Learn to invest your money

My rules

Before I bought my first sports car, I spent many years being patient, dreaming and waiting until I was ready for that kind of expense, both financially and mentally. I grew companies, worked and experimented. I read a lot of books on how to take care of your finances and stay out of trouble.

When I invest money, I follow just two rules:

1. Invest money you don't need

2. Your investment can go to zero

This approach gives you peace of mind and no stress, and it quiets the emotions that get in the way of investing.

I've heard all kinds of stories:

• Putting the money set aside for a wedding into crypto, and as luck would have it, right at the top.
• Stealing company money to make a quick profit on Forex.
• Playing the stock market with credit card money.

You can imagine how ideas like that usually end. With all the capital gone and some very nasty consequences.

Investing in yourself

If you're in your twenties, you've probably already wondered what to invest your first savings in. You've heard bad things about the stock market, a taxi driver told you he lost everything on crypto, and your mom keeps telling you to buy an apartment.

Forget quick profits and the secret method for becoming a millionaire. There are no shortcuts. It takes a lot of learning, work and luck.

In an earlier lesson I wrote about putting 10% of your income toward learning and about building a financial cushion, and that's where you should start. Having a buffer for emergencies and big expenses is really important.

At the start, the best investment is an investment in yourself. Invest in your knowledge and skills. Changing jobs can raise your pay by 20–30% overnight, and changing industries by as much as 100%.

A course for PLN 200, 1,000 or 5,000 (about $50, $250 or $1,250) is an investment that brings disproportionately big results. Buy books and courses, go to trainings and learn new things.

Try selling your first services on your own. For example, running social media, building websites, setting up simple online stores, tech support and so on.

Knowledge is at your fingertips. Getting better than most people at any given subject happens very fast. All you need is a hunger to learn and to start specializing in something someone will eventually pay you for. Pick specific skills. That will bring you the biggest return on investment, the fastest.

Investing

If you've already got a financial cushion, you're growing like crazy, you have no loans and every month you have money set aside for investing, start learning about it. Investopedia is a great place to learn.

Don't jump straight into the deep end. Don't put money into assets you don't understand.

Steer clear of YouTube millionaires who want to teach you how to get rich quick. They actually got rich selling courses, not by applying the methods they teach.

Ask yourself: why do you want to invest?

1. Do you want to slowly and steadily build a diversified investment portfolio over your whole life and use the gains when you need them?

2. Would you rather take high risks for a shot at high returns in a short time?

3. Or maybe you want to try it, see how it works and park your money so that at least it doesn't lose value to inflation?

Guaranteed returns

Remember my two rules: your investments can go to zero and you'll lose all your money. When you buy assets, keep in mind that you may never see that money again.

I invested in Russian rubles right before the war, and my capital has been frozen for two years. Is it something I worry about? Absolutely not. Will I ever get it back? Who knows.

Install a red warning light in your head. If you see GUARANTEED RETURNS on a giant billboard, ignore it.

In investing, nobody can guarantee anything. That usually signals a middleman who does the marketing and guarantees something, and then it turns out the contracts are written so that, well, it isn't guaranteed after all. This applies, for example, to investing in gold-based products (Amber Gold) or in hotel rooms, and to all kinds of real estate investments run through middlemen.

Investment funds

You've surely heard of FIO investment funds too. They're popular bank products that are actively managed and promise big profits. And sure enough, some benchmarks can look promising, but what nobody talks about is the operating costs:

• purchase fees
• redemption fees
• management fees
• and even performance fees

On top of that comes capital gains tax (19% in Poland). All together, it eats your hard-earned profit alive, assuming the fund you invested in made anything at all.

In the United States, over the last 5 years, not one of 2,132 actively managed mutual funds beat the market. That means no fund earned more than a simple index of American companies (the S&P 500). You could have just invested in an index of the 500 biggest American companies, with no management and minimal fees, in the form of an ETF (Exchange Traded Fund).

The stock market

Buying an S&P 500 ETF is the simplest way to invest long term. It's a very good and safe idea for your first exposure to the US stock market.

It's best to use dollar-cost averaging, which means buying units regularly, say once a month, whatever the price. That's how you start building your portfolio.

In The Psychology of Money, the author writes that your attitude to the stock market and investing depends on when you were born.

Some generations hit a period of prosperity, and in their experience the market mostly goes up, while others hit a massive crash, unemployment and years of stagnation.

Our parents' generation, who remember hyperinflation in Poland, can be big fans of putting their money into real estate as a safe investment and staying far away from the stock market and cash.

It's good for your portfolio to be diversified and balanced. One type of asset isn't enough, but it's a good start.

Crypto

Cryptocurrencies and blockchain are a really interesting technology. Get into the technical side of what it is and how it works. For me, it's a convenient, electronic and independent way to store value.

But you have to realize this technology is still a novelty. Prices are extremely volatile, but that's probably the most exciting part, because the value of your portfolio can change by as much as several thousand percent in a short time. It can also drop to zero!

Crypto comes with plenty of risks. For me, the two biggest are:

1. No country welcomes a currency that's independent of the government, and a permanent ban could sink its value.

2. There's a danger that a single player will try to take control of the blockchain network (51% of the nodes).

History shows that China has repeatedly banned access to crypto by law, which caused big price swings.

In the US there was all kinds of friction too, but in the end BlackRock managed to get approval from the SEC (Securities and Exchange Commission) to launch a Bitcoin-based ETF, and that's a huge breakthrough.

If you're buying, I'd focus only on Bitcoin and Ethereum.

Bitcoin is the first cryptocurrency and serves as the base currency for pricing other altcoins.

Ethereum, on the other hand, stands out for its smart contracts and their wide range of uses (DeFi, NFT, DAO). These are also the two cryptocurrencies with the biggest market cap.

Buy the underlying asset, not derivatives. Don't keep your crypto on exchanges, because if they shut down, they'll vanish along with your money. Legal trouble at crypto exchanges is nothing unusual. These companies move huge amounts of money.

Check a crypto exchange's reputation first. I can recommend Kraken, Coinbase and Bitstamp.

I'd avoid buying crypto outside of exchanges, e.g. on Revolut or eToro, because of the fees. Pay attention to the difference between maker and taker fees on exchanges.

Install a wallet on your computer or buy a hardware wallet. The second option is safer.

Never buy a used hardware wallet, because if someone has tampered with it, you could lose all your money.

After you buy crypto, move it from the exchange to your wallet right away. Guard your access and remember proper security: backups, encryption. Keep sensitive data somewhere safe, like a bank safe deposit box.

Trading

I don't recommend getting into trading, unless you need some serious thrills and want to burn some cash, or you need to find out the hard way how easy it is to lose money.

I mean trading with leverage of 1:100 or more. If you get lucky, you can make a lot of money fast, but you'll lose it just as fast if you manage your capital badly and the price goes the other way from where you thought it would.

I first got into Forex in 2014, and for several years I wrote trading algorithms meant to prove that technical analysis makes sense.

I read a few books, went through hundreds of strategies on YouTube and wrote plenty of code. Whatever strategy I used, in the long run, with no emotions, run by an algorithm, every single strategy lost money. That's why I decided I wouldn't put a single złoty into Forex.

You can also trade on crypto exchanges like you would on Forex, just without leverage, or with minimal leverage like 1:2 or 1:4. I wouldn't recommend that either, unless it's purely for fun or you rely on fundamental analysis and can predict certain moves.

When there's blood in the streets, the taxi driver and the barber have stopped talking about crypto with flushed cheeks, and you can see interest has dropped, that may be a good moment to top up your portfolio with a bigger amount.

Arbitrage

What I used to do was look for opportunities between different exchanges. Buy cheap on one, sell higher on another and pocket the price difference. That's arbitrage.

Some people still do it, but the profits are tiny and the market is packed with all sorts of bots trying all sorts of clever tricks.

Back then, exchanges were under siege, and the biggest problem was that the exchange app simply didn't work or ran painfully slow, which is mostly where the price differences came from. But through the API you could programmatically keep sending buy or sell orders until they went through.

The differences reached €300–500 per Bitcoin, but it was a very risky game, because you had to hold at least 1 Bitcoin on one exchange and the equivalent in euros on the other. Even back then, that was fairly serious money.

If the price moved a lot in the meantime, or the trade got delayed because of the exchange's technical problems, you could lose money fast.

It was risky, pretty complicated and required crazy gymnastics with transfers between exchanges. In the end I didn't make money on it, but I value it as an interesting programming experience.

Back then, the better strategy was simply buying regularly and holding (HODL!), because even though the price swung wildly, it went up over time.

Buying stocks

Another way to invest is choosing individual stocks (stock picking). The professionals who do this specialize in knowing what shape companies are in.

Their main job is knowing about financial reports, changes in company structure and geopolitics, and digging up any information that can help them figure out whether a company is likely to make money or lose it.

But reality isn't that black and white or that predictable, and if you take a closer look at the stock market, you'll see it's a very emotional market. One post from Elon Musk can send a company's value up or down, regardless of its financial health.

Some companies pay dividends, so just holding the shares can bring in extra income.

Investment platforms

If you'd like to see how others do it, there are platforms (e.g. eToro) where you can copy other users' moves. Some of them pull off really decent results.

There are also platforms where you can copy ready-made, diversified investment baskets made up of stocks from different companies and other assets (e.g. Trading212).

Other professional platforms are Degiro and Interactive Brokers. On top of that, most banks should offer a brokerage service. Watch the costs.

Fintech platforms can be really handy at the start, because they're dead simple to use.

But keep in mind that on platforms where you can buy fractional shares, you're not the one who owns the underlying asset.

Normally, when you buy a company's shares through a stockbroker, on paper you own those shares, and if the whole platform goes under, you still own them.

If you buy fractional shares, the platform has to buy the shares and split them among its users. These platforms usually tell you whether you're buying the underlying asset or not.

Other investments

I used to invest in loans on the Mintos platform, and for several years I managed to make between 13% and 14% a year, which made sense with inflation that low.

Other platforms have also popped up that let you invest in property development together with other users, which is an interesting alternative to real estate ETFs or investing in a REIT (Real Estate Investment Trust).

REITs aren't regulated in Poland. We don't even have the concept of a trust. These are big funds that buy and manage real estate.

The most popular ones are Vanguard's, in the form of ETFs. Poles can't open an account with Vanguard directly, but you can find these assets on various platforms.

There are more ways to invest, and they don't have to be financial instruments:

• I've already mentioned that it's best to start by investing in yourself.

• You can also invest in growing your own business or put money into someone else's.

• Buy physical precious metals (e.g. gold).

• You can use your creditworthiness to invest in rental property, if you prefer lower risk, but also lower returns.

• Classic cars, though personally I wouldn't go there, because they're really hard to sell. Unless you restore cars for a living.

It's a huge topic, and there's still more I don't know than I do, but it's worth staying curious and learning so your money works while you sleep.

The smartest thing is to put your money in different places, in different currencies and in different assets, so you can ride out hard times and not lose everything at once.

Assets are linked to each other, and money moves between bonds, funds, stocks and derivatives. When some go up, others go down, which is why it's worth having a diversified and balanced portfolio.

The economy moves in cycles and crashes happen regularly, so always expect the next one.

Don't forget about taxes!