How I Invested My First $20K
My Only Regrets Are That I Didn’t Invest Sooner and More
Over the past few days, I started compiling a list with all my investments dating back to 2017 which I decided to share here. It was quite tricky as it seems that banking applications only allow scrolling through data from the past 2 years, give or take.
Before you proceed reading further, here are a few important things to mention:
- This article simply points out a few ways to invest. Do your own due diligence before pursuing any of them and make sure that you understand what you invest in. If you lose your money, feel free to blame me, but you are ultimately responsible.
- I will not tell you to invest in yourself. That’s a separate topic.
- I will not mention compound interest. It’s great, but it’s boring.
- Only invest what you can lose. We will cover this in detail below.
- Don’t compare yourself with others and don’t worry about missing out. Again, more details below.
- Some of the links are referral links giving both of us a tiny bonus.
Overview
What to Choose
Investment Funds
Also known as mutual funds, they are basically a way to let other people, the fund managers, invest your money. You invest in such funds by buying shares or units from them. The price of the unit is based on the value of the assets the fund holds at a given time. If the assets go up in value so do the units.
There is a wide range of investment funds covering most risk profiles, or the risk that the investors (you and me) are willing to take (from low to speculative). Low-risk funds would invest most of their capital into assets with fixed income such as bank deposits and bonds. High-risk funds would invest 80–90% of the capital into the stock market. For example, the fund I invested in has 86% into the stock market, the main companies being banks, utility providers, and oil.
If you want to withdraw your investment, you basically sell the units back to the fund. They are obligated to buy them at any time during working hours. The managers make money off commissions. For example, the fund I invested into, perceives a commission of 0.25% of the total value each month. There also might be commissions when you sell back your units, for example in my case, if I would sell units that I held for less than a year, they would perceive an additional 2–4% commission.
So far, this has been my most consistent investment mainly because it became a habit and it’s well integrated into one of the banking apps I use (the fund is a subsidiary of the bank). It allows me to buy, sell, and check the value of the investment at any given time even though the reporting date is usually delayed by a few days. I only had to go to the bank for the first investment when I also signed the contract.
I wouldn’t expect too much profit from investment funds in general, but of course, there are many variables. In my case, it’s up roughly 19% — (current value — initial investment)/initial investment — but I invested considerably more in March and April when the market fell and it rebounded nicely since then.
Stock Market
As you can see, I don’t have that much into the stock market, the main reason being that I started not that long ago — October 2020. And, to be fair, I am not the only one. In the past few years, the stock market became considerably more accessible to anyone through platforms like Revolut, Robinhood, eToro, and others which basically democratized the stock market investing.
What I found fascinating about the stock market is the relation between the listed company and the actual market. This might seem obvious to you, but for me, it was a surprise. A company basically receives money (raises capital) from the stock market only during the IPO (initial public offering). Every trade that happens after does not contribute to the capital of the company in any way.
Of course, there will be cases in which the company did not sell all the shares they were authorized to during the IPO, which would allow them to raise more capital at the current price per share, without diluting the supply already in circulation. Even though no extra shares are created, this might still have an impact on the supply and demand ratio since a considerable amount of shares are being sold. The same might happen when an executive or founder decides to sell his/her shares. So don’t be surprised if such events happen when the stock price of a company is at an all-time high.
Regarding the actual investing, again I advise you to invest mostly in what you understand. For example, the main companies I bought into are Cloudflare, Appian, AMD, SAP, and Intel. I was already following these companies and using their products. I also bought some Trivago shares as I expect a lot of interest in it once the pandemic situation improves.
One “trick” you might try is to follow stock advisors. For example, I have a subscription to Motley Fool Stock Advisor ($100 per year, totally worth it so far). It seems that a lot of people started using their service since pretty much anything they recommend goes up in value immediately. Of course, there are many other alternatives, but please be aware of pump & dump schemes.
I buy through Revolut (they simply have the best app, but only 3 free monthly operations) and Trading212 (no fees so far, but they don’t accept new accounts currently) and I am in the process of opening an account on Tradeville to access the Romanian stock market (BVB). My advice is to keep a picture with your ID card and another picture with a selfie of yourself holding your ID card because pretty much all platforms will require those.
In the long term, if you don’t speculate too much, you can expect some decent returns. In my case, it’s up roughly 23%.
Crypto
Crypto is basically the stock market on steroids. Instead of IPO, we have ICO (initial coin offering) and instead of shares, we have the actual coins or tokens if they are not native to the blockchain — e.g. ERC20 tokens such as USDT (which is a token that has its value pegged to the US dollar) are built on the Ethereum blockchain. Moreover, it’s extremely volatile, on top of that many coins have an even higher beta ratio (it basically indicates how volatile an asset is compared to the entire market), and full of pump & dumps.
If stock trading apps democratized the actual process of investment, crypto helped a lot of people, including myself, understand how such markets work — this was my first true investment in 2017 and it was a pretty wild ride since then, with some rest during 2019. At times, my investments were down even 80% while currently being up around 3x.
Unsurprisingly, the best performers for me were also the most solid projects and teams such as Ethereum, Cardano, and, of course, Elrond. I never bought bitcoin (lower case “b” is the coin, upper case is the network) and I don’t intend to.
If you are looking to buy into crypto, the platforms I use and recommend are:
- Binance, as an exchange between crypto coins and between crypto and fiat money (when you want to invest or withdraw). Use this link if you want to create an account and we both receive 10% back from the exchange fees which are already pretty low.
- Wirex if you want a debit card that works with crypto and/or for buying crypto with fiat money. Use this link — only I get some bucks when you deposit.
- Maiar, which the Elrond (the blockchain network) team envisions as the Revolut for crypto. Looking at how talented the team is and their consistent involvement, I’d say they have a pretty good chance.
Moreover, Elrond is not about some novel use cases such as betting and charity — nothing wrong with those. It aims to perfect and master the basics, which is something the best of best always have to do — who do you think threw the most basketball shots? Who do you think practiced tennis serves the most? Use this link for registration — you get $10 cashback and I get some of the fees when you buy crypto.
There are a lot of concepts to talk about when it comes to crypto such as mining, stacking, inflation, deflation, coin burn, decentralized finance (DeFi), wallets, and a lot more. You can find some great explanations on the Binance Academy and inside the Maiar app which is another reason I think they will be successful.
Equity Crowdfunding
Don’t confuse this with platforms such as Kickstarter and GoFundMe. This is basically the stock market for private companies (companies that are not listed on the market). You contribute a given amount of money in exchange for a part of the business. You will actually be in the books of the company.
Of course, unlike the stock market, which allows you to invest even small amounts (you can buy fractions of shares), in equity crowdfunding, you will have to invest more significant amounts. However, this is highly dependent on the country and its laws and bureaucracy.
For example, in Romania, I use Seedblink which has a minimum investment of €2500. The reason they chose this threshold is to limit how many investors participate in a campaign. The process actually involves creating a separate legal entity, usually an LLC, called a Special Purpose Vehicle (SPV), which will be the owner of the shares sold by the startup. Each investor will own a part of the SPV based on the amount they contributed with. Going back to the €2500 threshold, in Romania, an LLC cannot have more than 50 associates, otherwise it has to be incorporated as an S-Corp which requires significantly more effort.
I call this VC (venture capital) in my worksheets, but the correct term is equity crowdfunding. The difference between the two is that a VC fund has a few members with (very) deep pockets, that besides the actual capital investment, also bring knowledge and advice, but might require some control in the company, such as seats at the board, and might push it to drive more growth — in the end, startups are about (hyper) growth. On the other hand, shares sold through equity crowdfunding have no voting rights.
In many cases, startups will raise capital from both. For example, one of the companies I invested in, Cyscale (security & compliance for cloud — again, invest in what you understand), raised €350k by ceding 14.89% of the company at a €2 million pre-money valuation — basically, we start from the assumption that the company is already worth €2 million, on top of which we add the raised amount (350k is 14.89% of 2.35M). Out of the €350k target, €100k was raised by a VC firm, GapMinder VC, and €250k via Seedblink.
Unlike other investment vehicles we covered so far, equity crowdfunding (and VC) are not liquid (you cannot withdraw your investment easily). Pretty much the only way to receive your money is with an exit — when the startup is acquired by another company, or if the company goes public in which case you can sell your shares on the stock market. Of course, another way to gain some returns is when the company registers profits and, since you are part of the company, you receive a slice of those.
Regarding commissions and fees, in the case of Seedblink, they perceive 7.5% of all profits (the success fee). Additionally, there is a 1% annual (based on the amount you invest) fee in each campaign for covering the setup and operational costs of the SPV. The standard for VC firms is known as 2/20–2% management fee, 20% success fee.
There is a lot more to learn about investing and the valuation of startups. Some of the resources I recommend are the Seedblink FAQ and Y Combinator (one of the most renowned startup accelerators and seed investors — a.k.a. angel investors; seed is the first round of investments, followed by rounds A, B, C, etc.).
Moreover, such investments are also pretty risky since only about 1 in 10 startups actually deliver the expected returns. Check out this video if you want to learn more about the cons and traps of startup investments.
Despite the risks, I find this investment to be the most interesting by far (as you can see in the chart — 42%). You learn a lot mainly because you have to, and also because you have access to various documents such as pitch decks and financial projections which can be incredibly helpful if you want to launch a startup on your own.
P2P Lending
Peer-to-peer lending is my newest investment vehicle and it’s totally different than the other ones. The basic idea is that you lend money to companies that lend it further (loaners). These companies are non-banking financial institutions from which small businesses and individuals borrow money.
You probably have seen some examples of lending companies, especially ones for small personal loans with 0 interest if you repay it in the first 30 days and a daily interest after (resulting in some enormous annual interest rates like 4000%). Well, since these companies are not banks, they cannot just create more money (or rather ask the central banks to create it) — they have to borrow it — from you and me — and share the interest with us.
Taking an example, a portion of my investment is currently used by IDF Eurasia for a personal loan of roughly $5000 (that’s how much the person borrowed from IDF). The actual interest rate the borrower pays is 42.6%. My interest rate is 11%. Moreover, the borrower pays each month. This means we receive a part of the principal (the money we invested) and the corresponding interest rate monthly which we are free to reinvest of course.
The reason I chose this is its simplicity. It’s pretty much at the same level as the investment funds and offers a lot more predictable (good) returns. We are no longer hoping that the market goes up. This is an actual business.
Of course, there are situations in which the borrower does not or cannot pay their loan. For this, many loaners offer protection, meaning that you get your money back no matter what and, moreover, we have the good old diversification. The money we invest is split between many loaners across a wide range of risk profiles and industries — this is something we can configure.
The platform I use and totally recommend is Mintos. They have a referral functionality, but it’s not intended for general use such as sharing on the internet. If you really consider this, write me a message.
The returns you can expect from P2P lending is around 10%. Again, you can configure strategies — how your money is split and to which companies — to aim for higher returns, but they also entail more risk. Another important aspect is its liquidity. There is a secondary market, integrated into Mintos, where you can sell your loans if you wish to withdraw your investment.
I expect the P2P business to grow more and more especially given how hard some small companies with bank loans were hit during last year. Moreover, in the long term, my prediction is that P2P lending will be one of the most common crypto use cases. There are already some platforms for this (DeFi), but I wouldn’t go that route yet, especially considering how well Mintos works.
Building a Business
My last and final investment is in my own business (startup on the chart) — charitydiscount.ro. The app is a cashback platform. Basically, we drive people to various online businesses and if they buy their products, we receive a commission which we then split with the buyer. Since we are talking about investments, cashback would be another alternative to gain (back) some money.
The platform is currently targeted for the Romanian market. Of course, we have a referral program through which you receive additional cashback based on the cashback of the people you invited (it’s not taken from your friend, we support it). Also, give the mobile app a try (android, iOS).
The charity component is that it encourages users to donate their cashback to causes that support education — we firmly believe that education is the basis of any great culture and community (this is also the main reason I write these articles).
The investment is somewhat substantial especially considering I have 3 more partners (and friends, which I thank for all the involvement) that contributed the same amount. The main chunk went towards paid marketing (Google and Facebook ads) and social media content which was something we wanted to try out. The results were not exactly ideal, but we gained a lot of experience and knowledge in the process.
Retrospectively, I wouldn’t pay for ads unless the current revenue can cover that or in case you want to go even bigger on ads (like national TV) and want to understand what your users respond to.
However, the beautiful aspect of investing in your business is that the legal entity (the LLC) owes you the money you invest. Of course, we still have to generate the revenue somehow to cover that.
Building and running a business really requires a separate article, but the main idea I wish to emphasize here is that all the other investments are somewhat limited. All of them will give some returns based on how much you invest. Of course, there are rare occasions in which the returns are enormous like Bitcoin and lately GameStop, but this is like betting on winning the lottery.
No other investment has the potential to generate hundreds of thousands and even millions without an equally high investment or risk. And, of course, no other investment will give you the same satisfaction and accomplishment, which in many cases, is worth infinitely more than the actual money.
Other Mentions
Real Estate
Even though I own an apartment (with a mortgage), I choose not to include it in my portfolio, but it’s still worth discussing. The 2 most important mentions I want to emphasize about investing in real estate, especially when it involves mortgages, are:
- When you think about the interest rate, don’t forget to factor in the inflation rate. For example, if your interest rate is 3% and the inflation rate is 2%, your effective cost is 1%. Of course, it’s still our job to somehow make up for the inflation rate.
- Real estate is one of the very few investments that have intrinsic value. We will always need a roof over our heads.
Ending Notes
My only regrets are that I didn’t invest sooner and more. One mistake we usually make is trying to time the market. For example, last year, around September/October, when I was thinking about changing my car, I said that I’ll give it one more month in which I will look for opportunities to invest that money. Well, nothing seemed propitious so I ended not investing it (I also didn’t buy a car).
Both the stock market and crypto rallied since then and would have generated some nice returns. Of course, retrospectively it’s always easy to say what I should have done and that’s why I don’t bother with it too much.
Also, I didn’t mention taxes because none of the investments are realized so far — I didn’t sell or withdraw anything. When that happens, I will declare the profit — only the difference between the initial investment and the current value, which could also be a negative amount meaning that it reduces my future taxes.
If you have made it this far, congratulations, and thank you for reading it! Now go build your wealth. Also, make sure to share what you’ve learned or maybe just share the article.
