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The power of investing your money yourself

Posted on Wed Mar 1 2023, 1:00
Investing your money is a financially rewarding endeavor

0 500000 1000000 1500000 2005 2010 2015 2020 Date Investment Growth, $ Amount colour Amount After Feed Fees Amount If Self Invested Self-Investing Vs Investing with two-twenty Fund ($10K invested on AAPL)

The power of investing your money yourself

Investing your own money can be a very fulfilling experience. One understands the world around, studies various businesses, makes an opinion on the emotion of other investors and learns self-discipline. However, as we show below, the most important reward of investing your money yourself is tremendous financial gains.

Self-investing is also a great way to acquire wisdom. Many great investors suggest teaching it to your kids at an early age so that they learn the importance of handling money. Warren Buffett bought his first stock at the age of 11.

Retail investors are told investing is hard. That it is not meant for retail investors. However, Warren Buffett says, "If you have more than 120 or 130 I.Q. points, you can afford to give the rest away. You don't need extraordinary intelligence to succeed as an investor". What you really need to be a good investor is a lot of patience, good bit of reading and a little bit of maths.

Let's take a quick example. In first case, you invest $10,000 in Apple stock yourself. In second case, you give your money to a hedge fund manager charging typical two and twenty fees. The fees is 2% on the AUM and 20% on profits with hurdle rate of 7%. The investment is made at the beginning of year 2005, a year which was the middle of previous bust of 2002 and next high of 2007.

The black line in the chart shows that if you had invested $10,000 in AAPL yourself then you would have $1.8 Million at the end of 2022. However, if you had given the $10,000 to a hedge fund who made the same trade, then you would have $545,000. Thats a huge difference!!! You could have made $1.3 Million or 3X more had you invested yourself.

Did you really think you are giving just 20% of your profits? Self-Investing is not hard. It doesn't take much time per week. If you don't feel confident in the beginning, then begin by managing only a part of your money yourself. All you need to do is to spend time to find good stocks and stick with them.

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