4 Advantages of Investing Early

4 Advantages of Investing Early

Often greater risk is involved in postponement than in making a wrong decision.” Harry A. Hopf

Very often when you wait so long to do something, you will miss out the entire opportunity.  If you procrastinate because you are fearful of making a poor choice, life is going on without you and you might end up regretting your procrastination.

When you’re younger, investing for something that’s years away such as retirement may not seem important. But that is exactly when you should start investing. The more money you invest, the more time it has to grow. And one of the ways to give money a chance to grow over the long term is by investing.

Investing from a young age is one of the most important lessons in personal finance. Investing at a young age isn’t always easy, but the benefits are numerous and can’t be overlooked.

Here are four benefits of start investing early:

1. Time is on Your Side

One of the biggest benefits of investing young is that you get more time. Time is a valuable asset in the world of investing, and luckily, young people have it in abundance. Even if you start small, you’ll be surprised to know what a difference it can make if you invest now, instead of ten years later.

In particular, if you begin investing at a young age history tells us that you will end up with far more than those who invest later in life. Having time on your side means having a longer period of being able to save money to invest and a longer period of being able to find investments that can increase in value overtime.

Compounding returns are extremely powerful over the long run, and the earlier you get started the greater your chance is to take advantage of this. Put more simply this is the power of the time value of money.

For example, if you are 25 years old right now, and you invest $250 every month, then after 10 years, you will have saved $40,969 (at an interest rate of 6%, compounded monthly). If you begin to invest the same amount when you are 30 years old, then you will have only $17,442 by the time you are 35. That’s a difference of 43%!

You can easily see that the earlier you start investing, the longer you will be in the game. Time is the secret ingredient in compounding. The more time you have to invest, the wealthier you will be.

2. Learning from Experience

Experience is the key, most of us learn best from experience. Sure, we can read and learn from books and the vast amount of material on the internet. However, it’s not the same as going through various situations personally.

Starting to invest when young provides you great exposure to how the financial market works. Whether you choose to invest in the stock market, ETFs, mutual funds, or get a savings account, it helps to know your way around how everything works. Knowledge is power, and an experienced investor is a smart investor. Once you get an appropriate amount of market experience, it will help you identify new avenues of investment. You can also distinguish between authentic investment opportunities versus superficial ones. This automatically helps you make better choices in terms of the risk and return of an investment.

Young investors have the flexibility and time to study investing and learn from both successes and failures.

3. Managing Your Money Better

when you start investing young, you automatically begin to understand the value of money. An investor knows the difference between unnecessary expenditure and a lucrative investment.  As a result, every investor tends to take on strategic approach in how they handle their money.  in the long run, this is one of the best wealth accumulation techniques, investing early definitely helps develop positive spending habits.

Those who invest early are less likely to have issues with overstepping their boundaries in spending over the long run.

Investing early teaches important lessons and the earlier you are able to learn those lessons the more you can benefit. If you are a young investor you are putting yourself ahead in the world of personal finance as a whole. By growing your investments overtime you will be able to afford things that others can’t.

Your personal finances are bound to get tight at times throughout your life, and investing at a young age can help in those tight times.

4. Recovering from Bad Investments

Investment is based on two basic principles: Risk and return. As an investor, you naturally try to minimize your risk and maximize your returns. However, not all investments end up being lucrative and may backfire.

The good news is you still have time to recover from any setbacks caused by a bad investment. You can take a break and wait until you are able to accumulate money for investing again.  This also applies to when the market is down, and there are a limited number of investment options available. Instead of rushing into it, you can wait for the market to recover and invest at an appropriate time.

One Popular Obsession You Should Give up as Investor

One Popular Obsession You Should Give up as Investor

“If the economy is doing better, the stock market should do better too.”

If you ever hear any person, any economist, saying those words on television you know he doesn’t have a clue what he’s talking about.

The Fact is: There’s no correlation between the economy and the stock market!

None whatsoever. Business partners and billionaire investors Warren Buffett and Charlie Munger, for example, have been investing for more than 50 years.
And in all that time, they claim they’ve never had a single conversation about the economy. They simply don’t waste time on it.

The vice chairman of investment firm Fidelity, Peter Lynch, is one of America’s top money managers. He says if you spend 13 minutes thinking about economic and market forecasts, you’ve wasted 10 minutes. It’s just not worth thinking about.

Ben Inker of the money-management firm Grantham, Mayo, and Van Otterloo wrote an excellent paper demonstrating that there’s no meaningful correlation between GDP growth and investment returns.

In other words, stock market investors who think it’s important to worry about where the economy is headed are dead wrong.

Every minute you spend worrying about macro data has zero value to you as an investor.

It’s hard to remember this, though. Everywhere you look, the financial news media are constantly trying to connect the two. They’re obsessed with pretending to know what you should buy and sell based on all the economic data pouring out of governments, Wall Street banks, and the talking heads every day. But most of that economic news has little value at all for investors.

Don’t let macro fears prevent you from buying great businesses and compounding your wealth with great stocks.

Gross domestic product (GDP) growth and stock market returns have just about nothing to do with one another.

In fact, you can achieve great investment results without ever thinking about another “macro” issue again.

Instead of worrying about all that, stick to studying great businesses.

Great businesses are great because they can ride out and even exploit macro problems.  They don’t get better or worse with the economy. They stay profitable and continue to gush free cash flow and pay higher dividends every year.

Companies like Wal-Mart (WMT) and McDonald’s (MCD) are good examples among many other businesses.

If you focus on buying great businesses and turn down the volume on the news, you can do well in the stock market.

Now, I’m not saying you should never read another newspaper.

By all means, know what’s happening in the world. But don’t waste a minute trying to figure out what stock to buy based on economic reports and forecasts.

7 Steps to Crush Your Investment Fear

7 Steps to Crush Your Investment Fear

Most people are scary when it comes to investing in the stock market.

They have a fear, fear of losing their money and making mistakes cost them their hard-earned income.

Luckily, there are a few tips and tricks you can use to eliminate any “fear-based” feeling and take the first step to become a successful investor.

Step 1: Educate Yourself

Nothing can substitute education.

Having the right knowledge is an essential asset to becoming successful investor.

When you are educated on how stocks work, you will feel much more comfortable making decisions and become more confident with the choices you make.

Step 2: Have a Goal

Where do you want to be in a year? Five years? Ten years?

Having goals for yourself empower you with determination.

Once your desired outcome is set, you put yourself in a compelling and motivational place.

Step 3: Look at the Big Picture

Take a step back. Re-evaluate. Look at what you have to lose while focusing on what you have to gain.

Investing in the stock market is not as terrifying as you may think.

The more educated you are on the topic, the easier it will be to evaluate the options.

Step 4: Start with baby steps

Don’t be afraid to start small.

Begin with small amount of money while you are learning.

Once you get more confident, investing larger sums of money will become the next logical step.

With greater amounts, you may be able to generate larger profits.

Step 5: Follow simple strategy

Keep the strategies simple.

When your investment approach is simple, you are less likely to become overwhelmed or to back away.

it is good idea to start with ETFs.

Step 6: Just take the first step

Sometimes you just have to bite the bullet and put yourself out of your comfort zone.

Once you start taking the steps along your new journey, the path will become clear.

For a new investor, this will feel like walking into the fog.

From a distance your vision is cloudy, but as you move closer you will be able to see the road.

The more prepared you are, the easier you will find this path.

Step 7: Don’t give up, keep going

Sometimes not everything goes as planned.

However, keep in mind that you will learn more from your mistakes, than when you actually turn a profit!

Get up and start again.

Accept the situation, welcome all the things you learn, and use all your mistakes to make smarter decisions in the future.

Everyone has to start somewhere.

Some have more time to dedicate to learning than others, some generate better results, while others still are more “mentally gifted” at investing.

However, no matter your situation, you can always do better than you have.

There can always be an improvement, and this is the personal aspect upon which you should focus.

At the end of the day, everyone started somewhere. The measure of progress is how much each individual has improved over time.

Take these seven points, continue to grow as an investor and your profit will grow alongside you.

 

5 Steps to Take Before Investing

5 Steps to Take Before Investing

Investing is great. But there are a few steps to take before you get started.

If you don’t set yourself up for success by taking care of these items first, you’ll be setting yourself up for failure down the road.

Here is what I recommend you take care of before you start investing…

1. Have A Fully-Funded Emergency Fund

First things first.

Unexpected expenses WILL happen.

No matter how good you are at planning and preparing, something will happen sooner or later that wasn’t on your personal spending radar.

These expenses are generally not only unexpected, but they also are time sensitive, they need to happen now.

Without an adequate emergency fund in place, many people will struggle to cover even a $400 non-budgeted expense.

Financial advisors, financial planners, and just about every financial expert will recommend having an emergency fund between 3-6 months worth of living expenses.

2. Know Your Cash Flow, Have A Budget

When thinking about investing, you need to think long-term.

“Investing” for the short-term isn’t really investing, it’s speculating, which is basically gambling.

There are a number of uncontrollable factors that can cause investments to go up or down short term, so any money committed to investing shouldn’t be needed for at least five years.

Having a household budget allows you to understand exactly where all of your dollars are going each month.

The first thing to do with this extra cash is to build up your emergency fund as mentioned above.

After that you should consider if you will have any large expenses coming up in less than five years: Will a new car be needed? Is a child’s college approaching? Might a child get married in the next few years?

If there are events like these coming up then start putting aside money for them now, money that probably shouldn’t be invested in the stock market because of the “short” timeline.

After you’ve determined any large upcoming expenses, and set aside enough money to cover them, now you can look at your monthly cash flow and determine how much money you want to invest.

3. Clean Up Your “Personal Balance Sheet.

In short, before you put real money into any stock or bond, you must first pay off your high-cost debt.

Carrying high-interest consumer debt is one of the largest barriers for people who are trying to grow their wealth and achieve financial freedom.

There are never any “sure things” in investing, but paying off consumer debt is a “sure thing” because you know exactly how much you’ll save. Knock out these easy things before putting your first dollar into an investment account.

4. Clarify Your Goals and Priorities

Managing cash flow is all about balancing priorities, you’re taking limited resources and allocated them to the areas that are most important to you. This exercise is key for your overall financial planning too.

Before getting started on your investing, take a few moments to think about what is really important to you.

If you spend time thinking about it, you likely have one big top priority.

Some people can quickly tell you what their driving dream is, but many people need to spend time on this.

Understanding what is really important to you can have a huge impact on planning all parts of your life and the actions you take when presented with different options.

5. Make Sure You Understand Investing Basics

No one should invest in something they don’t understand.

Along that same line of thinking, that means that you should have a basic understanding of general investing concepts.

You should understand the concept of diversification (don’t put all your eggs in one basket). Understand mutual funds, and ETFs, and the difference between them.

Make sure you are comfortable with the idea of volatility.

Jumping into investing with no idea of what you are doing is very dangerous.

Even if you decide to use an investment advisor, you should make sure you understand what they are recommending for you. If something isn’t clear to you, just ask.  A good financial advisor or planner is going to take the time to educate you to make sure you are comfortable with the suggestions.

The 3 Secrets of 3 Self-Made Billionaire Investors

The 3 Secrets of 3 Self-Made Billionaire Investors

Warren Buffett was born in 1930 and became a child of the Great Depression. Today he’s worth in excess of $75 billion.

George Soros was born the same year, and became a child of the Great Depression, the Holocaust and WWII. According to Forbes, he’s worth nearly $10 billion.

Carl Icahn was born in 1936. He was once so broke, he had to sell his car to feed himself. Forbes says he’s worth around $20 billion today.

All started from scratch. All end up billionaires. All did it by investing.

The fact is, they don’t seem to have much in common.

Buffett buys stocks and whole companies and says his favorite holding period for investments is “forever.”

Soros became a billionaire by making huge leveraged trades in stocks and currencies.

Icahn buys controlling stakes in public companies buy back shares and do anything to realize hidden value.

But they do have some traits in common, a few core investing ideas that helped make them billionaires.

Here is where they have in common:

1. They Don’t diversify

Compare your investment to your greatest source of income: your career.

You probably haven’t diversified at all in your career.

Even if you tried many different careers, you were never doing several of them at once.

And, even if you do more than one job, it’s highly likely you spend the great majority of your time at just one of them and that just one provides the great majority of your income.

Why should investing be any different?

For many years, Buffett had most of Berkshire Hathaway’s money in just four stocks: American Express, Coca-Cola, Wells Fargo, and Gillette.

Today, most of Berkshire Hathaway’s money is still in just four stocks: Wells Fargo, Coca-Cola, IBM, and American Express.

2. They Avoid risk

When Carl Icahn bought Tappan shares, he was paying around $7.50 each. But he knew by looking at the balance sheet that the company was clearly worth $20 if it were broken up.

That’s a 62% discount to fair value, a very safe bet.

After Tappan, Icahn targeted a real estate investment trust called Baird and Warner.

At the time he found it, the stock was trading for $7.89.
Its book value was $14.

That’s a 44% discount to book value, and a generous margin of safety.

Soros manages risk differently than Icahn and Buffett.

He says the first thing he’s looking to do is survive, and he’s known to beat a hasty retreat when he’s wrong.

He keeps loss potential in mind before trading.

When he shorted $10 billion of British pounds in 1992, he first calculated that his worst-case loss scenario was about 4%.

3. They Don’t care about the outside noise

Wall Street wouldn’t buy shares of the Washington Post when Buffett started buying it in February 1973.

That’s true, even though most Wall Street analysts acknowledged that this was a $400 million company selling for $80 million.

They were too scared because the overall market had been falling for some time.

Soros talks to lots of people to get a feel for where a market is going.

But he never talks about what he’s buying or selling. He just does it.

Carl Icahn doesn’t need Wall Street, because he has his own research team.

Icahn’s people comb through thousands of listed companies to find the ones that are right for Icahn’s corporate raider style.

Icahn has to have his own research team. If he bought research from Wall Street, the whole world would figure out what he was doing, and it would become difficult to buy shares cheaply.

Think for yourself, avoid risk, and don’t attempt to diversify into a bunch of investments you don’t understand.

If you really interested in stock investing, those three rules are your foundations.