- Rule 1: Spend like a millionaire (or less) if you want to become rich.
- We need to build assets, not debts.
- Spend far less than you make and intelligently invest the difference.
- Stop buying new car, but buy the 2nd-hand car if you have to.
- How to define wealth
- Have enough money to never have to work again, if that's their choice.
- Have investments/a pension/a trust fund that can provide them with twice the level of their country's median household income[$50,221 in 2009 USA] over a lifetime.
- An investment portfolio of $2.5 million, growing 6-7% a year, which means you can sell 4% $100,000 annually for living and it never run out of money.
- Receiving financial handouts hinders a person' ability to create wealth. (for Children)
- Rule 2: Start investing as early as possible—after paying off credit card debt and any other high-interest loans.
- Starting early and invest efficiently, you can build a fortune over time, while spending just 60 minutes a year monitoring your investments.
- Compound Interest - The World's Most Powerful Financial Concept
- Invest money = monthly income - average monthly expense costs, which means invest all or most of your money.
- On average, investors who buy shares and sell them again quickly don't tend to make profits as high as investors who hold onto their shares over the long term.
- Rule 3: Invest in low-cost index funds instead of actively managed funds. Nobody can consistently pick “winning” actively managed funds ahead of time.
- The most efficient way to diversify a stock portfolio is with a low fee index fund. (Active management has hidden fees)
- The vast majority of actively managed mutual funds will lose to the indexes over the long term.
- Rule 4: Conquer the Enemy in the Mirror
- Whether it's an index fund or an actively managed mutual fund, most investors perform worse than the funds they own? because they like to buy high, and they hate buying low.
- From 1982 to 2005, the stock market averaged returns of 10.6% annually, missing the best 10 trading days -> 8.1%, missing the best 50 trading days -> 1.8%
- A responsible portfolio has a certain percentage allocated to the stock market and a certain percentage allocated to the bond market, with an increasing emphasis on bonds as the investor ages. and REBALANCE stock-bond percentages every year. Bond - Safest component of your investment portfolio - your bonds
- Rule 5: Build Mountains of Money with a Responsible Portfolio
- Long term, bonds don't make as much money as stocks. But they're less volatile, so they can save your account from falling to the bottom of a stock market canyon if the market gods feel like purging for fun.
- Ensuring that your account has a bond index, a domestic stock index, and an international stock index provides you with a greater statistical chance of investment success. Rebalance them every year or when stock is dropping by 20% or more.
- A rule of thumb is that you should have a bond allocation that's roughly equivalent to your age. Some experts suggest that it should be your age minus 10, or if you want a riskier portfolio, your age minus 20;
- Usually investors don't need to address their stock/bond allocation more than once a year. But when the stock markets go completely nuts? dropping by 20 percent or more? it's a good idea to take advantage of it if you can.
- Rule 6: Create indexed accounts no matter where you live
- Suggested Kris who was 35 years old to keep things simple:
- 35% Vanguard U.S. Bond Index (Symbol VBMFX): a total bond market index fund that approximated his age.
- 35% Vanguard Total U.S. Stock Market Index (Symbol VTSMX): the broadest stock index he could for his U.S. exposure.
- 30% Vanguard Total International Stock Market Index (Symbol VGTSX): the broadest international index he could for his world exposure.
- Rebalance the above portfolio back to the original allocation every year or when stock is dropping by 20% or more.
- Investors with a corporate or government pension might not feel the need to invest so conservatively. For example, a 50- year-old school teacher with a pension might prefer to buy the Growth Fund instead of the Conservative Fund. Over time, the Growth Fund will likely do better, but the volatility will be higher. If someone has a strong alternative source of retirement income, then they might want to take a higher risk/higher return option.
- Rule 7: Learn to fight an adviser’s sales rhetoric
- Average active fund manager can't beat an indexed portfolio allocated similarly to the active fund.
- Rule 8: Avoid investment schemes and scams that tickle your greed button.
- Don't follow your friends or newsletter/youtube for High-Yielding Bonds/Stock.
- Emerging markets might be exciting? because they do rise like rockets, crash like meteorites, before rising like rockets again. But if you don't need that kind of excitement in your portfolio, you might be better off going with a total international stock market index fund instead of adding a large emerging-market component.
- When investing, seductive promises and get-rich-quicker schemes can be tempting. But they remind me of why I don't take experimental shortcuts when hiking. It's too easy to lose your way.
- Rule 9: If you must buy common stocks, do it with a small percentage(10%) of your portfolio and pick a mentor such as Warren Buffett
- If you really can't refrain from buying individual stocks, then set aside 10 percent of your investment portfolio for stock picking while keeping the remaining 90 percent in a diversified basket of indexes. When buying individual stocks, do it intelligently. You're not likely to beat the indexes over the long term, but you're sure to have the odd lucky streak, and you might really enjoy the process.
- Finding great businesses at fair prices - or better yet, at great prices.
- no matter what kind of early results you achieve, don't get romanced by the notion that it's going to be easy to beat the market? and don't allocate more than a small portion of your portfolio to individual stocks.
- Numerous international studies have shown that, on average, the more you trade, the less you make after taxes and fees.
- Most rich people are committed to their businesses. After all, stocks are businesses, not ticker symbols online. They should be pur chased with care and held for years.
- Price-Earnings Ratio: one share stock price * shares / annual earnings = if you buy the company, how many years you can cover the cost. the lower, the cheaper.
- Buy businesses that are relatively easy to run and make sure the price of those business products are going to rise with infl ation. An example of a business that doesn't meet those criteria is U.S. computer maker Dell.
- If the firm's annual net income (when averaging the previous three year's earnings) is higher than or very close to the company's debt level, then the company is conservatively financed enough for my tastes.
- Business A generates its $1 billion profits off $10 billion in plants/machinery and other assets. Business B generates its $1 billion profits off $5 billion in plants/machinery and other assets. Company B is more efficient: return on total capital of 20%
- Selling Stocks: Stockowners should hold their companies for long periods, unless
- 1. If the company deviated from its core business
- 2. If the stock was grossly overpriced.