Investing can feel overwhelming, especially when you don’t know where to start. But Codie Sanchez, founder of the investment and advisory firm Contrarian Thinking, has a simple four-step formula to go from investing your first $1,000 to building real wealth.
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According to Sanchez, here are the four stages of successful investing.
“If you have only a little bit of cash, the best returning asset class of all time is going to be you,” Sanchez said on the “On Purpose With Jay Shetty” podcast. “Put the money into you.”
This could mean learning high-income skills, expanding your financial knowledge or building your network.
“A lot of people these days will say [the best investment] is Airbnb, it’s buying small businesses, it’s real estate,” Sanchez said. “The highest performing asset class that you could ever have is you, because you have unlimited upside and it compounds over time. And so, if you don’t have a lot of cash right now, bet on you first before you go bet on somebody on the S&P.”
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Next, invest in low-cost, low-risk index funds.
“Do we think that we’re going to beat the best stockpickers in the world that obsess on this every single day? No,” Sanchez said. “So that’s why I always go for low-cost, low-movement index funds.”
She recommended investing in a diversified portfolio via Vanguard.
“They’ll actually help you do it based on your age and based on how much risk you want to take,” Sanchez said. “So they’ll have a 60/40 portfolio, which is 60% stocks and 40% bonds if you’re [in your mid-30s], for instance. If somebody’s a little younger, they’ll go 80/20 because you should take more risk with stocks when you’re young.
“You can literally, in one click, get a diversified portfolio, and then you can add to it.”
You should only move onto stage three — investing in private equity — if you’re a “real pro,” Sanchez said.
“That’s just investing in those same companies, but instead of them being traded publicly, those companies are now held by private investors,” she said. “They’ll never trade on a stock exchange.”
Other stage three investments include alternative investments, such as real estate, commodities and options. However, these investments are not for everyone.
“I think this generation got a little crazy because they were the first generation to gamify stock market investing and make it seem fun, as opposed to serious,” Sanchez said. “And they were the first generation that got easy access to things like options and warrants, and that’s really actually only for pros.”
The final stage involves building your own business, with the hopes of eventually attracting investors.
“If you really want to make real money, you don’t do it by messing around at the margins of financial investing,” Sanchez said. “You do it by becoming the company that they invest in. That’s when you buy the business outright, you raise money for your own business, and that’s the next level of the game.”
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This article originally appeared on GOBankingRates.com: The 4 Stages of Investing To Build Wealth, According to Codie Sanchez