In investing, learning once is often not enough. The reason is not far-fetched; investing requires agreement between our intellect and our emotions. And while it is easier for our mind to grab all investing concepts at once, our feelings will always find it hard to fall in line. Hence, a constant need for reeducation.
That’s why we are taking a tour into the mind of some of the legendary investors in this article. We are picking from their mind some of the most important lessons they learned on their journey to share with you. Remember, there’s a likelihood that you’ve encountered some of these lessons before. However, there’s also a high likelihood that you may not have been able to abide by them. And you know what, you are not alone; it happens to the best of us. We panic, we let emotions get in the way, and sometimes, it costs us. But ultimately, we are on a journey to building wealth and ready to learn what is necessary to create wealth.
Have some stocks in your portfolio
“If you hope to have more money tomorrow than you have today, you’ve got to put a chunk of your assets into stocks. Sooner or later, a portfolio of stocks or stock mutual funds will turn out to be a lot more valuable than a portfolio of bonds or commercial deposits, or money-market funds.” – Peter Lynch
Peter Lynch took a look at historical data and realised that despite the seeming risk in the stock market, if you hope to have more money in the future than you have today, you need to invest some of your funds in stocks. That’s because historically, the stock market has outperformed every known asset class. He compared stocks to alternative assets like fixed income to reach that conclusion. And while fixed income is less risky, the kind of money that some desire can only be made from an investment in stocks.
A nearby example here would be Risevest’s performance in 2020. Investors in stock make 40.7% return on investment while fixed income investors make only 10%. Of course, it is not guaranteed that the 40% return will persist. However, over a long enough period, stocks tend to outperform the fixed income plan.
So what can you do? It’s simple, start building up your stock portfolio if you don’t have one already. And if you have already, make sure you are keeping a long-term view of it. In the short term, expect volatility. Over a long time, though, expect money-making returns.
With all that you know, have you started investing?
“In life and business, there are two cardinal sins. The first is to act precipitously without thought, and the second is to not act at all.” ~ Carl Icahn
Which of these two sins is currently committing? Are you acting without thought or you are not acting all despite all that you know?
Acting without thought, for instance, will mean investing these 3 kinds of money that we said should never be invested. And nothing acting at all will mean despite all that you care enough to spur you to action, you are still not acting at all.
Don’t commit any of these two sins. Join our community, where you can learn about all things money. Then download the Rise App to start acting today. The time to start is now.
The best investment returns come from doing nothing.
“The big money is not in the buying and selling, but in the waiting.” ~ Charlie Munger
Charlie Munger is always revered for his witty wisdom. Alongside Warren Buffet, he has built a multi-billion dollar business by investing in the most promising companies. And when asked what the secret of successful investing is, he said, “you make the big money by doing nothing but waiting”.
You see, it’s easy to think we can make quick money by timing the market for an entry and exit point. However, the wisdom of Munger says big money is in the waiting, in doing nothing, and in patience.
We all make mistakes with our investments, but some people repeat the same mistake
“For every mistake that you learn from you will save thousands of similar mistakes in the future, so if you treat mistakes as learning opportunities that yield rapid improvements you should be excited by them. But if you treat them as bad things, you will make yourself and others miserable, and you won’t grow.” ~ Ray Dalio
I’ve seen many people afraid of making their first investment because they don’t want to make mistakes. They don’t want to do it wrong. They want to be right with every act. And because of that, they either delay starting their investing journey or have not even started at all.
One cannot optimize to avoid mistakes all of their lives. One cannot optimize to avoid failures all of their life. One cannot optimize to be right all of the time. Allow yourself some threshold of failure and you will see how quickly you will grow not just in investing but in all areas of life.
How can you apply this in investing? Take a small amount of your money and take the initial step of funding that plan you just created on Risevest. Fund it and watch what happens to it. Your fear will either disappear or be confirmed and you would’ve learned. An option that is better than waiting for the perfect information before you start. And this applies to any investment you may want to try out as well. That’s what legendary Ray Dalio wants to teach us.
You must find a way to make money while you sleep
“If you don’t find a way to make money while you sleep, you will work until you die.” ~ Warren Buffett
Why do we invest? Investing is the art of making money while you sleep. With the help of compounding returns, when you invest, over a long enough period, the ROI on your investment will soon outpace the capital that you contributed. If you allow this circle to run for a long enough time, you can soon stop working and feed off your investment returns. Otherwise, you will have to work until you die.
As depicted in the image above, saving approximately $450k at a 10% annual return can give you a net worth of $2.35m within 30 years. But your emphasis should not be on saving $450k or banging a net worth of $2m. Rather it should be saving an amount commensurate with your income and investing it consistently to generate compounding returns. That way, you won’t have to work till you die.
Make your money work for you while you sleep.
Don’t be emotional about investing
“I’m not emotional about investments. Investing is something where you have to be purely rational and not let emotion affect your decision making – just the facts.” ~ Bill Ackman
This one is difficult! Our default as humans is to be emotional about our investment. However, the less emotional we can be, the better our investing performance.
To cushion the effect of emotion is why it is important to set up a system for your investment. Things like automating your investment using direct debit, locking up some funds so that you can’t withdraw it, and having an emergency fund so you are not forced to liquidate your investment when an unexpected need comes.
Work towards being less emotional. The investing world is volatile, expect it and understand that it will always pass.
Buy low and sell high and you will make tons of money over the long run
“Many investors make the mistake of buying high and selling low while the exact opposite is the right strategy to outperform over the long term.” ~ John Paulson
In the earlier part of this year, the market was trading low and growth dragged a lot. Those are periods of buying low. Today the market is rebounding again with good gains. However, it is those who have invested in that period of lows that will make the most returns now. Because they bought when things were low.
It is usually difficult to buy when the market is red. However, if you can do it, then you will be part of those who make the most returns.