As an indie maker, you work hard to save money over a lifetime to ensure you have a cushion should your circumstances change. The nature of indie making makes these circumstances even more unstable. This is why treating this capital with care is incredibly important.

Managing your savings is a time-consuming activity. Unfortunately, there is no straightforward way to do it. This is because every person has unique risk, time and ethical preferences. The goal is to hedge yourself in case of an adverse situation, so you can focus on what you love doing the most—building products.

Protect, preserve and enhance your savings

There are many approaches to how one should manage their savings and there is no right or wrong way to do it. The goal of this article is to guide you if you are interested in protecting, preserving, and enhancing your savings over a long period of time, by which I mean at least greater than six months.

I am not an expert nor do I have a monopoly on ideas. Protecting and preserving may not be a significant priority for independent makers or a young person since earnings streams can be unpredictable and it may make more sense to use up savings as financing options such as low interest debt or credit may not be available. However, it can be useful to preserve enough savings that it minimizes your downside in case of emergency or unexpected circumstance.

Your purpose plays a key role in determining how you intend to enhance your savings. As an indie maker, if you are solely dependent on yourself for income, you may want to get more insurance. You may want to sustainably support other indie makers, creatives, kickstarter projects or even initiatives. Having an income generating portfolio through dividends from common stocks may be very helpful. If you are located in a country with high inflation then precious metals or reserve currency such as United States dollar may be suitable.

As you build your portfolio, you will begin to learn a lot about your purpose of investing and it may even evolve with time. Some investment opportunities have enduring characteristics and they may find a permanent place in your investment portfolio, others may be temporal or special situations. Everyone sees the world uniquely so no purpose is right or wrong. Hence, there is no right way to enhance your savings, it is up to you.

Invest directly

Financial Services industry markets a lot of different kinds of funds, products or strategies. However, their primary motive is to make money through commissions, management fees and shake-up companies, usually for purpose of flipping their stake for profit, by deploying a large amount of capital that they collected from their clients such as you. They do not always have risk, time or ethical preferences and they may not be even taking care of your savings with the same purpose that you might have.

The way I have dealt with this issue is by making my investments as direct as possible by generally screening out mutual funds, index-based funds, marketed funds from my investment universe. Also, I do not intend to risk my savings to make money in a short period of time via speculation (through derivatives for instance) or lending money to people who may not be able to pay back.

I consider investing or owning a piece or entirety of a company (directly or through their common stock/shares), precious metals (directly by owning the metal or via securities backed by the metal) such as Gold or Silver, Real Estate (land or through a REIT), currency (through a government-backed currency and treasury bonds or cryptocurrencies such as Bitcoin) among many others as direct investment suitable for savings based investment portfolio.

Build your portfolio

Constructing a portfolio is a complex and somewhat tedious process, just like what working on a project or product may feel like once in a while. When working on your portfolio begins to feel off-putting it may help to imagine that you are not doing this for yourself alone, you are just laying a brick for something grander that may or may not be realized in your lifetime. Someone such as your children or younger associates could be the eventual recipients.

Thinking what you intend to leave for them may motivate you to keep chugging along since if you are fortunate you may never need to withdraw any capital from your investment portfolio over your lifetime but in an unfortunate circumstance, it could be a blessing. The reason why I am providing you with this mental model is because the math of compounding is absurd. Don’t believe me, just see for yourself:

A big observation that jumps out of the table is that even at sub 10% annualized return, your investment portfolio can 2x in less than 10 years. If you are lucky, your portfolio may even 5x, 10x, 100x or more over your lifetime just by sheer math and power of compound growth. This is why I shared my mental model of investing for posterity not just yourself since such huge sums of money can be quite instrumental for your future generations and humanity in general.

Find the right assets

Once you start building and investing in your portfolio, you might realize how difficult it is to find right assets that suit your risk, time, ethics preferences as well as have a purpose of your choice.

My mental model when hunting for assets to invest in is imagining any business like a lemonade stand. Imagine there is a lemonade stand near your house which sells lemonades. If you are interested in owning a piece or entirety of his company you are looking for common stock or shares (if this company is listed at a stock exchange you can invest in it via an investment account). If you are interested in the land leased by the owner of a stand you are looking for real estate. This mental model could be used to narrow down asset classes that you might intend to further research.

After finding out an asset class say for instance common stock you have to start thinking about the entire economic activity surrounding this lemonade stand. In this case as a collection of businesses that make it possible for the lemonade stand to sell lemonades. You might be curious about the land leased by the owner of the stand so you start looking for the landlord company and check if their Real Estate Investment Trust’s shares are listed on your stock exchange.

If you like the lemonade stand itself you might want to buy common stock or shares of the company. You may observe that owner regularly gets lemons from a lemon farming company and depending on your situation investing in their common stock may be a good idea.

Notice the common theme of attempting to model the entire economic activity surrounding a company via a lemonade stand. This is because this model makes it much easier to think about even complex investment and discover ancillary companies in the process, since a lemonade stand may not always be a good business but lemonade machine manufacturing business may be.

Price and quantity

After the selection of an asset, the process is not complete. You will need to take care of two more things: price and quantity. The sticker price of an asset may be higher or lower than its actual worth. Additionally, the sticker price in the case of stocks might change every minute and for another asset such as a private business it may change after a few years. Thus, finding assets and investing in them at right prices is crucial since it is savings, your irreplaceable capital that we are talking about.

The mental model that has helped me a lot when thinking about price is a concept called Margin of Safety developed by an American investor named Benjamin Graham in 1930s. When you think about any asset after knowing a few characteristics and some research you might reach to a conclusion that it should be valued at X. This can be thought of as your intrinsic valuation of the asset in consideration. If you invest in an asset when the market price of the asset is significantly less than your estimation of its intrinsic valuation, the difference is called the Margin of Safety. This concept is very powerful and once you begin investing armed with this mental model even if you make a few mistakes with your estimation of intrinsic valuation and unexpected circumstance, your downside would still be quite minimal. This is a very useful model, especially when investing with your savings.

Another aspect is quantity. If you buy a lot of a particular asset it might be possible to sell it in case of unexpected circumstance. Now if it is your own company or a business it is alright since this could be your primary income stream. However, when you are considering buying an asset with your savings this is an important factor to consider.

Keep learning

There is no amount of information about an asset that is accurate, complete or certain. It is risky to even own cash because of foreign exchange and quantity risks. Just start the process and look up any terms online that you do not know. Becoming curious is a crucial step if you want to start the process of creating compound growth with your savings.

A lot of free tools are available on the internet. My favorite investing tools are Yahoo Finance and FinViz for screening common stocks, Koyfin Charts for data visualization and analytics for numerous asset classes and Google Sheets for maintaining a snapshot of my portfolio. Social media is a great way to meet and discuss about investing with other investors.

Creating an investment portfolio with savings is a hard and long journey but after a year of doing it, I just think: why did I not start earlier? Researching or investing in different assets and asset classes may seem boring but once you realize the entire world is just people involved in all kinds of economic activities and using different ways to achieve happiness for themselves and their families it becomes quite interesting and fulfilling.

We as individuals are no match for this giant latticework that is the world’s economy. Although, if we are purposeful and strategic we can bring about a lot of positive change even through the seemingly inconsequential act of investing with our savings and staying the course over a lifetime. The math of compound growth is just waiting for us to get started.

 

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