"If you don't find a way to make money while you sleep, you will work until you die." —Warren Buffett
The Power of Compound Interest
When Albert Einstein—widely considered the smartest person in history—declares "compound interest is the most powerful force in the universe,” common-sense suggests it would be wise to take notes.
After all, if Einstein was smart enough to accurately calculate and predict how some 93,000,000 miles away the Sun's gravity would bend light during the solar eclipse of 1919, I suppose his insight into the nature of reality could help us calculate and predict how to best invest our stimulus checks.
Before moving ahead, let's briefly get a handle on what is truly meant by "compound interest." Consider a magnifying glass. …
Now, if on a sunny day you were to dangle that magnifying glass over, say, an ant for a second or two — only to move the glass to some other object the next moment — you’d essentially squander the magnifying power.
Ahhh, but if you were to hold steadily that magnifying glass over the ant — allowing the light beam to concentrate on one point and slowly compound interest — let’s just say in less than a minute you’ll have barbecued ant for a snack!
Here lies insight into how compound interest can help with investing your stimulus check.
#1 Be a "Smart" Investor
Warren Buffett is widely considered the greatest investor in history. As for Buffett, his approach to investing is as simple as it is legendary:
There's a whole bunch of things I don't know a thing about. I just stay away from those. I stay within what I call my circle of competence. Tom Watson [IBM founder] said it best. He said, "I'm no genius, but I'm smart in spots, and I stay around those spots."
Though life is a simple game of checkers, for some reason—most of us insist on playing chess. In this instance, I'm assuming you're not a financial advisor, as neither am I. And so, let us at once take Buffett's advice to stay within our "circle of competence."
Common-sense is a philosophy! And common-sense suggests: the smartest investment a non-expert can make is that which minimizes risks, while offering some measure of rewards, to the greatest degree possible.
For the above reason, common-sense suggests the smartest way to invest a fragment of the stimulus check would be to honor that age-old principle to "always bet on the favorite."
Remember, every investment is a form of betting. The safest investment, then, calls for following the tried-and-true formula for doubling your money over a "reasonable" amount of time.
The formula merely calls for investing in the safest portfolio of all—spread the money leftover after covering basic necessities, no matter how seemingly small, between blue chip stocks (Amazon, Apple, etc.) and investment-grade bonds (bonds with low risk).
Notice the theme here is "low risk" and "patience."
Compound interest is the most powerful force in the universe.
#2 Consider Linking with a Popular Robo-Advisor to Help Manage Your Funds
If investing capital isn't your cup of tea, no problem! Robo-advisors get paid to not only brew the cup you don't like but also to help you drink it.
A "robo-advisor" is nothing but a fancy word for an investment company that's created automated software to help manage portfolios.
Robo-advisors are essentially the "personal trainers" of the investment world. Their chief job description is to help the Average Joe make sound and reasonably safe investment decisions. Most of all, these helpers provide investment aid at a low cost with little to no account minimums.
In addition to robo-advisers, financial planners fall under this section. They similarly offer a helping hand, with a focus more on an overview of financial planning and the most efficient ways to "allocate capital."
In short, perhaps this section may best be summed by an old saying:
Since you have to look anyway, most things are worth at least a look.
#3 Invest in Yourself
“The most important investment you can make is in yourself.” Warren Buffett's top investment tip may come as a surprise to most.
As an old basketball coach would bark at us, in hopes of squeezing every ounce of effort out of our bodies, "You guys might as well make the most of yourselves, because 'yourselves' is all there is of ya."
Amazon offers tons of cheap yet valuable used books. Online, the free e-books are as plentiful as grains of sand on South Beach. Indeed, daily setting aside half an hour or so reading classic books on how to make money is another form of compound interest.
Sure, when most see the word "invest" lumped with time and energy, they don't initially think of investment in terms of plain ol' dollars and cents. Ahhh, once again appearances show themselves to be deceptive.
Knowledge is power → money is power → time is money = gaining knowledge on how to best invest money is bound to result in time well spent.
In addition to reading a book or two, investing in health (diet, exercise) along with making a few minor changes in lifestyle will ultimately prove to be a smart investment.
In short, so far as the value of the above 3 smart ways to invest your stimulus check goes, perhaps Einstein put it best: "When the solution is simple, God is answering."