Hold!

There’s a major market crash coming!!  And there’ll be another after that!!  What wonderful buying opportunities they’ll be.

— JL Collins’s The Simple Path to Wealth

Today I entertained myself by reading the 1 star reviews of a popular finance app that allows you to save money by rounding up your purchases to the next pound. So if you buy a cup of tea for £2.25 then it rounds it up to £3 and banks the 75p, adding it to one of their savings products. I don’t use, and have never used, this app, so I can’t disclose if it is a good product or not for building wealth.

What I want to talk about is this app has many 1 star reviews because the customers lost money. They are not complaining about the app functionality, which I would expect to see on a review website. From what I can gather these 1 star reviewers used the app and invested their surplus money into a stocks and shares ISA. Meaning they put their money into the stock market. It is apparent that these reviewers have not been educated on how the stock market works or how to invest. I assume that they invested their money in good faith and expected it to go up, like they see in Hollywood films or read in the newspapers about a postman who invested in Google on the day they floated on the stock market and is now doing his post round in a gold Bentley.

Unfortunately the stock market doesn’t only go up. It also goes down.

So what happened is these people invested their money for a couple of days/weeks/months and only saw it go down. They panicked and sold up taking a nice tidy loss. This is what a lot of people do when investing. This is wrong.

If you are thinking of investing or investing at the moment, before you do anything, read J L Collins’s book The Simple Path to Wealth. This is all you need to know, and if you follow the simple path you’ll be rich. If you can’t be bother to spend 8 odd quid on a book and read 200 odd pages then you should not be investing in the stock market.

Three great takeaways from this book are:

  • You should invest in low cost index funds. I invest in the S&P 500 via Vanguard. I like Vanguard. JL Collins loves Vanguard.
  • You should invest for the long term, 10,20,40,60 years. Don’t think you’ll be rich within 6 months. Investing is like cricket, a long game.
  • When the stock market has temporary drops… HOLD! Do not sell. This is the worst possible time to sell. Hold, hold, hold. If you were on a ship and a huge storm happened you wouldn’t jump overboard into an inflatable dingy and think you’ll be alright. Stay on the ship, ride out the storm and another day will come where the sea is calm and the weather is beautiful.

Additionally, what you should do when the stock market has a temporary decline is buy more more more. Everything is on sale. If your job was to buy TVs and they sold for £500 each, then one day when you went to the TV warehouse and you found they were selling the exact same TVs for £250 would you stop buying them? No, you’d buy twice as much as the sale will soon be over. That’s the same with stocks. If they drop to a lower price, buy more! If you’re not retired, and still investing for the future, a stock market temporary decline is like your Christmas and birthday all rolled into one. Buy as much cheap stock as you can get your hands on.

Everything must go!

Author: The Pound Pence Team

We're Garry and Dave, and we're addicted to talking about money. We want to help as many people as possible become financially free by setting financial goals, getting out of debt, building an emergency fund, saving into their pension, buying their own property and investing for the long term over many decades. We don't do get rich quick, but we do get rich.

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