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.

10 Principles of Successful Investing

10 Principles of Successful Investing

Today I am going to share with you 10 principles of successful investing.

1. Build a solid foundation before investing

Pay off all debt and build an emergency fund of 3-6 month’s worth of your expenses before you start investing.

An emergency fund helps protect your investment portfolio by providing you with margin and liquidity (the ability to easily access funds when you need them).

2. Invest for the long-term

In investing, time is your ally.

Historically, the longer the holding period, the less risk of a permanent loss.

Between 1928 and 2015, the S&P 500 index had a gain in 72% of the 1-year periods, 86% of the 5-year periods, 93% of the 10-year periods, 99% of the 15-year periods
and 100% of the 20-year periods.

Since the market has historically experienced a loss every 3.5 years on average, you should not invest funds you will need in the short-term, otherwise you may experience a permanent loss when you go to access those funds.

3. Understand the power of compound interest

Compound interest is when you earn interest on both your original investment (principal) and the previous interest you earned.

It is a mathematical explosion. Be very clear about the opportunity cost of spending money now vs. making regular investments over time, so you can appropriately balance the two.

A wise investor, Charles D. Ellis, said “time is Archimedes’ lever in investing.”

4.  Risk and expected return always go together

Two key risks in investing are: volatility (short-term) and inflation (long-term).

Investments such as CD’s have lower short-term volatility but also lower expected returns, and hence are more susceptible to the insidious effects of inflation over time.

Investments such as stocks have higher short-term volatility but also higher expected returns and hence offer a better chance of the growth needed to keep ahead of inflation.

It is critical to create an investment plan for your unique situation that appropriately balances between volatility and expected return.

5.  Don’t put all your eggs in one basket

Diversify your portfolio with asset allocation.

It’s important to diversify both within and across asset classes.

An example of diversifying within an asset class would be to purchase stock in multiple companies rather than a single company.

Many ETF’s are good for this kind of diversification.

An example of diversifying across different asset classes would be to have some investments in stocks, some in bonds and some in real estate.

You can further benefit from diversification within each of these asset classes (for example large-cap vs. small-cap stocks, domestic vs. international stocks, short-term vs. intermediate-term bonds, etc.).

A properly diversified portfolio has historically resulted in lower risk vs. return.

6.  Fees matter

There can be many different fees associated with investing.

There are ongoing management fees for a mutual fund or ETF.

If your fund has higher portfolio turnover as a result of an active management strategy, you’ll pay for higher trading costs and probably more in taxes as well.

And, if you hire an investment advisor, you’ll pay them a fee too (often as a % of the value of your portfolio).

Even though you do not see the money leaving your bank account, all of these fees are paid with real dollars (your dollars!) being extracted from the value of your investment portfolio.

The compounding of costs can have a corrosive effect on your portfolio over time, eroding away its value.

Numerous studies have shown that it is not past performance but low costs that are the best predictor of future (relative) fund returns.

I recommend a long term buy-hold- rebalance strategy which uses low-cost, no-load index funds, coupled with the services of an investment advisor that charges for their time to help design, and if desired manage, your investment portfolio.

7.  Take a simple but strategic approach

Investing doesn’t have to be complicated.

You can create a very well-diversified portfolio that is easy to implement and maintain using a handful of low-cost index funds.

Create an appropriate strategic asset allocation (based on your unique situation), and then regularly rebalance to your strategic targets (I recommend annually).

Using a simple, strategic approach increases the chances of sticking to your plan in volatile times, reduces your costs, gives you your fair share of the market returns, and takes less time and energy (so you can focus more on what’s really important in life).

8.  Don’t invest in something you don’t understand.

You should be able to explain what you are investing in to someone else.

If you can’t, don’t do it.

Too many people have been separated from their money by a complicated investment they didn’t understand.

Complicated investments, while they may seem sophisticated, most often favor the issuer and/or manager of the investment, and not the investors.

9.  Never invest using borrowed money

While leverage (borrowing to invest) does increase the possibility of a big gain, it also increases the probability of a big loss, which you probably can’t afford.

Use time to your advantage, don’t try to get rich quick, steady plodding is the best way. Remember the tortoise and the hare.

10. You aren’t going to get rich overnight through investing

A proper investment is one that has at least a five-year horizon.

Said another way…

Any investment that can double your money in a month is likely risky.

You could lose all your money just as quickly.

If you don’t adjust your thinking in line with this, chances are you’ll end up losing a lot of money.

Ignore what’s happening right now.

The market moves today are not relevant to your long-term goals. People who want the daily excitement of winning or losing end up gambling and that’s a sure way to lose money.

6 Reasons Why Investing In Stock Market Can Be So Powerful

6 Reasons Why Investing In Stock Market Can Be So Powerful

At some point, you’ll have enough money saved up where you’ll think, “I should probably invest this somehow.”

Below I explain why investing in stock market can be so powerful.

1. The best place to grow your money

Probably one of the best things about the stock market is that it has an established track record for yielding good returns, even for beginners (when done right, of course!).

If every year you had invested your savings in a low-cost ETF tracking the S&P 500 index (which represents the 500 largest US companies listed on the stock exchange) for the last 10, 20, 30 years, then you would have had a return of approximately 6-9% per year on average, beating most investors out there, professionals and amateurs alike.

This is the simplest reason to invest and is often at the core of why people buy stocks.

If you invest $10,000 in the stock market today and it gains roughly 7% per year, you’ll turn that $10,000 into $20,000 in just 10 years without adding extra money.

Now, imagine a longer-term example, where you’re both a good saver and a smart investor.

You invest $10,000 of your savings into the market every year for 30 years.

That’s $10,000 this year, another $10,000 next year, another $10,000 the year after that, and so on for 30 years.

So in total, you will have invested $300,000 in stocks over 30 years ($10,000 per year x 30 years).

And let’s assume you achieve the same average yearly returns we used above, 7% per year.

So you’ve invested a total of $300,000 over 30 years,

But guess how much you have in your account at the end of that 30 years.

That’s truly surprising.

That $10,000 investment per year for 30 years would now be worth $1,010,730.

2. You can start investing with little money

One of the attractive aspects of stock market investing, that you can get started with very little money and scale up, say USD 1,000 or less.

Starting business or buying real estate are great ways of investing but they require large amount of money to get started.

Bottom line:

Through regular investing, you can turn $10,000 per year into more than a million dollars over 30 years.

Now, $300,000 of that million dollars is the money you directly invested each year.

But the other $710,730 is money you made from investing in stocks.

3. Easy to fit to your own schedule

You can still get started while working a regular job and learning to invest by participating in your spare time.

4. You do not need to interact with people

In  other businesses, such as owned property, it requires lot of time and effort from the owner, including dealing with complaining tenants, organizing repairs, contracting mortgages, complying with local regulations, etc. Actually, studies after studies have demonstrated that when it comes to the stock market, the ‘less’ you do, the better your investment performance will be.

5. Everyone has access with low cost

One of the great things about the stock market is that it is widely accessible. You don’t have to be ultra-wealthy.

In fact, there are no laws that forbid people to start investing in the stock market, unlike for many other investment alternatives such as hedge funds and private equity investments, which are only legally available to the ultra-rich and institutions such as pension funds and insurance companies.

6. it’s a well-established way to invest

Regulations: To be listed on the stock exchange, companies have to meet an endless list of requirements. And then, once they are listed, they have to comply with very stringent regulations and reporting requirements.

The same applies to market participants such as exchanges and online trading platforms: they are all highly regulated.

This makes it very hard for fraudsters to take your money and run.

Transparency: The pricing of shares, bonds, and other listed securities is widely available on the internet and updated every minute.

Similarly, there is a lot of research available on shares, ETFs, bonds, etc.

The Timeless Rule of Wealthy Investors

The Timeless Rule of Wealthy Investors

 On June 15, 1998, Coca-Cola, owner of the world’s most powerful brand, and one of the “Great all times” companies traded for $88.94 per share.

For long time, financial analysts recommend to keep a bulk of equity holdings in companies like Coca-Cola, which has high profit margins, high returns on capital invested, and a durable competitive advantage.

Owning such stock for many years is the surest, easiest, greatest way to get rich in stocks.

But anyone who bought Coke in late 1998 suffered from big losses because he ignored the timeless rule of wealthy and sophisticated investors.

What is this rule?

The rule is that the price you pay is the most important thing when it comes to investing.

If you pay a cheap price, you can make money in even the worst businesses.

If you pay an expensive price, you can lose money for long periods of time in even the best businesses.

Back in 1998, Coke’s earning per share was $1.43 and the price at the all-time high of $88.94, which means the price to earnings ratio (P/E) equals to 62 times. That’s crazy expensive.

Investors were accepting an “earnings yield” of about 1.6%. (the amount of earnings as a percentage of the price which means $1.43 in earnings, divided by an $88.94, and you get 0.016… or 1.6%).

It’s much similar to a situation where you buy a $100,000 house that you can rent out for about $1,600 a year, or $133 a month. It would take you 62 years to get your money back out of that investment. And only a fool would pay you $100,000 again to take the house off your hands.

When you accept terms like that, you’re almost guaranteed to lose money in stocks.

And that’s exactly what happened to investors who bought Coke at the wrong time. In less than three months, it was down more than 30% and five years later, it was down 50%.

Even 13 years later, if you are counting dividends, those investors hadn’t made a dime in Coke, which is one of the world’s greatest companies.

And most importantly, nothing was wrong about Coke’s business during that time. It was still one of the world’s most powerful brands with strong competitive advantage and continuous dividends distribution.

The losses incurred for those who bought in 1998 were directly the result of paying a crazy expensive high price for the stock.

The same thing happened to investors who bought software giant Microsoft (MSFT) in 1999. It took more than 15 years for investors to compensate their losses, because they paid the wrong price.

The stock was offering roughly a 2.4% earnings yield. At that rate, it would take you 42 years to get your money back.

As investor you should target rather a “payback period” of 12 years or less, which means getting an earnings yield of 8% to 10% (or more).

Intelligent investors know that the price you pay is everything when it comes to making money in stocks specifically and in any other financial asset generally.

Always remember, you can lose money even in the world’s greatest businesses if you pay the wrong.

5 Basics of Successful Investing

5 Basics of Successful Investing

Wafaa, I’m just trying to get all this stuff figured out,” my friend Sara told me. She’s just starting out in investing.

“I’m paralyzed,” she said. “I don’t know what to do. I’m reading everything… But I’m not actually doing anything with my money.”

“Sara, you’re doing the right thing,” I said. “Learning first – and not doing anything stupid with your money – is exactly the right thing to do.”

Sara is not alone…

I’m sure many of you in a similar situation.

So, I’m going to cover some of the important basics of successful investing.

These are helpful for both beginning and seasoned investors… They’re a great reminder about the most important things to understand when it comes to the market.

 1. You aren’t going to get rich overnight through investing.

A proper investment is one that has at least a five-year horizon.

Said another way…

Any investment that can double your money in a month is likely risky.

You could lose all your money just as quickly.

If you don’t adjust your thinking in line with this, chances are you’ll end up losing a lot of money.

Ignore what’s happening right now.

The market moves today are not relevant to your long-term goals.

People who want the daily excitement of winning or losing end up gambling and that’s a sure way to lose money.

2. Don’t invest in something you don’t understand.

One of the fastest ways to lose money is to put your funds into something you don’t really understand.

It’s easy to get dazzled by promises of big profits.

It’s even easier to get sucked in when the promises are accompanied by slick brochures and fast talk with a lot of words that you don’t understand.

If you don’t understand how you’ll make money on the investment, and you can’t point out your risks, you are not ready for that investment.

3. Don’t put all your eggs in one basket.

Don’t put your entire net worth in one property.

And make sure you spread your stock holdings around as well by first investing in funds that hold a bunch of stocks.

4. History repeats – or at least it rhymes.

It’s amazing how investors never learn that history repeats. The 2007-2008 bust in property prices is a good example.

In 2006, people thought property prices could never go down.

Two years later, people thought property prices can never go up.

5. Nobody will care more about your finances than you.

This is critical for you to embrace, immediately.

Nobody is going to care more about your finances than you.

You can’t just find somebody smart and hand your money responsibilities off to them.

You can’t just hand off your life and hope it goes OK – this is your life we’re talking about!

The quicker you take ultimate responsibility for your money, the quicker you will start building your fortune.

And you can’t ever give up that responsibility.

It is all right to work with smart people, and to delegate some of your money responsibilities to carefully chosen people. The important part is, you just can’t “check out.” You have to be the team captain here, the captain of your money.

How to Find the Right Stock

How to Find the Right Stock

Today, I’m going to share with you how to pick the right stock.

1. Stick with what you understand.

It is simple, but it’s also one of the most important.

Every time I hear someone talking about latest tech or biomedicine or even EV stocks, the story sounds great. But the problem is that I do not understand in nanomedicine or technology. Neither is the person talking about the stock.

Look, if you can’t explain the business model of the company or how the company makes money to a 10-year-old, then why in the world would you invest in its stock?

The more you understand the company’s products, its competitors, and even its weaknesses… the better you’ll be able to predict future cash flows.

Starbucks (SBUX), for example. Every time you go to buy coffee, you may notice how many people are standing in the line waiting for their cup of coffee, and if you see this consistently you have to feel good about their stock.

It’s simple, but it works. Starbucks model isn’t a secret. The more coffee it sells, the more its stock price should go up. And there are plenty of businesses you likely know and can keep tabs on.

For example, how often do you shop on Amazon (AMZN)? Do you have a PayPal (PYPL) account, how many times you use it more recently?

Stick with companies you know and understand. By just doing this, you’ll become a better investor overnight.

2. Find a company with a durable competitive advantage

Since you are looking for stocks to hold for a decade or more, You want to be sure the company is going to be around and thriving 10, 15, and even 20 years from now.

In other words, you need to find what is called “forever business”

you need to find companies that have strong advantages over their competition. They need to have what Warren Buffett would call a “moat.”

This can come in the form of a powerful brand, a lock on distribution, a large customer base, or ways to retain its customers.

For example, Coca Cola, has a moat because of how massive it is.

This is a company that will stand the test of time. It’s a stock you can sleep well at night owning.

3. Look for Dividend paying stocks

As a long-term minded investor, you need to look for dividend paying stocks.

To find the most consistent dividend payers, just google: List of Dividend Aristocrats. These are S&P 500 Index companies that have increased their dividends for 25 consecutive years or more.

Without knowing anything else about the company, you know a Dividend Aristocrat is a high-quality business. There’s no way a company could increase its dividend for 25 consecutive years without generating a lot of free cash.

If you want long-term success in the market, own high-quality dividend payers.

4. Own companies that are highly efficient.

You want to buy companies that don’t have to spend a lot of money to make a lot of money.

These are companies that are highly profitable and can return money back to shareholders. One way to find these efficient companies is by looking at something called return on assets.

It is equal to net income divided by total assets. The higher that number, the better a company’s management team is at using its assets to generate income.  I like seeing a company that has an ROA of at least 10%.

5. Be aware of the valuation … do not focus on it.

As an investor, you always have to think about valuation. If the best business in the world is trading at an insanely high price, it can still make for a bad investment. Take, for instance, the famous example of Microsoft (MSFT). If you bought it at the height of the dot-com boom, it would have taken over a decade for the stock to just break even.

Stick with reasonable prices. You don’t want to be in a position where you’re paying 60 times earnings or 20 times sales for a stock, even a great one. Do the valuation, but do not focus on it.