How To Take Advantage of The Snowball Effect
Hello,
On this edition we are discussing the world-famous concept of the “Snowball Effect” and amplify how it works in general and in world on finance.
The purpose of this edition is for you to deeply understand - and study about this topic more by yourself - on how you can use Snowball Effect for you advantage, how it works and what it takes (chosen direction + time).
Let´s get at it.
Baby Steps
Whatever you are starting to do, results won´t happen fast. In case you start to exercise for a better physique, for the few first weeks or months you won’t see any significant results. In case you are starting to eat healthier and removing excessive sugar and alcohol from your diet, at first you won´t feel that different.
Slowly, you are feeling the change in yourself.
Soon you realise you are getting a bit leaner, perhaps a bit more stronger and you mood has improved. Perhaps your skin has improved aswell from continuous workouts and sweating. Your gut and digestion system have started to work better, almost according on how they should work naturally. Your sleep has improved and you fall asleep more calmly. You notice you are happier and feel overall less stressed.
This is the stage when the Snowball has been crafted.
Keeping up with the Basics
For some time you keep doing what you have started doing. You feel productive and feel better and are happier than before because of the dopamine you get from time spent better on things that matter and you like.
At certain period, whether it is after weeks or months, it seems like you have met a STOP-sign. It doesn´t feel the same. You workout and eat well as you have used to, but you don´t get similar good vibes or feeling anymore. The progress seems to be stagnant, halted. You think You are doing something wrong and wonder whether You should change habits or quit.
This situation is commonly known as a situation when either;
habits are forgotten and let go and people take a turn where they used to be, or;
people keep going.
If something does not feel right or as your own thing, you should stop. No one is forcing you and perhaps this all was just some type of new sport you tried for the first time. However, a person never should go backwards, meaning quitting exercising fully or starting to eat just junk food.
This is the stage when the crafted Snowball is either smashed away or dropped to slide onwards on a downhill.
Staying at the Game
From now on we will discuss only on what happens after the option 2. was selected.
You keep doing what you have decided to do and keep most relevant focus on the basics. You might be seeking out for shortcuts or magic tricks, but after a few years in the game you realise that there just isn´t any. And you perhaps would not even take a shortcut, if a shortcut would be presented to you.
You realise that it is all about the process, not about the results. Most people romanticise the end results or massive goals they have above everything else, but those people fail to understand that eventually in life it is all about the process and the journey. And no other person can take the journey on your behalf.
This is the stage when the Snowball has grown bigger and bigger and the Snowball is accelerating its downhill move.
An Infinite Loop
At some point you understand that there is nothing more. You do not have to learn something new or change yourself further. You just have to keep doing the basics and core tasks all over again, and again, and again.
At some point you may realise - some people unfortunately do not - that there is no end goal or end results and the time is limited for all of us. Before the time expires, there is an Infinite Loop that happens all over again and that Loop is more than you ever need to progress, grow and stay in the game.
This is the stage when the Snowball is going fast, accelerating further and growing progressively bigger over time. And the only thing was can stop the Snowball from going downhill is You.
Snowballing On The World of Finance
Okay, let´s leave out the psychology-deep-talk and get practical.
What did the above discussion mean, what it did refer for, how it relates to finance and how can You use the Snowball to our own advantage?
Keep reading and you will receive answers to all of the above questions.
Starting Out (Baby Steps)
In case you have already started investing, congratulations! In case you haven´t and you are interested of starting read the following closely.
To start only things you need are;
A decision to start
A small amount of money, equivalent to 1 hour of you day job is enough.
An attitude to keep going and not to quit.
That´s it. Now if you have completed above 1. - 3., next thing to do is to go to Google and search “low-cost index funds” or “best index funds for beginners”. Then pick one.
Don´t overcomplicate it or try to find the best one, now is not the time for that. Open an investment account at your local bank or at local investment service providers, preferably a huge and well known institution. Then put your money on that index fund. Then, if possible, automate the savings to occur with the same amount of money at every month. If you have some additional money worth of few months leave those waiting at the investment account.
Now you have started investing, invested and perhaps set up automated investments to go on for a couple of months. You do not have to do anything, yet most likely you will monitor the performance of your money and start to learn about those index funds a bit more. This happens because you have skin in the game, meaning you have own money invested.
Best thing to do is to keep investing and come back to check the performance after some months, perhaps a few times a year. Just keep doing what you like on a daily basis and leave the markets do what they do.
It´s Going Somewhere (Keeping up with the Basics)
Some months have now passed. Perhaps 6 months, perhaps 18 months, whatever the case. It might be that you have chosen to invest on those low-cost index funds or ETF´s and nothing else. You realise that is has worked.
Then you start to think about it even more;
You put money aside and invested it;
You did nothing extra;
You did not even think about this weirdo-thing called investing;
And now “suddenly” your investment have grown a bit more. You wonder why you didn´t do this earlier or more often… You wonder whether your friends truly understand this or whether they just think that “investing” is something which is sometimes trending on Google Search.
Now you have seen - and felt - the effects and results on a personal level. You decide to keep doing what you’ve done so far. Why would you stop now anyways, ehh?
Talk About Portfolio Performance (Staying in the Game)
Now it has been years in the game.
You have realised that consistent investing is not only about investing, but it unites so many different things together.
For example, you have understood that putting money aside is different than spending it. You have learned to live below your means or cut you spending, without having less money available. What does this mean?
Let´s go on with an example;
You have a monthly income of 1.000 dollars. The first thing you do every month after every pay check is to pay yourself 10 %, so 100 dollars. You used to spend all that 1.000 dollars earlier every month. Now you get on by with the remaining 900 dollars. After 1 year you have noticed that you got used to spend less money and you covered all necessities and there were some leftovers to have fun aswell. In the meantime you have saved / invested 1.200 dollars (12x100) by doing so. You never truly thought or “saw” this money because you were used to having monthly budget of 900 dollars.
Just by starting investing you have learned and improved on budgeting and personal finance aswell. Most likely you think a bit more than you used to before buying something.
You have also decided to learn a bit more. Nowadays you know what a "company stock” is and perhaps you have received a few “dividends” aswell. You have also learned that transaction costs build up over time so that´s why index funds/ETF´s tend to be best low-cost picks for the longterm investing. You have a friend with a few rental properties and You have googled about those and familiarised yourself a bit and You understand that there are possibilities on the real estate market as well - and more risks.
You have also realised that loss is not an actual loss, if you have not sold. Not everyone is perfect, not even on finance (trust me on this one). Even index funds/ETF´s can be badly on a negative side and suffer from bad performance. You have heard a phrase “a loss is not a loss, it is a lesson” but it seems still a bit farfetched idea (more about this on later newsletter editions). Someone has told you re-investing dividends is an excellent strategy for income investors and after some google-searching you decided to try this strategy aswell.
Whatever of the investing type(s) might seem like a good fit for you and whatever of those you’ve selected, it really doesn´t matter. All that matters is that you keep doing what you do for a far longer period of time you ever thought of. Which leads us to…..
Infinite Loop
At this stage you have understood that there is no magic tricks, no crystal ball, nothing extraordinary on the field of investing. It is just that Infinite Loop that happens all over again and you keep doing the same things over and over again. That Infinite Loop is more than you ever need to progress, grow and stay in the game.
Hopefully this edition inspired you and you got some new ideas. We recommend you read this edition at least twice to get all out of it.
Most people make simple stuff extraordinary hard. Do not be one of those people. Invest on yourself. Invest early and often and stay in the game far longer than You ever thought You would be able to.
Thank you for being here!
Excellent advice on keep on going. Love the strategy of starting with psychology and deep talk to draw attention to the practical example of finance and investing.
I loved how you moved from a general discussion to a more nuanced world of investing. I'm in the accumulation stage when every DRIP is important in my dividend portfolio. So I can relate. Great read.