Investment advise I would give my younger self.
People crave for big secrets to make money. The reality in life is that most things are simple.
For example, if you want to lose weight, there is no secret workout plan or a diet. You just have to consume fewer calories than you burn.
The same applies to wealth. If you want to make money, you have to spend less than you earn and invest the difference in assets that appreciate long-term.
Whether you want to grow or preserve your wealth, you always have to maintain a firm set of qualities. Those will develop to your character, and character will eventually determine your fate.
So here’re five essential qualities you must develop if you are serious about investing.
Motivation to learn
You didn’t learn much about money in school. And whatever you learned was out-of-date at the time you were studying it. The educational system is designed to leave you in complete ignorance of reality.
Therefore if you want your money to grow, you must unlearn the little they taught you and start exploring finance from square one.
You will need to become a voracious reader with a strong desire to learn. And the best part is, there’s no need to enroll in expensive schools, you can learn just about anything online for free.
No one put it better than Naval Ravikant,
“The best teachers are on the internet.
The best books stores are on the internet.
The best peers are on the internet.
The tools for learning are abundant.
It’s the desire to learn that is scarce.”
Learn the magic of compounding
You also don’t need millions to start with investing. In other words, no money is no excuse not to invest. If you trust the math, there’s a simple, pain-free way to make money.
It’s called compound interest.
When someone once asked Albert Einstein what mankind’s greatest invention was, he replied: “Compound interest.” Compounding simply means saving early and letting investment compound over a long period. In my view, it’s as close to financial magic as you can get.
For instance, if you invested $100 a month in Bitcoin during the last seven years, you’d have made over $500,000 by now. You can play around with the compound interest calculator.
So learn to appreciate the value of asymmetric risk, exponential growth, and the power of compounding. It’s the best trick to growing your wealth.
Follow the smart money
The term “smart money” usually refers to Wall Street banks and hedge funds that manage billions of dollars in client money. In fact, there are about 20 funds that control 80 percent of the world’s trading. They have trillions under their management and employ the most brilliant individuals. These funds are controlled by savvy investors like Warren Buffett, Ray Dalio, John Paulson, and Cathie Wood, to name just a few.
If you think the market is rigged against you, you’re right!
These insiders usually exit a position just as the party’s ending, while the dumb money continues to pour in. And vice versa when the trend is going the other way.
Therefore if you want to achieve superior results, you must learn to ignore the mainstream financial advice. Or, as John Templeton put it,
“It is impossible to produce superior performance unless you do something different from the majority.”
Ignore short-term volatility
Make no mistake; crashes are always painful. As a Roman historian, Livy said,
“Nothing hurts worse than the loss of money.”
However, you need high volatility to get price appreciation. The best performing assets are usually the most volatile. US government bonds have low volatility and
The best approach is to ignore emotions, never get distracted by short-term price movements and buy the dips. And if you still want low volatility you can keep your cash in the negative-yielding savings account.
Have a long-term plan
As Warren Buffett once said, “If you’re not willing to own the stock for 10 years, do not even think about owning it for 10 minutes.
With investing, you must have a long-term vision. If you buy an investment thinking that you will make a fortune overnight, you are about to get seriously disappointed.
So, here’s a simple strategy to apply:
- Buy a quality asset
- Repeat the step one and two.
Investing requires patience and confidence in your investment. To illustrate, if you invested $10,000 in the S&P 500 Index twenty years ago, you’d have $273,000 by now.
So think twice before investing. And if you are not able to be patient enough, it’s because you haven’t learned enough. See the first point of this story.
In conclusion, if you haven’t already applied these qualities into your money management routine, I urge you not to rush with investing. Instead, be patient, keep on learning until you acquire the basics.
Your wealth depends on it.