Investing 101 | Crazy Cash

INVESTING BASICS

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LONG TERM INVESTING

People believe that investing is risky, but the real risk is actually not investing. Inflation constantly eats away the value of the dollar as time goes on. Saving is not going to cut it, savings account returns are less than 1%. The rule of 72 states, if you receive a 1% return on your investment it will take 72 years to double your money. It's a good thing there's the S & P 500, an index fund that consists of the top 500 companies in a well diversified manner. It averages a consistent 10% return a year, which easily over performs inflation.

But we're not just investing to beat inflation, we are investing to create passive income so we can make money while we sleep. Every rich person emphasizes the importance of making money when you sleep, as well as having multiple incomes, or living below your means. It is no secret that professional athletes basically all end up becoming broke once they retire. This just proves it is not how much you make but rather how you manage your money. Getting rich is a lot simpler than people think, you don't need to be a genius but you do have to be disciplined.

INVESTING RULES

INVEST 20% OF INCOME

One of the main things that is over looked when investing is spending habits. Einstein said compounding is the 8th wonder of the world. Imagine spending $10 a day compared to investing $10. Instead of losing $70 a week you could of invested $70, which could then grow to more. Always consider opportunity cost!

INVEST WHAT YOU KNOW

Don't ever invest in a stock without doing your own research. Don't invest in stocks because your friends or even the news say so, invest in it because you say so. Create an investing strategy which consists only of companies and sectors you are knowledgable of and stick to it. This is another time when in comes in handy to have good discipline. Start off investing in companies you use in your day to day life like Apple, Amazon, or Coke that you know will be around forever, have great management, and a competitive advantage.

DIVERSIFY

You can't put all your eggs in one basket or things will not end well. Mr. Wonderful has a rule where a stock may only take up 5% of his portfolio. Lower your risk and expose your portfolio to different types of assets in different sectors and different countries. You want long term and short term, government and corporate bonds. You want dividend stocks, not just for the fixed income but also the low volatility to balance out the volatility of your growth and speculation stocks. Theres always a bull market somewhere, when stocks go down, gold goes up. Even though gold doesn't have a sexy return average it's a smart investment. Make sure you are prepared and anticipating the future.

FEARFUL WHEN OTHERS GREEDY, GREEDY WHEN OTHERS FEARFUL

Never buy stocks over valued, buy low sell high, but that is easier said than done. Warren Buffet says to never bet against America and since he's been around for about 100 years I think he knows what he's talking about. He was investing during the crash in the 80s, the internet bubble, housing bubble and was never phased by all the pessimists. When everyone is talking about a new investment like AMC or Gamestop or Dogecoin that is skyrocketing don't bite the apple and stay faithful to your strategy. Jim Cramer loves saying how bulls make money bears make money, but pigs get slaughtered!