The myth
Full-time investing may sound appealing if you’re looking for a career change and have heard about people who invest for a living.
The thought of working flexible hours, having control over your money, and dedicating more time to investing can be enticing.
The reality
There are people who invest full-time for others by working at investment firms. There are also those who become full-time investors and use their own money to hopefully earn more.
If you’re thinking of quitting your job to invest for a living, you should understand exactly what this change entails. To know if you’re ready, here are a few questions to ask:
- Can you cover your living expenses?
You’ll need to give up the security of regular income if you decide to do investing full time. There’s always a risk of losing money on your investments and so there’s no guarantee you’ll earn consistently right away.
That’s why it’s ideal to save at least a year’s worth of your living expenses to stay afloat. This money should be kept in cash and separate from your investing capital.
If you have high-interest debt, you should also work on paying those off first. This is because interest payments can offset what you might earn from investments or worsen any loss.
- Do you have enough capital?
Say you need P60,000 a month for your needs, savings, and wants. This means you must make at least P720,000 a year in total returns to comfortably live off your investments alone.
Given this example, if you manage to achieve 10% in total returns every year, then you need to invest P7.2 million to reach P720,000.
Remember that your investment returns are not set in stone. Due to market risk, they may go up or down depending on current conditions and your own skills.
The required capital will also vary depending on the products you’ll invest in. You should also account for any fees or taxes that come with buying and selling such assets.
- Can you handle the risks?
Investing always comes with risks, but the stakes are higher without the safety net of a regular salary. Those who invest full-time typically aim for high potential returns, and so they face elevated risks.
To compensate for the lack of steady income, you may feel the pressure to do well right away. This may lead to rash decisions and emotional investing, which can result in losses.
Aside from being financially ready, you should also be emotionally prepared to take on the challenges of becoming a full-time investor.
- Do you have the skills and a sound strategy?
You’ll likely have more free time if you leave your job, and so you may be under the impression that you can simply figure things out as you go.
However, trial and error can be costly when you’re risking your own money with no certainty you’ll earn more or even get it back. You may end up burning through your savings when you jump in blindly.
That’s why you should work on developing your skills and creating a well-thought-out plan first before venturing into full-time investing.
Arming yourself with knowledge and a sound strategy can also give you the boost of confidence to start strong and stay motivated.
Verdict: It depends.
While some people invest for a living, this career shift can take a lot of skill and money to pull off. Passive or part-time investing is an option while you’re still building your knowledge and financial cushion.
If you’re set on taking the leap, it’s ideal to properly prepare and have a plan B in place to keep your future safe.
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