People always assume I am so deeply passionate and stoked about finance. Like I jump out of bed and get excited about interest rates. That's not exactly true. I am very passionate about helping people transform their financial lives because that means they’re able to transform other parts of their lives. And I like feeling like my work matters, but I find investing and talking about investing to be pretty boring. It’s exciting to invest money and then see how much money you money has made, but other than that, investing is a slow, long game. It’s like making a movie. How you ever been on a film set? Holy shit, it’s boring. But the end product is amazing. Investing is a lot like that. It’s making sure all the conditions are perfect, so you have something at the end that is valuable.

Here are some things about investing that I’ve learned and observed over the years that I think everyone should know.

Start Now, Start Where You Are

If you want to be awesome at anything, you just have to start and stick with it. Eventually, your commitment will compound. If you’re going to be awesome at investing - let’s define awesome as being an ability to grow your money - the best thing to do is just start. Even if you only have $25 to put into your retirement account this month, invest it and start now. Trigger warning: I’m going to make an exercise/sports analogy. People who run marathons, lift heavy weights, or go to the Olympics for Judo all start at the beginning and build their way to excellence. Things are built brick by brick.

You don’t need to be wealthy to start investing, you need to start investing if you want to be wealthy. This is a common script that people need to flip in their minds. Being wealthy doesn’t have to mean you hoard all your money, it can mean you feel secure about the future, have enough to share, and put towards causes you believe in.

Most people don’t need to hire anyone to help them with their investments 

The majority of people don’t need to hire anyone to help them with their investments. “Financial experts” might know the ins and outs of financial products really well or understand certain economic indicators, but that doesn’t mean you need to pay anyone to learn the basic principles. Here are some:

• Investing is mostly about the relationship between risk and reward. The bigger risk you take, the greater potential gain (reward) or potential loss.

• You invest money based on when you’ll need it and what you’ll use it for. When you need it and what’s it’s for will dictate the level of risk you can take.

• Active management is when a bunch of people (usually a mutual fund company) pick a portfolio (or group) of stocks and bonds to “beat the market.” Passive management is when you “buy the market.” Instead of trying to beat the S&P 500 (an index that measures the 500 largest U.S. publicly traded companies), passive managers buy into index funds that mimic the index. I favor the later—if you can’t beat them, join them. Active management: 0, passive management: 1.

• Passive management tends to cost a lot less then active management because you aren’t paying anyone to use their brains, you’re just covering the cost of administration. And lower fees mean you keep most of your returns or your gains. Another strike against active management and a point for passive. Active management: 0, passive management: 2.

• Asset allocation is looking at your assets by categories. There are stocks (equities), bonds, cash, foreign and domestic markets, small companies, and large companies.  

• Diversification is making sure your asset allocation isn’t unbalanced by holding too much of something, like investing 99% of your money in only small Australian companies. If something negative impacts small Australian companies, you risk losing big. It’s not putting all your eggs in one basket. 

• Buying single stocks or bonds is really risky. Don’t do that. But if you’re going to do it, because I know some of you are still going to do it, only use an amount of money you can afford to lose. Again, diversification is key.

• If you have an employer-sponsored retirement account, you can invest in a target-date fund that will allocate your assets according to when you need the money. It does all the work for you, including rebalancing and diversifying. Contribute regularly, and don’t let your emotions dictate anything. Even if you don’t have an employer-sponsored retirement account, you can do this yourself with an IRA or a similar product. AI and other online technologies allow you to allocate and diversify your portfolio with a few clicks as you see fit. 

• Invest early on and frequently. $5 a week is a start; $50 a week is a better start.

If you hire someone to manage, advise, or plan your investments—make sure they’re a fiduciary 

A fiduciary is a professional who is legally required to act in their client’s best interest. Unfortunately, not everyone who works in the financial services industry is required by law to act as a fiduciary. I know, it’s crazy! Here’s an example: Sal is a financial advisor, but he isn’t a fiduciary. He has two potential recommendations to give to his clients, Dirk and Dave. The first investment gives him a higher commission than the second option. The first option is clearly the best option for Dirk and Dave, but the second option is suitable. If Sal isn’t a fiduciary, he can legally recommend the second option and pocket the higher commission.

If you’re considering hiring an advisor or maybe someone at the bank is advising you to start investing and wants to open up an account for you. You should out if they are a fiduciary. All you have to do is ask. If they say yes, then you can trust that any advice or recommendations that they give are in your best interest. If they say, no or don’t know how to answer the question, that’s a massive, gigantic, waving red flag. Time to politely thank them, and run!

Understand the difference between financial services and financial products

Financial services are things like advice and counsel. Services can be billed to you as a flat-rate fee or a percentage of the assets under management (or AUM). Other financial services, like free apps, use (and sell) your data to recommend financial services and products, like Credit Karma, Mint, and Personal Capital. 

Financial products are instruments to help you with everyday transactions (checking accounts), savings (savings accounts), borrowing money (mortgages, loans, and credit cards), and insurance. Financial institutions create and sell financial products. These institutions include banks, credit card companies, insurance agencies and brokerages, investment firms, and government-sponsored agencies. When you use a financial product, it’s important to understand how you are paying for it, how it works exactly, and the various ways you could potentially get screwed. 

If someone is selling you a financial product, don’t be afraid to ask them to explain it to you as they would to a five-year-old. In fact, I recommend everyone does that. You’ll see just how much they understand the product they’re selling. Not every single product works the same way. Think about it, some banks don’t charge a service fee for their checking accounts while other banks require a minimum balance in their checking accounts in order to avoid fees. Once you familiarize yourself with different types of financial products, you’ll know what questions to ask. 

Don’t buy financial products you don’t understand

This is huge. It’s important that you understand exactly how a financial product works and how it will impact your life before you buy it. This means if you’re looking for a product you’ve never used before, like a mortgage or small business loan or a credit card, you have to do some initial research to understand the basics of how they work generally. Once you understand the basics, you’ll start asking the right questions. Things like: Is the payment on your small business loan fixed or does it vary? If it varies, by how much? Is there a cap to how much it can increase? Does the changing interest rate mean there is a potential for a balloon payment at the end of the loan?

It’s okay if you don’t understand how a product works, but it’s not okay if you get yourself into a mess because you willfully and ignorantly bought into one. One thing I learned from the wealth management firm I worked at was not to invest in anything you don’t understand. It’s totally ok to acknowledge you don’t understand. Financial products are confusing. I don’t want to say it’s on purpose, but they could stand to be a lot simpler. So don’t take responsibility for being ignorant, take the responsibility for staying willfully ignorant.

Hidden fees will cost you a lot more than you realize 

The financial services industry is really, really good about not disclosing fees upfront the way other products and services do. When you go to Costco, shop on Amazon, or hit up a garage sale the price for something isn’t hidden. Prices aren’t based on hypothetical numbers or require fictional math, do they? But when it comes to financial products, interest rates are buried on the fourth page of a credit card statement and investment management fees are expressed solely as a percentage. They’re cooly mentioned during initial conversations and you shouldn’t fail to revisit and confirm what you’re in for in fees.

Particularly, with investing, if you were to pay an investment management fee of 1% annually, you could potentially be giving up 6% of your return over 10 years, 12% of your return over 20 years, 18% of your return over 30 years and 25% of your returns over 40 years. Maybe 25% of $1.00 doesn’t sound like much, but $400k of $1.7M sure sounds like a lot.

When your only tool is a hammer, everything looks like a nail

A big, big issue I have with the industry of selling financial products and only selling financial products, is that people who sell financial products have to sell financial products. In other words, regardless of whether or not the person they’re selling to actually needs the financial product, if it’s your job to sell it and you only get paid that commission if a sale is made, then the industry has created incentives that are misaligned with the best interest of the consumer. Which brings us back full circle to the fiduciary thing, revisit that paragraph if you don’t remember it, please. 

People in financial services are not inherently bad or evil people. It's the incentives—and the system—that create problems. We can protect ourselves when we know the basics and ask the right questions.