I’m going to walk you through the investment strategy I teach to the students that I mentor
and that I actively use myself.
When you customize it for yourself, you’ll know exactly where you should invest your
money first…
second… third… it’ll all be mapped out for you!
I walk you through the entire, seven step process, coming up!
Hey there, my name is Stephen Spicer, and it’s my goal to help you Invest Smarter.
And one of the questions I get asked more than anything else is about where to invest
first.
So, I knew I needed to make public this step-by-step Investment Strategy Guide that I created a
while back for my students.
I actually tried putting into an Instagram Post last week… worked on it for more than
3 hours and I still wasn’t super happy with it.
But I wanted to get this value out there and I think it did help some people.
I hope to nail that visual representation down at some point in the future, but for
now, I felt a video would be the best means for me to communicate this strategy with you.
Now, before we get into the seven steps, let me lay out a couple rules.
You’re allowed to skip some of the steps and move on to the next one.
Not skip around, but seriously think about whether it applies to you right now (or ever),
or whether or not you’ve already done all you can do it that area, and if so, to move
to the next one.
Now, this is true for most of them.
I’d say numbers 1 and maybe 4 are required.
The rest you can customize.
This is a process that should be repeated.
Whenever you have a chunk of money you’d like to invest, you should start with number
one and move down the list until you determine the next place you need to invest.
So let’s not waste any more time.
Let’s get into it!
Now, these first two steps revolve around the idea of investing in yourself.
I know that can seem boring sometimes or might even feel like a waste of time.
But it’s not.
Investing in yourself is one of the best things you can do with your money, so here we go…
Step 1 - Invest in Your Financial Education
...no not that Financial Education...
If you don’t have a solid financial foundation, nothing else matters.
When the inevitable chaos of life hits—whether in a month or in a decade—if you haven’t
invested any time or money here, you could lose it all.
And these days, lessons in basic financial education are desperately needed.
We, as a society, are more deficient than ever.
We have more debt.
We’re saving less and less.
We consistently waste and effectively lose our money.
It’s not hard (and definitely not expensive) to learn the essentials of paying down debt,
contributing to your 401k, budgeting, and the like.
There are a ton of free resources out there.
For me, I try to only contribute to the “financial basics” conversation when I have something
unique to offer (there’s enough general information available already).
For example, when I noticed flaws with the advice everyone gives you about your emergency
fund… well, I had to do something about that, I had to help, so I made a video about
it, bringing those flaws to light and helping you overcome them.
The investment here is probably more one of time than money.
But that doesn’t mean you can skip this step, go ahead and put your money in #4 or
#7, and just make a note to tackle this one later.
No!
Until you invest your time here, I don’t think you should move on to any of the following
steps.
Honestly, that can be a recipe for disaster.
I’m sorry, I know it’s not super exciting - when someone asks “hey, where should I
invest first” I’m sure they roll their eyes when this is the answer - but it’s
imperative for your long-term investment success.
That’s why I make sure all my mentees have a plan in place here before we proceed.
So, I hope, before you move on, that you have the basics (debt, budget, etc) taken care
of, and that you have a good solid financial understanding.
Assuming that’s the case, let’s continue...
Step 2 - Invest in Your Skills
Basically, if there’s a way for you to spend some money to make yourself more qualified
and thus ultimately make more money, you should do that.
That could mean paying money for a course to help you pass a test that will give you
a certain certification that will qualify you for a raise at work.
It could mean going back to school for a higher degree, but personally I’d only do that
if you know it’ll result in you making more money (enough to justify the time and expense).
It could mean learning the skills online to start that side business you’ve always dreamed
about.
That’ll take an investment of time and money.
And again, it doesn’t HAVE to be money here: it could also mean investing the time to teach
yourself, through YouTube videos or some other free resource, how to do something that can
make you some money on the side or could serve as a supplemental skill on your resume to
ultimately improve your marketability.
Since everyone is different you’ll have to customize this to you, but I bet almost
everyone could do something in this step to improve their skills (even if it’s something
I failed to mention here).
The formula is simple: you invest time and maybe some money into ...something that ultimately
(ideally in the near future) will result in you bringing in even more money to invest.
And then that money, of course, can be run through this process!
Now, when you find yourself, on this step, unable to come up with anything you can (or
want to) do to improve your skills, or you’re currently in the middle of doing just that
and are strapped for time but still have more money to invest… (great problem to have!)
then let’s check out…
Step 3 - Invest in What You Know
In an interview he did with the Wall Street Journal, Mark Cuban shared his story and how
he made his money.
It revolved around him only making investments when he knew something specific and he knew
that others—the thousands of other people also trying to make money investing—wouldn’t
know as well as him.
He talks about investing in what you know.
If you have a unique knowledge, you’ll be better served using that to your advantage,
than simply diversifying your investment portfolio across various mainstream investments…
This COULD mean investing in the market specifically in your area of competence.
Like, if you work in pharmaceuticals and thus have a unique perspective and insight that
the horde of investment researchers and analysts have not yet picked up on.
You could use that to your advantage.
In what areas are you uniquely knowledgeable?
Where might you have an edge over that research horde?
But I think more commonly, this step is for entrepreneurs and business owners.
Think about it: you shouldn’t start your business until you have a sound understanding
and handle on your personal financial situation (step 1).
And you’d be best served investing time and money in honing your skills as much as
possible before you starting pouring that time and money into your actual business (step
2).
Right?
You see how that fits in there?
And, yeah, if you’re an entrepreneur, at least for a long time, this is where you’ll
likely stop in your investment journey.
Your money will KEEP getting invested into this step (and maybe step 2 also).
I had an entrepreneur friend who owned a chiropractic office.
He kept pumping more and more money into that business and felt guilty that he wasn’t
investing very much into his brokerage account - almost all of it was
going into expanding his chiro empire.
So, I walked him through this Investment Strategy and showed him that because he was uniquely
qualified to profit from that particular entrepreneurial endeavor, that it made sense for that to be
where most of his investment dollars were allocated.
I helped him calculate the potential return on investment of his business and compared
that to its risks.
And that risk/reward profile that we were left with, made it clear that this was a better
investment opportunity by far than anything else he’d be able to do.
And that’s what it comes down to: when you’re comparing one stock to another, which one
has the best risk/reward profile?
When you’re comparing a different business opportunity to stock investing in general,
again, where’s the better risk/reward for you?
And if that’s in the business you’re pursuing, I don’t think you should feel guilty about
most of your investment dollars going there.
Real estate would go here as well.
If you have a good grasp on real estate investments or a unique understanding of rentals in some
specific market, then putting that knowledge and expertise to work for you here may be
better for you long term than other options.
If you don’t understand real estate as an investment but have an interest, then maybe
you just uncovered a skill into which you could invest some time and money (remember
step 2).
On the other hand, if you don’t understand real estate or entrepreneurship and you don’t
have any interest... then move on!
Don’t try it!
You don’t have to.
So you’ve made it through the first three, you still have some money left over or you
just didn’t find anywhere else you felt you should invest right now, then let’s
start thoughtfully building out that traditional investment portfolio with these next three
steps…
Step 4 - Invest in the Market Strategically
I’m talking about a strategic asset allocation—that’s referring to the mix of assets you hold in
your investment portfolio.
Traditionally, you might think of the 60/40 stock-and-bond-only portfolio.
You know, the one that all the “experts” and “investment authorities” (including
many on YouTube) mindlessly point to as the obvious and only way to responsibly invest...
Yeah, that one.
(I strongly dislike that portfolio, but) that is, at its most basic level, a strategic asset
allocation.
I don’t think that’s enough.
You can do more, you SHOULD do more, to better protect and grow your life savings.
I’ll share with you briefly what I’m talking about here, (and I hope this doesn’t sound
like a cop out) but if I tried to fully explain everything I believe about how you should
build out your basic strategic asset allocation… it’d turn into a short novel… actually
I did write all of that down and it in fact has been turned into a book...
This little mini-book details the reasons I believe that traditional stock/bond advice
is potentially ruinous and it highlights a few specific ideas you could use to improve
your own strategic asset allocation.
If you’d like a copy, check the description for links - you could get one from me, from
Amazon, or you can download the audiobook version for free (that is, until my publisher
makes me take that down).
The gist of my approach to strategic asset allocation is to incorporate additional uncorrelated
assets, beyond just stocks and bonds…
I’m talking about including Real Estate Investment Trusts, Market Neutral Funds, Long/Short
Equity Funds, maybe even some Managed Futures Funds… and if some (or all) of that is new
or foreign to you, I apologize, we’ll get to all of it over time, but since you probably
don’t want to sit here long enough for me to just read you my book (which goes through
all of those in detail), we should move on.
I at least hope I’ve piqued your interest in finding a better way to build out the base
of your investment portfolio.
Maybe you could think of this as part of your financial education, you know, step 1: invest
some time and money into finding and understanding that “better way!”
I’ll do my best to help you with that over time.
Okay!
Let’s move on.
So you have your strategic asset allocation, now, it’s time for...
Step 5 - Invest in the Market Tactically
Now we’re talking about a tactical asset allocation.
A case could be made for lumping this in with the last step, because it’s not really a
new place for you to invest money.
It’s more so a way to improve the strategic investments you already have.
But I recommend it only come after you’re comfortable with your strategic build out
(step 4), so that’s why I separated it and made it its own step.
Again, this is a large subject in and of itself—one where we could create an entire course dedicated
to helping you understand various tactical strategies with their respective nuances…
But that’s not really the goal of this video.
I’ll tell you what: I’ll give you a couple examples and if they sound like something
you’d like to learn more about, 1. be sure to let me know in the comments, and 2. you
may have just found a new skill worthy of your time and money so hopping back to step
2 might make sense here.
Here are those examples:
A tactical asset allocation could mean shifting the focus of your investments in different
industries based on the overarching market cycle.
Some industries perform better during bull markets, others during bears, and others still
when the market is relatively sideways.
If you know what to watch for—the signs of each of these stages within a cycle—you
could adjust your portfolio accordingly.
Another example of tactical asset allocation is paying attention to different markets’
relative values—so like, how the value of all small companies compares to the value
of all large companies.
Over time the relationship between these two different types of assets changes and if you
pay enough attention and know what to watch for, as one becomes overvalued compared to
the other, you could adjust your personal portfolio accordingly.
Both these strategies (as with all Tactical strategies) attempt to better protect your
portfolio as well as position it for greater long-term gains.
Once you have your Tactical Asset Allocation Strategy in place or you just have no interest
whatsoever in figuring that out (which is totally fine!), then you’re ready to move
on to...
Step 6 - Invest in Individual Companies
Now, this is the one that gets the most attention—it’s probably the one that comes to mind when you
hear the word investing—but notice it’s number six… of seven.
In my opinion, before you really start investing heavily into individual companies and spending
the time necessary to do so profitably, you need the solid foundation in place that will
come from working through the earlier steps.
And I do this too: I get more excited about this step than any other.
I will probably spend more of my time on this channel talking about investments into individual
companies—how to invest, where to find the best opportunities, my specific research-backed
stock ideas, and so on.
If you’re interested in that type of information, then you should click the subscribe button
right now and click the notification bell, so that you don’t miss any of it.
It’s exciting stuff!
There is a lot of opportunity out there and there is a lot to talk about.
There’s also a lot of bad information in the world, so it’s important to me to help
you learn how to avoid the pitfalls that ensnare so many investors.
For example, I created a video a while back explaining where I find my best individual
stock investments.
It explains where you can find stocks with 100%+ upside potential and little downside
risk.
Okay, so you have some individual stock investments working for you now.
That’s cool.
What could possibly be next?
I mean, you could spend all the rest of your time and money here, and still never learn
everything there is to learn and consistently find new amazing opportunities (with hard
work, of course, and some solid research and analysis)...
But some people like to venture a little bit further with their investment strategy.
And that’s okay, as long as you have the solid foundation that comes from Steps 1-6,
or at the very least, 1-4.
I’m talking about people who are interested in speculation.
That’s…
Step 7 - Speculate
I created a video on the difference between investing and speculating.
And sadly, most people don’t understand the difference…
As a heated example - and I’m ready for the backlash in the comments - a lot of people
think they are investing in cryptocurrency, when in reality they’re speculating, at
best…
most are just gambling.
I explain what I mean in that video, so I hope you’ll watch that before you get angry
with me in the comments.
Here’s my point with this step:
I’m not so much recommending that you speculate, I’m just giving you permission to once you’ve
reached this point.
If there’s some stock that you can’t really seem to find a good way of assessing its value
but you just have a good feeling about its future, this would be the place to pick up
some shares.
Or maybe it is cryptocurrency for you, or perhaps a plot of land, or even something
as silly as TY beanie babies from McDonald’s Happy Meals…
(ahhh… yeah…
I’m still waiting on that one to pan out for me!)
It’s just really important that you recognize speculation for what it is and put it in its
place in your personal investment strategy, that is: after everything else is already
taken care of.
--
There you go: my seven step investment strategy that you can use and customize for yourself.
Invest in Your Financial Education, Invest in Your Skills,
Invest in What You Know, Invest in the Market Strategically
and then Tactically, Invest in Individual Companies,
and finally, once you’ve done all that, you can Speculate a little.
I hope this method of thinking about your investments, helps you Invest Smarter as much
as it’s helped me and my students over the years.
I hope by now you’re already subscribed, but if not, and you want to continue on this
path, don’t forget to click that red button and then that notification bell.
If you’re still here with me, please, like this video if you found it helpful.
Share it with your friends and loved ones.
And leave me a comment below, even if just to say hi.
I can’t wait to see you there and then again in the next video.
I sincerely wish you all the best.
Take care.