How much to invest

Remember: everything I write is purely based on my personal opinions and is not advice.

To keep things simple and free from emotions, consider using rules and percentages to manage your money.

This article assumes you already have a three-month emergency savings account and a proactive debt repayment strategy (excluding real estate debt, which needs a separate business plan).

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How much to keep in cash?

This depends on your age and your appetite for growth (and therefore your risk tolerance). One rule is to hold a percentage of your net worth in cash equivalent to your age. For instance, at 30, you would keep 30% of your net worth in cash or cash-like instruments.

(These may include interest-bearing cash accounts, government bonds, and other similar instruments—CETES in Mexico; money market accounts in South Africa; interest-beating savings accounts in the US and UK; Treasuries in the US. Please don't leave it in actual cash)

The younger you are, the more risk you can take due to the longer earning period ahead of you. If you're willing to accept more risk, perhaps due to a good education or high employability, consider reducing the cash percentage by 10 or more (and adding that to your investments, below).

How much to invest in the market?

The inverse of the above, what is commonly called the “100 minus your age” rule.

Again: you don't want it all in the market. If you have most of your money in the market today and you suddenly need money for a purchase or emergency, you might be forced to sell stocks at a time the market is in a downswing.

(As per the other articles here, I will define “the market” as the entire stock market, and suggest investing in the smartest way: by investing in accounts with a tax benefit —so that our stock market growth won’t be taxed or taxed at a lower rate; in instruments that help us invest in hundreds (or thousands) of companies at the lowest fee possible —index funds or ETFs)

The majority of people should be fine with just 1 - 3 index funds in their portfolio.

What about real estate?

Real estate investments are complex, with factors such as the type of property, location, and mortgage affecting your decision. Despite owning a home and an investment property, I harbor a strong skepticism towards these assets due to their illiquidity, concentrated risk, and the emotional decisions they often induce.

If you're hell-bent on investing in things with walls, I recommend investing significant time in figuring out this financial decision. Understand your potential income vs. actual expenses thoroughly.

A popular notion suggests spending "no more than 33% of your income" on housing (either rent or mortgage/bond payments). This, to me and my life situation, is absolutely bonkers, especially if you are well-paid and not yet retired. Entry-level remote developer salaries often start at $85,000 per year in the US ($7,000 per month) and you can live comfortably for less than $1,000 in world-class places like Cape Town, Buenos Aires, Tbilisi, or Chiang Mai, to name a few. If you can live like a king on 5-7% of your income, why not rather invest the rest?

I think it’s better to live in the minimum, good-enough-for-my-current-phase-of-life kind of place (paying back the bank or paying rent to the landlord) and only upgrading my housing situation after I’ve added a few zeros to my net worth.

To repeat: I (mostly) dislike property, so do independent research and decide for yourself. I'll shut up now.

What about crypto? What about my friend’s Kickstarter? What about Tesla?!

Investing in individual companies or crypto assets can be really fun! You might enjoy doing a deep dive into the company’s reports and get excited about what they plan to build.

But, it’s a bit like going to the casino. Sure, you can make a lot of money, but you’re also likely to lose out if you believe everything the casino owner or your buddy (or Elon) says. Start with 1-2% and sell it / rebalance once it has gone to the moon. And if you lose 1-2%, it shouldn't financially ruin you.

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