You can’t out-earn compound interest.
Compound interest is the reason why people become wealthy while they sleep. That’s how you make money your slave rather than you being slave to money.
It’s not what you earn, it’s what you keep.
Pay attention to what you keep after taxes. That’s the real money you can spend, re-invest, and donate.
The only value of stock forecasters is to make fortune tellers look good.
No one can tell with absolute certainty that a stock is going up or down.
What matters most is not where the economy is right now, but where it’s headed.
And when everything seems terrible, the pendulum eventually swings in the other direction. In fact, every single bear market in the US industry has been followed by bull market, without exception. Again, and again bad times will eventually be followed by good times.
Stay in the game long enough to win the stock market.
The stock market is a device for transferring money from impatient to the patient.
If you pack 1,000 gorillas into a gym and teach them to flip coins, one of them will flip heads 10 times in a row.
Most will call them luck but when it happens in finance, we call them genius.
It’s hard to beat the market unless you’re a unicorn.
Superstars such as Warren Buffet, Ray Dalian who not only are brilliantly clever but also have ideal temperaments, enabling them to remain calm and rational even when the markets are exploding, and most people are losing their minds.
Brokers and their employers (at least in the US) do not have a fiduciary duty to you.
They’re more likely to recommend you an actively managed mutual funds with high expenses, which will be far more lucrative for the broker and the brokerage firm than a low-cost index fund which will be far more lucrative for you.
How can you tell a judiciary has the right skill and experience for you?
Apply following 5 criteria when finding and vetting a judiciary.
- Check out the advisor credentials (certifications, qualifications…)
- Look for the breadth of expertise (to expand, protect your portfolio)
- Look for relevant background and experience
- Look for one who is aligned philosophically with you
- Look for one you can relate to on a personal level
4 Principles to guide you make investment decisions
- Don’t lose
The more money you lose, the harder it’s to get back to where you started.
- Asymmetric risk/reward
Instead of high risk, high return myth, hunt for opportunities whose rewards vastly outweigh the risks.
- Tax efficiency
Minimize fees and taxes. Taxes can wipe out 30% or more of your investment returns.
- Diversification
Diversify (1) across asset classes, (2) within asset classes, (3) across market, countries, currencies (4) across time.
Courage is not the absence of fear. But the triumph over it.
The brave man isn’t who is afraid of fear, but he who conquers that fear.
Contrary to popular belief, bad news and bear markets are the investor’s best friend.
It lets you buy the slice of the future at a marked-down price. Over the long term, the stock market news will be good.
Put financial cushion as much as possible.
So, you’ll never have to raise cash by selling stocks when the market is crashing.
One way to build and maintain that cushion is to invest in bonds.
When you’re buying a bond, you’re making a loan to government, private or some other entity. Bonds are loans.
When you lend money to a federal government, it’s called treasury bond.
When you lend money to a city state, it’s called municipal bond.
When you lend money to a company such as Microsoft, it’s called corporate bond.
When you lend money to a less dependable company, it’s called high-yield bond or junk bond.
The key to asset allocation is… it depends.
Asset allocation, like diversification, is the practice of portioning a portfolio among various types of investment asset classes to maximize return for a given level of risk. There’s no one size fits all approach to asset allocation. The question you need to answer is what asset classes will give you the highest probability of getting you from where you are today from where you need to be. Your advisor should start from the clear picture of where you are today, how much you’re willing and able to save, and how much money you need, and when you need it.
Asset allocation is biggest factor in determining investment returns.
So, decide on the right balance of stocks, bonds and alternatives. It’s the most important decision you’ll ever make. Whatever makes you choose, make sure you diversify globally across multiple asset classes. Never bet your money on one country or one asset class.
Use index fund for the core of your portfolio.
Index funds give you broad diversification and a low-cost tax-efficient way to beat actively managed funds over the long run. For maximum diversification, explore stocks of all sizes, large cap, mid cap, small cap and micro-cap.
Always have a cushion.
Make sure you have appropriate amount of income producing investments, such as bonds, reeds, maps and dividend paying stocks. When the markets crash, you can sell some of income producing investments ideally bonds since they are liquid and use cash to invest in stock market at low prices.
When you check your stock prices or fund prices on your computer every day, you’re feeding candy to your brain.
Experts recommend checking your portfolio once a year. He recommends avoiding financial tv entirely and he suggests you disregard all researches produced by WS firms, recognizing that their motive is to push products not to share wisdom.
When your dreams went from being impossible to being in your life, you’ll find a path.
There’s a path to achievement that follows in 3 steps.
- Focus
Think about it. When you really wanted something bad enough, you start to focus on it. Focus is power. Remember wherever your focus goes, your energy flows.
- Take massive action
Beyond the hunger, drive and desire is the massive action. A lot of people dream, but never get started. You can speed up the process by studying incredibly successful role models.
- Grace
The more you acknowledge grace in your life, the more you seem to have more of it.
It’s not enough to know what to do.
You need to do what you know. Now go ahead and do it!
Common cognitive biases investors make
- Confirmation bias
Best investors don’t fall prey to echo chamber and seek out qualified opinions that differ from your own.
- Recency bias
Best investors don’t believe when the market is going up, it will go up further. Likewise, they don’t out cash out because the market is going down and believe it will go down further.
- Overconfidence
Best investors don’t become overconfident to the point they overestimate their abilities and knowledge.
- Short-term focus
Best investors are not tempted to swing for home runs. They don’t let the thoughts of other people getting rich quick get to their heads.