What was the best investment of the last decade?
Investing in the financial markets is like investing in any asset, whether it's a flat, a Rolex, or Bitcoin. If you have no idea, you’ll get ripped off. And if you want to get rich in 2 days, you’ll crash and burn.
Before I start selling you a dream, let me use a very illustrative example: if you had invested 10 years ago in a flat in Madrid, a Banksy painting, or a balanced portfolio of European, American, and Chinese indices, the return would have been almost identical. A 10% annual compounded return.
Bitcoin and luxury whisky: Exceptions or rules?
You might be wondering why I’m being so modest when since 2014, Bitcoin has grown at an insane rate of 50% annually. But I bet you didn’t know that certain bottles of whisky, like a 50-year-old Yamakazi, appreciated by 70% annually between 2011 and 2018.
This isn’t an isolated case. Many bottles have seen equally shocking returns, yet I don’t see anyone taking out a mortgage to buy whisky.
Investment prejudices
The idea behind these examples is to get rid of all the prejudices we have about investing, so we approach it from a practical, not emotional, point of view. One should invest in what they understand and do so responsibly.
Each investment vehicle has its own advantages and disadvantages. While a flat offers stability and a more secure return, it also brings management issues and maintenance costs. Plus, it lacks key benefits like accessibility, liquidity, or divisibility. Meanwhile, indices like the S&P500 or the European DAX have an almost opposite profile.
Are ETFs the best option for beginners?
If you were an expert in art or whisky, you'd probably be busy with more exotic investments. And if you’ve made it this far, it’s likely because you're not planning on buying property. So, I’ll assume you’ve decided to move forward with the idea of investing in the financial markets.
In that case, let me make it very simple. The answer to how to start investing is with the easiest tools available to us, which means investing in diversified index ETFs.
What is an ETF?
When we buy a share of a company, we’re buying a part of it, and with that comes the right to a portion of the profits the company generates. An index is a group of several of these shares, and ETFs are instruments that replicate these indices.
For example, the SPY replicates the American S&P500 index, which contains the country’s 500 largest companies. Check out my latest post on ETFs, their advantages, and what they don’t tell you about these instruments.
What they don’t tell you about returns in investment funds
Javier Acción, director of the fund Tu Dinero en Acción and host of a high-quality podcast, explains it clearly when talking about his fund’s portfolio: “the greatest returns from the fund come from a handful of companies, while the rest of the portfolio behaves similarly to the market average.”
In other words, it’s impossible to predict when you’re going to hit a home run. It’s not just me saying this; both Javier and even Warren Buffett agree.
This doesn’t mean dumping all your savings into any ETF will guarantee good results. Absolutely not. As I explain in my last post on ETFs and the myths of compound interest, a bad choice can severely impact your wealth.
To start investing in ETFs, you can use any platform or broker, but always make sure it’s safe and regulated. I’ll leave a link to the one I started with, Trading 212. It’s intuitive, easy to use, regulated in Europe, and offers asset protection. It has a wide range of diversified ETFs and is without a doubt one of the best investment platforms out there.
Risks of active portfolio management
Managing your portfolio actively is an interesting idea and definitely more exciting than leaving your money parked in an ETF for years. But as we mentioned at the start of this post, every investment has its advantages and disadvantages.
The issue with active management is that it involves a higher level of risk, which means it requires a deeper understanding of the markets.
Investing in Airbnb, for example, could be a fantastic investment and easily outperform its index. But you can’t predict the arrival of a health crisis that brings tourism to a halt and causes the stock to plummet, while Pfizer's shares soar in value. Sound familiar?
In a diversified ETF, the risks are mitigated thanks to the variety of industries or companies it invests in. Market fluctuations don’t hit as hard in the short term, and our capital doesn’t suffer immediate drastic devaluations that lock it up. That’s something we need to avoid at all costs.
Therefore, investing in a range of ETFs can be a great way to start your journey in the investment world, while gradually learning how to manage your portfolio more actively.
Advantages of active portfolio management
The world of investing is fascinating beyond just generating wealth. To be a good investor, you need to get familiar with certain disciplines, including history, geopolitics, psychology, and corporate finance.
For instance, Alchemy of Finance, the main work by George Soros, blends finance with philosophy and strategy, offering a more conceptual approach to understanding the markets.
Don’t worry, though. You don’t need to master all of these subjects, but it’s crucial to understand how they influence investment decisions. In this blog, we’ll not only talk about these topics, but also recommend professionals who share insights on them, creating a constant flow of learning.
In my view, the real benefit of active management isn’t just about improving returns—it’s about the constant learning and development as an investor. And if we manage to outperform the indices along the way, all the better.
That said, keep in mind that achieving this is only within reach for those willing to work on patience, humility, objectivity, and skepticism—in that order.
Applying all this knowledge to the markets is no easy task, without a doubt. But in my experience with investing, theory is useless without practice.
How to improve your investor skills while generating returns
To put all this knowledge into practice, platforms like Darwinex Zero allow both novice and experienced investors to apply their strategies in a real-world environment. While learning, you have the opportunity to apply new insights and your own ideas to the real market through this platform.
For a monthly subscription of $43, you get the chance to prove your skills each month. If you achieve good results, they assign you real capital to manage freely and share 15% of the total profit earned, without holding you responsible for any losses. Capital allocations range from €30,000 to €375,000, depending on your performance.
The platform doesn’t pay me to promote it, but I genuinely believe it’s a great option for those who lack capital or want to learn how to invest in the stock market and apply active management strategies.
With the code DWZ2312975MGM, there’s a 25% discount, and if you use it, maybe I’ll even get a sponsorship deal! We’ll keep talking about this platform in future posts, as it has many other benefits. I personally use the platform. You can follow my profile on Darwinex: FTZE.
In short, active management can be challenging, but with the right tools and patience, the journey is well worth it.
Final reflection
The path I’m proposing won’t make you a millionaire in two days, but it’s the one I wish I had known about years ago. Investing is a constant learning process, and while there are no shortcuts, the journey has never been more accessible for those willing to learn and take advantage of the tools available.
Responsible investing in the digital age
The world has changed radically over the past decade. We never would have dreamed of being able to invest at such a low cost through online brokers, let alone having the chance to receive capital to invest freely and share in the profits.
Likewise, the way we access information has evolved too. Thanks to the internet and today’s tech tools, we have massive amounts of knowledge at our fingertips to use to our advantage.
In addition to the tools mentioned in this post, platforms like Google, Yahoo Finance, ChatGPT, and Notion are great examples of resources that can help us significantly enhance our investment strategy.
It’s with this mindset that we should approach our investments: it’s not about knowing everything, but about making informed decisions at the right time.