The amount of capital you start with is not as important as saving regularly and starting early.
Danger
Do not have credit card debt!
Save
- The quickest way to affluence is to reduce your expenses.
- Saving increases your freedom both now and in the future.
- Start saving early and regularly- use the power of compounding.
- Time is a lot more important than timing, so start early.
- Don’t outlive the money you saved for retirement.
- Tax minimization is an essential tool in building savings.
The Rule of 72
The number of years to double the investment times percentage annual yield equals 72.
Index
- Develop a simple financial plan and stick to it.
- Indexing has outperformed all but a handful of securities.
- Remember that nobody knows more than the market!
- Investing in index funds simplifies investing.
- Index funds are tax-efficient - gains are over time, and hence lesser taxes over time.
- Index funds are predictable (you will do average in the long term.
- Look into total market funds.
- Refer Exchange Traded Funds.
Diversify
- A cardinal rule of investing: Diversify.
- Buying ETFs or index funds is an automatic way to diversify.
- Diversify across securities, asset classes, markets, and across time.
- The price of a bond is inversely proportional to the interest rate.
- Diversification across time refers to not making all investments at once.
- Dollar cost averaging - regular periodic investments over time.
- A general portfolio consists of stocks and bonds.
- As you age, you end up having more bonds than stocks.
- Always rebalance your portfolio at the start of your year!
- Rebalancing might not increase returns, but it will reduce risks.
Common Blunders
- The secret to financial success is patience, persistence, and minimizing mistakes.
- You can save time, anxiety, and money by ignoring all market forecasts.
- The best investing advice anyone can give you is to buy and hold an index fund regularly.
- If you have to sell, sell your losers as they give you tax write-offs.
- Minimize your investment cost.
- As an individual investor, avoid buying individual stocks - stick to ETFs.
- If you do consult financial advisors, stick to ones who are fee-only, avoid people who take commissions.