11 Finance and Investing Principles Everyone Should Know…
- “Small leaks sink great ships”
Get in charge of your expenses and create a budget That way
- You assign your money a job
- You do not overspend
- You save and invest before you spend
Don’t forget to always pay yourself first
2. Compound interest
The world’s 8th wonder according to Einstein can be a double-edged sword
- It can work against you in high
- interest loans and credit cards
- It can work for you in your investments
Make sure you make it your ally and not your enemy
3. The 4% rule
Calculate your FIRE number, i.e. how much you need to accumulate in order to retire By doing that
- You make sure you stay on track
- You can calculate you much you need to invest
Make sure you create a financial goal before you create a plan
4. Pay attention to the small print
Brokers can charge you fees that appear minuscule But in a multi-decade time span of investing, they can eat up even half of your retirement funds
Make sure you know exactly how much you are paying for
That 1% fee can cost half a million
5. Dollar-Cost Average
Invest regularly every month regardless of how the market performs That way:
- You have less stress
- You avoid putting all your money at a high point
- You do not care about timing the market
6. Stocks do not only go up
You get
- A >10% drop almost every year
- A >20% drop every 3–5 years
- A >30% drop every 8–10 years
If you cannot handle drawdowns, stay out of the market
7. Passive investing
The best option if you are a beginner investor with Not much time Not much willingness to research stocks With passive investing you get
- Diversification
- Low fees
- low stress Set it and forget it
8. Not investing is riskier than investing
Historically, long-term investment in an index fund always performs better than leaving your money at the bank. Buy and hold for the long-term
9. There are no risk-free investments
You can still lose money if you invest in
- ” Safe” bonds you do not understand
- ” Conservative” companies that are overvalued
- Companies you know nothing about but the “experts” recommend
Risk comes from not knowing what you are doing
10. Taxes are inevitable
You cannot avoid taxes but you can still:
- Invest in non-taxable accounts
- Do not go in and out of stocks to pay less in capital gains taxes
- Retire to a tax-friendly country when you reach FIRE
11. You do not need 1M to retire and be financially independent
You can retire with much less if you:
- Live frugally
- Have created multiple cashflow sources
- Have a well-diversified portfolio
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