Creating Routes

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Victor Rivas

Your most important asset: time

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La importancia del tiempo

Did you know that life expectancy in Ancient Egypt was 25 years for males and 37 years for females?

That is scary, right? It’s almost impossible not to compare our age against those numbers.

Fortunately, life expectancy has increased, in developed countries, to 76 for males and 82 for females.

Let me ask you: what was the first thought that came to your mind when you read the first paragraph? With almost all certainty, I would say you realized how scarce time is.

Furthermore, it’s not only scarce, you can’t take it back.

Let me put it in this perspective: you can get back your health, money, or even a personal relationship. But you can’t get your time back.

In other words, you are not living again this day.

That being said, stay with me to discover how much hours a day we really have.

Crunching the numbers of hours in a day

The day has 24 hours. 7 of them are for sleeping (on average), and 8 of them are for working. That leaves us 9 hours.

If we take into consideration commuting to work, cooking, washing the dishes, showering, and other daily activities, we have 6 hours left (hypothesizing that all those activities take 3 hours).

HERE IS THE PLOT: If you added 1 more hour to any activity (sleeping, working, or commuting to work), you would have just 5 hours left.

That’s because the day has 24 hours, no more. It seems pretty obvious, but we tend to overlook it.

If you want to work on personal projects (learning a language, exercising, painting, etc.), improve your relationship with your child or simply meditate, where would you take that time from? Exactly, from those 6 hours.

The thing is not being obsessed about how you spend your time. The thing is being aware that your time counts. Because if you add time to one activity, you subtract time from another one.

I’m not saying that you shouldn’t work overtime. What I’m saying is that you have to weight on a scale the time that you add on one side and the time you subtract from the other one.

Being aware of that, you should also consider that other people’s time also counts.

Asking your accountant friend to help you filling some documents for a loan in exchange of a cup of coffee sounds reasonable.

However, your friend would have to put aside some activities (maybe worth more than a cup of coffee) to help you.

Be aware of that! Not only with your acquaintances, but also with your employees.

Your time has value, and it goes beyond monetary value

With time you can create things for your future self or others.

Being that: Creating a small business or doing volunteering, which goes beyond a monetary reward.

Also, spending quality time with your family have no monetary value. No amount of money will give you back your dog’s final smile.

Investing time

We all have to make sacrifices to get a reward.

We have to spend years in the university to land a good job (theoretically).

We have to spend hundreds or thousands of hours to be able to communicate in another language.

And all of this is great as long as it has a positive return on investment of your time. Because if you were to study for years something that you wouldn’t use, why bothering? That’s time you’re not getting back.

Time is relative

We all were young once, and we thought that time wasn’t scarce. We thought we had plenty time to achieve our goals. So, wasting time playing video-games was as normal as going to school.

As we grow up, we change our mindset and we start being more calculated about how we spend our time. How’s that?

One year is so much for a young 20-year-old person because one year is 1/20th of his or her life.

One year is not that much for a 60-year-old person because that year is only 1/60th of his or her life.

So, as we grow old, we start seeing how time passes faster and faster.

Therefore, we tend to stop wasting time on things that don’t have a positive return on investment.

A good use of time will set us free. Even more than a good use of money. Taking some time to learn meaningful skills (for instance: how to invest) is the path towards reaching financial freedom.

Highlights:

  • Spending time in one activity subtracts time in another activity because the day only has 24 hours.
  • Your time has value, as well as other people’s time.
  • Investing your time today make sense as long as it has a positive return on investment.

Creating your own route of investments Part II

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We already decided, in part I of this series, that we want to have financial control of our own future. That’s awesome!

We already know what’s the difference between bonds (debt) and stocks (equity). But there is a very important concept that we have to address before moving on: the two main types of stocks.

  • Common stocks
  • Preferred stocks

It’s very probable that you have already heard of sweet Dividends: money stockholders receive from the company they have invested in.

Well, one of the biggest differences between common and preferred stocks is the priority of stockholders for receiving dividends.

If the company had a great net profit, they could decide to issue dividends.

The ones receiving dividends first are preferred stockholders and, if there was any money left, then also common stockholders would receive dividends.

Dividends are not mandatory for companies. Do your own research about the company’s financial policies before buying a piece of their business.

Another important difference is that if a company goes bankrupt and liquidates, the common stockholders will not receive money until the creditors, bondholders, and preferred stockholders are paid.

So, why even bothering to buy common stocks?

Having more risk, common stocks benefit from having a bigger yield compared to preferred stocks. Those willing to tank the uncertainty will have a bigger reward.

Lastly, common stockholders can vote for the company’s board of directors. In that way, they have influence on the company’s decisions. So, if you were interested in taking control of a company, you would be interested in buying common stocks.

Don’t risk it that hard

When it comes to successful people that have made their wealth through investments (like Warren Buffet), we have always heard that they bought a considerable amount of stocks in X company, and then, after some time, they re-sold the stocks for more money.

We have a bias towards buying stocks for increasing our wealth because media has shown us successful people that have done so.

They don’t show the enormous amount of people that have lost their money by investing just in single stocks. And, since we just see the successful ones buying and selling stocks, we tend to think that is the route to pursue.

This is known as survival bias: Neglecting individuals that didn’t have a positive outcome, even if they followed the same steps of the successful ones.

The reality is that investing in stocks is like a roller coaster: sometimes it revalorizes and sometimes their price drops drastically.

What can we do to avoid the risky part of investing in stocks? The answer is diversification: Not putting all your investment eggs in one basket.

Although you can choose several stocks from a variety of companies, the reality is that it’s very complicated.

Before investing in any individual stock, no matter how great a company you think it is, you need to understand the company’s line of business, strategies, competitors, financial statements, and price-earnings ratio versus the competition, among many other issues.

Selecting and monitoring good companies take lots of research, time and discipline.

Not so sexy investments

For those who have a busy life, and don’t want to spend hours doing research, there is a good method of investment: Mutual funds.

Mutual funds take the money invested by people like you and me and pool it in a single investment portfolio in securities, such as stocks (several of them) and bonds. The portfolio is then professionally managed.

If you want to just invest in stocks, but you still want to be covered by the fund’s diversification, Stocks mutual funds are the ones for you. As the name suggests, they invest primarily or exclusively in stocks.

All funds that exist charge some annual fees.

Don’t worry! Nowadays those fees are not as high as they use to be.

Thanks to new robo-advisors (digital platforms that provide automated algorithm-driven financial planning services with little to no human supervision), fees can be very low.

There are lots of mutual funds. Some of them are:

  • Index funds: Closely replicate the performance of their benchmark index (like S&P 500), as it moves up and down.
  • Exchange Traded Funds (ETF): Are in many ways similar to mutual funds, specifically index funds, except that ETFs are traded on stock exchanges (like stocks).
  • Hedge funds: Are oriented to affluent investors and typically charge steep fees: 1,0% to 1,5% annual management fee plus a 20% cut of the annual fund returns.

We rarely see rich people talking about mutual funds, and you won’t get rich by investing in them.

Their diversification reduces the volatility of every security that compounds the investment portfolio. Therefore, if a stock skyrockets (like Amazon stocks since 2015), it won’t have an effect as big as if you had invested in just that one stock.

However, it is a good mean to invest more safely. Furthermore, it has a bigger yield than certificate of deposits (CD): where you commit to lend your money to the bank for a specific length of time (perhaps 6 months or even a year) in exchange of a small interest rate. 

Since your investments will have less fluctuations, your annual yield will be more stable. Amassing a good amount of money won’t depend that much on stochastic events.

Your best friend when you decide to invest in mutual funds is going to be time. It will compound your investment year by year if you’re patient enough.

Don’t let survival bias play at you! Be smart and take intelligent financial decisions.

In the next part, we will talk about two silent killers: inflation and taxes. It’s vital to know how to defend from them!

Stay tuned!

Is it important to read books in the digital era?

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Nowadays finding whatever information you want is easier than ever. A simple Google search will throw at you millions of results for almost any topic.

Being a millennial, I’ve always underrated books because: Why bother reading a book when I can consume the information through a Youtube video, right?

Well, that used to be my mindset until I read the most amazing and simple book of my adult life so far: How to make friends and influence people, from Dale Carnegie.

3 big segments

Even though you can consume the content of those books watching a review on Youtube, or you can easily  read a summary online, there is always something more that you can take home if you consume the content directly from the book.

Let’s take as example 3 big groups of books:

  • Tales (Drama, Sci-fi, adventures, etc.)
  • Technical (food recipe, engineering, medicine, etc.)
  • Open-minded (self-improvement)

Every single group has an added value if you take time to read the content directly from the book. (whether it’s digital or physical).

For instance, reading fantasy books develops your creativity as opposed to a video.

On the other hand, technical books can go deeper into details, as opposed to videos that tend to be short (a 40 min Youtube video is a burden, right?), overlooking those details.

But the ones that changed my paradigm about books are the self-improvement ones. I plead guilty! Those books are the ones that I used to underrate the most.

Why books connect so well to our inner self?

The brain is divided in two: left and right hemisphere.

The left part is in charge of things that have to do with logic, like science and mathematics. Its counterpart works on creativity and arts. 

I’ve noticed that, even though there are some good motivation videos on Youtube, its effect doesn’t resonate as much as reading the words in a book. How’s that?

When we are reading, we start building images in our mind, activating our creativity and making the right side of our brain (the more creative) to work.

With those synapses having place on the right hemisphere, the information seems to really stick. And without noticing it, if there is an idea that we like so much and embrace, it goes deeper into our personality and we start applying it.

Changing personality

“How to make friends and Influence people” teaches us simple and obvious guidelines. So obvious that we tend to overlook them.

A simple smile can change other people’s mood, and more important, how they perceive you. It seems really basic and obvious, but until we decide to really start doing it, we realize how powerful smiling at others is.

Hearing people advising to smile more didn’t fully click until I read about it in a book. There, I really understood how smiling more affects how people react to you.

 How’s that?

Well, maybe our friend Mr. right hemisphere has something to do with it.

Another simple daily practice: When you talk to someone, the other person’s attitude is a reflect of yours. For instance, if you come to your partner yelling and extremely mad, how do you think your partner will react?

Just by realizing this prior, you can be in charge of handling the conversation/ discussion at your own peace. If you are the one calm and your counterpart is the one yelling, by talking at a low pace and with a calm voice, eventually, you will bring the other person to your same pace.

However, the major paradigm shift that I have had reading books is: How to be an easy-talking person. Ironically, the skill that I improved wasn’t the speaking, but the listening.

Deeply listen! Before you start offering solutions at someone’s problems.

“How to make friends and influence people” and “ 7 habits of highly effective people”, by Stephen Covey agree that the key to be a pleasant person to have a conversation with is to really listen.

How awful is when someone interrupts your anecdote to start talking about theirs. Or when you’re telling your friend your problems and he suddenly starts throwing at you solutions based on their autobiography.

It’s like trying to diagnose a disease without really studying the patience. 

No pain no gain

Picking a book and start reading it is hard.

It can be annoying and painful to make your brain use the right hemisphere. Opposed to that, it’s much easier to watch Netflix.

But the reward is amazing!

Once I started reading these types of books, I got motivated to start working on my soft skills and I can see the results.

Highlights:

  • Books make your right hemisphere work, allowing information to stick to later be used.
  • Again, really listen!!