Lots of people here are asking about money and what to do with it, so I thought I’d weigh in as a person who, while far from materially wealthy, has made the transition from wildly irresponsible to financially responsible and stable. I am not a financial advisor but this advice has served me well since beginning to use it.
My approach to money is extremely conservative and low-risk; I try to follow what Warren Buffet calls Rule #1, which is “don’t lose money.” The upside to this approach is that I do not make risky moves or investments which could wipe me out overnight. The downside is that I end up with huge investment returns less often than someone who takes those risks, though if you invest intelligently those big wins still do happen. I believe that my approach, for the average person, is far superior to the gambling/speculation approach.
My first piece of advice is to not invest a single penny in any asset whatsoever - stocks, bonds, real estate, precious metals, etc - until you have a bare minimum of 6 months of cash saved in an account that you are never going to touch unless you absolutely need it. Count up your monthly expenses, from rent to food to entertainment to charity and all other bills, and then multiply that number by 6. Until that number of dollars is saved in an account, don’t invest. The reason is that half of all Americans will be bankrupted by ONE trip to the Emergency Room, and you don’t want to be one of those people because you gambled your life savings on some tip from Wall Street Bets. This is less exciting than the roller coaster of gambling with stocks, but a much more responsible approach overall. Even if this takes you a couple of years, do it. Save for 6 months’ worth of expenses.
Once that’s done, start learning about investing if you haven’t been reading about it during the 6 months’ savings phase. Choose a few assets to start with, such as silver / real estate / stocks, and try to split your investment money equally between them. Never put a huge percentage of your portfolio into any one asset class, because if/when that one becomes devalued compared to the others, you’re going to have a bad time. All asset classes rise and fall in value compared to the others, and the point of diversifying in this way is so that your money stays more or less the same when one class falls and another rises to take its place.
For stocks, diversifying is a question of personal taste. Many people want a hundred or more stocks. Warren Buffett and his partner, Charlie Munger, hate diversification and became billionaires from a small handful of stocks instead. The Motley Fool recommends holding about 15 at a time. Personally I hold fewer than 10 and my returns thus far have beaten the market, sometimes significantly, without a single index or mutual fund. Index funds are collections of stocks that you can buy as one object, which I avoid because you can’t beat the market by buying the market and, more importantly, I don’t want to invest in companies that promote things I’m against (which most of the top companies do). I am still beating the market without touching the Fortune 500, so you don’t actually need stocks like Amazon or Apple to get great returns.
That said, even with only say 5 stocks, it’s wise to diversify between INDUSTRIES. You don’t want 5 stocks all in the same industry, such as food or oil production for example, for the same reason you don’t want all your money in one asset class in general. When it tanks, you get wiped out. Diversification between industries is more important than diversification in terms of sheer number of stocks held.
Never invest more than you can afford to lose - hence the important of 6 months’ savings no matter what - because you can always get wiped out completely. There is always some risk, though that is largely controlled by investing wisely.
I recommend everything written by Peter Lynch and Phil Fisher, as well as every video made by Warren Buffett and Charlie Munger, if you want this hyper-conservative, “don’t lose money” style of investing. Technically what I do is called value investing, an entire field unto itself. It is slow and boring but it works and you minimize risk significantly that way.
This is what works for me and I hope some of you younger guys found something here that helps you out as well. God bless and happy Friday.
My approach to money is extremely conservative and low-risk; I try to follow what Warren Buffet calls Rule #1, which is “don’t lose money.” The upside to this approach is that I do not make risky moves or investments which could wipe me out overnight. The downside is that I end up with huge investment returns less often than someone who takes those risks, though if you invest intelligently those big wins still do happen. I believe that my approach, for the average person, is far superior to the gambling/speculation approach.
My first piece of advice is to not invest a single penny in any asset whatsoever - stocks, bonds, real estate, precious metals, etc - until you have a bare minimum of 6 months of cash saved in an account that you are never going to touch unless you absolutely need it. Count up your monthly expenses, from rent to food to entertainment to charity and all other bills, and then multiply that number by 6. Until that number of dollars is saved in an account, don’t invest. The reason is that half of all Americans will be bankrupted by ONE trip to the Emergency Room, and you don’t want to be one of those people because you gambled your life savings on some tip from Wall Street Bets. This is less exciting than the roller coaster of gambling with stocks, but a much more responsible approach overall. Even if this takes you a couple of years, do it. Save for 6 months’ worth of expenses.
Once that’s done, start learning about investing if you haven’t been reading about it during the 6 months’ savings phase. Choose a few assets to start with, such as silver / real estate / stocks, and try to split your investment money equally between them. Never put a huge percentage of your portfolio into any one asset class, because if/when that one becomes devalued compared to the others, you’re going to have a bad time. All asset classes rise and fall in value compared to the others, and the point of diversifying in this way is so that your money stays more or less the same when one class falls and another rises to take its place.
For stocks, diversifying is a question of personal taste. Many people want a hundred or more stocks. Warren Buffett and his partner, Charlie Munger, hate diversification and became billionaires from a small handful of stocks instead. The Motley Fool recommends holding about 15 at a time. Personally I hold fewer than 10 and my returns thus far have beaten the market, sometimes significantly, without a single index or mutual fund. Index funds are collections of stocks that you can buy as one object, which I avoid because you can’t beat the market by buying the market and, more importantly, I don’t want to invest in companies that promote things I’m against (which most of the top companies do). I am still beating the market without touching the Fortune 500, so you don’t actually need stocks like Amazon or Apple to get great returns.
That said, even with only say 5 stocks, it’s wise to diversify between INDUSTRIES. You don’t want 5 stocks all in the same industry, such as food or oil production for example, for the same reason you don’t want all your money in one asset class in general. When it tanks, you get wiped out. Diversification between industries is more important than diversification in terms of sheer number of stocks held.
Never invest more than you can afford to lose - hence the important of 6 months’ savings no matter what - because you can always get wiped out completely. There is always some risk, though that is largely controlled by investing wisely.
I recommend everything written by Peter Lynch and Phil Fisher, as well as every video made by Warren Buffett and Charlie Munger, if you want this hyper-conservative, “don’t lose money” style of investing. Technically what I do is called value investing, an entire field unto itself. It is slow and boring but it works and you minimize risk significantly that way.
This is what works for me and I hope some of you younger guys found something here that helps you out as well. God bless and happy Friday.
