Why Yuppies Should Minimize Their Stock Market Investments

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I frequently receive emails from young professionals asking me where they should be putting their savings. They say that they want to achieve financial freedom. My response is usually 3 options and the stock market is always the last (and least recommended) option I give out.

Now before financial advisors and financial literacy advocates slam me for this article, allow me to clarify: the stock market is a GOOD place to put your money. However, for young professionals (including the feeling young), there are a lot of better options. And that’s what this article is all about.

 

Why the Stock Market is Good, But not the Best…

01 Stock Market Returns

The stock market is a good place to park your money. Over the long term, it has outperformed all asset classes. Meaning, given the alternative options to invest in bonds, treasuries, gold, silver, or real estate, the stock market has made more money for investors in most of the years.

The stock market has given a 12% average return based on a 20-year average. This means that your P100,000 can turn into P2.99 Million after 30 years of just being patient. And if you’re actually a more active investor, you can even get 15% or 18% returns over the long term!

Now if this is the case, why isn’t the stock market the best option?

02 10 Years Waiting Time

The biggest downside to stock market investing is the waiting part. Every peso you put in today, should not be touched for a minimum of 10 years. It’s really, really, really for the long term. And this is the primary reason why the stock market is only a good investment.

 

The Second Best Alternative: Invest in Your Earning Ability

The stock market gives you cash in the future. But your earning ability gives you cash today, tomorrow and for the rest of your life. Because of this, cash flow is 10-15x more important in achieving financial freedom.

What exactly is your earning ability?

03 Earning Ability

If you’re currently employed, this is the set of services you are able to offer to society. This is the reason why your employer, your company is paying you a salary. If you’re a nurse, this is your ability to care for your patients. If you’re a teacher, this is your ability to transfer knowledge, if you’re a manager, this is your ability to coordinate and lead teams into achieving common goal.

For the self-employed and business owners, it’s the same thing! It’s the set of goods and services you’re also able to offer to society. The only difference is rather than just having one “employer” you have many. And you call them your customers and clients.

Your earning ability is your capability to provide value to the world. And the more value you can provide, the higher the salary or price you can demand for your services. And with a higher salary – you can actually do more and invest more in the future.

So let’s say you have P100,000. Which is a better alternative:

  1. Put it in the stock market, wait, wait, and wait for 30 years until you get that 3 Million. OR
  2. For employees: Take a professional development course (MBA, Masters, a certification related to your field) that will increase your income by by 5,000 or even 10,000 every single month.
  3. For entrepreneurs: Take a business course that will allow you to reach more customers increasing your revenues by 100%?

04 What to Do With 100k

Of course its 2 or 3!

Think about school and what school really did for your income today. We spent the first 10 years of school just learning how to read and write. Understand basic arithmetic, laws of science, our history. We learned home economics, basic household skills and so on… Then as we got more advanced, through highschool and college we learned how to write technical papers, make more complex computations, understand bigger systems, world history, and how the world works.

And because of school – we are now able to contribute to society. We have our earning ability. And from there you can get your job, and from your job your salary! So thank God for school!

Imagine if Your Parents Didn’t Invest For Your Earning Ability

05 Education Example

But just imagine, what if your parents said 30 years ago:

“Hmmm we have P10,000, and it’s a lot of money. And instead of sending our child to school, let’s just invest it in the stock market! That way, when our child reaches 30 years old we will give him P300,000, that’s times 30! Very good ROI!”

How screwed up would your life be today if they did that! Would you be able to say, “Okay nang hindi ako marunong magbasa, may P300,000 naman ako.”?

And I know this scenario is exaggerated, but this is the exact same thing that you’ll be doing if you just put all your excess money into the stock market. If you don’t invest in yourself, if you don’t increase your capabilities, even if after graduating today, then you’re not growing your earning ability, your income will never grow.

And don’t think about the annual 5% increases in your job. Because remember that inflation also averages out to 5% per year. So even if you get a pay raise, the cost of living also gets a raise. And you won’t increase your quality of life.

How to Invest In Your Earning Ability

06 Increase Earning Ability

With this, you might be wondering how you can increase your earning ability. So let me quickly offer 3 suggestions (and don’t worry because some of them will be FREE).

  1. Take professional or certification courses related to your industry or business. Talk to former students of the said course and ask if it has helped them in their careers. Maybe you can even ask your employer to sponsor you in this course! (P25,000+ per course)
  2. Read publications – books, magazines or journals related to your industry and field at least once a month. This will ensure you’re always updated with the latest developments of your field. (Cost P1,000+ a month)
  3. Get a mentor. In your current job/business, reach out to a person who is 10 years ahead of you in terms of results. Say that you highly respect them and you’d like to learn from them. (Cost: Courage + Cost of a Meal for your mentor)

You may do all or none of these suggestions, but the bottom line is you have to keep learning and growing yourself.

But wait, there’s more! Investing in your earning ability is actually just the second best option. The best option is….

 

The BEST Alternative: Discover, Decide and Develop Your Passion

07 If You Don't Know Your Passion

What is your passion in life? What is your purpose?

I’ve had the habit of asking this question to people I know. And out of every 10 people, 7 will laugh and shrug off the question, 2 will think about it seriously, and only 1 will actually give a confident answer.

Now why is this important? And what does this have to do with personal finance?

The answer is: if you don’t know what your passion is, if you don’t know what your purpose is, then no amount of money, cash flow, or investment returns will give you fulfilment and peace of mind in your life. And it’s very possible that this could go on for the rest of your life!

One thing I’ve learned about passion and purpose, is that it never just hits you. It’s not something that you wake up one day, and all of a sudden you’re passionate. It doesn’t work that way. Your passion is discovered, decided on, and then developed.

How Do You Discover Your Passion?

08 Find Your Passion

It’s simple – you explore and try out many things: Cooking, Skiing, Accounting, Gardening, Teaching, Mathematizing, Coding, Traveling, Mountaineering, Networking, and all of the other –ings you can think of.

There are some things you’ll like, and there are more things you’ll hate. There are some things you’ll be good at, while there will be more things where you’ll suck at. There are things you’ll find really interesting, while there are things you’ll find extremely boring.

And the things that you’re good at, you like and you find interesting are your HINTS on what your passion in life is. Then once you have your initial “list” or inclinations. It’s just a matter of saying:

This is what I’m passionate about.

Yes. It’s that simple. And don’t worry because you can change your answers later in life as you experience more things!

But deciding on your passion is very powerful. Because once you say XYZ activity is your passion, you’ve declared to the world and to yourself that in a way you’ll subconsciously start to develop your passion.

You’ll spend more time doing it. You’ll take it more seriously, you’ll even spend more money on it! And because you’re actively developing your passion – you become more passionate about it! Your decision that you’re passionate about it, becomes stronger and stronger. And being able to do it, makes you happier and more fulfilled.

But before you reach the fulfillment stage, you need to start with first discovering and deciding on your passion and purpose. And exploring the world it will definitely require some of your hard earned savings. But that’s okay! Because whatever you learn from these experiences will last with you for a lifetime.

A Personal Anecdote on Passion

09 My Passions

My passion in grade school was acting and speaking. Whenever there were declamation contests, I gave it my all to be number 1. In high school and college, I was passionate about money and finance. Majority of my allowance and savings went to purchasing books about personal development and investments. Then after graduation, it went on to business where I simply tried out (and failed most) business opportunities. Today my passion has been refined to teaching and empowering people about personal finance.

Looking back, if I just invested my allowance in stocks, I wouldn’t have a business today. I would not have the fulfillment of being able to help thousands of Filipinos in achieving their financial goals. This wouldn’t be possible if my parents weren’t there to help me discover my passions. And this wouldn’t be possible if I stopped exploring, and developing my passions as well.

So What Now?

10 Where to Invest

This article turned out to be longer than expected (again). So let’s sum up. The main point here is not about avoiding the stock market. Rather it’s about making sure you’re not missing out on ‘life’ just to be able to invest.

Invest a little in the stock market. But invest more in growing your income ability and personal development. And invest even more in discovering and developing your passion in life.

This way, not only do you move forward in the game of wealth, but you also progress in the game of life.

 

For deep-dive strategies on how to make the most of your money: go to www.GameofWealthOnline.com/win

 

P.S. Did you enjoy this article? If yes, then you’re going to love this.

12 Comments

  • dummy

    27 March 2016

    Thanks sir J3. Godbless.

  • Well, in my opinion, stock market is the best investment if you are looking for side business, it don’t take much time & gives you effective returns.

  • Aileen

    2 February 2016

    Thank you! Marami ako narerealize dito. More power to you!

  • ben46

    1 December 2015

    J3,
    Once again.another very impressive article! it really help me also in finding my own passion.Thanks a lot and please continue to empower each and every Filipino.Keep it up!God bless!

  • ben46

    1 December 2015

    J3,
    Once again.another very impressive article! it really help me also in finding my own passion.Thanks a lot and please continue to empower each and every Filipino.Keep it up!

  • Sharon

    28 November 2015

    Thank you J3 for the insights. This is a great help. May you continue nurturing us 🙂

  • Rjay Hona

    17 October 2015

    Thumbs up!

  • Ray

    16 October 2015

    I agree with this one. The most valuable investment is Education.

    Remember, however, that you can do both.

    Invest in the stock market (or gold, mutual funds, real estate, business, as long as it’s a GOOD asset)…
    AND invest in your education (which increases earning ability and shows you opportunities to make money out of your passion, and more).

    Main suggestion though: Education FIRST, THEN other Assets.
    You can’t choose good assets (and avoid liabilities in disguise) if you don’t know how to do it.

  • Tin

    15 October 2015

    Hi Twee!

    This is such a good read! Thank you! Hugs for you and Mae.

    Tin

  • Guest

    14 October 2015

    So I suppose the stock market is still(may be) the best investment aside from personal growth.

  • Peter

    14 October 2015

    Wow! Thank you J3! This is very helpful. You’re right. Finding and developing your passion is a great way to find something worthwhile doing. Great stuff! You’ve taught me a lot. Cheers to you! Keep it up! 🙂

  • Peter

    14 October 2015

    Wow! Thank you J