn about valuing and analysing assets before you take on bigger and riskier trades.

Remember, just as how we are trying to earn money in our sleep, we can be earning money while we learn!

Two more points before you go jumping into your first trade.

  • Make sure the fund you have selected has low management fees. Check their PDS, it should be somewhere in the range of 0.1–0.5%.
  • Don’t go all in on your first trade. Divide it up into 3 or 4 chunks, and spend ONE of those chunks.

So what are you waiting for? Go make that trade!

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