In the COVID era in 2020, at the age of 35, I started investing for the first time in my life. I wish I was told the importance of investing when I was younger. I cannot go back and its never too late to get started, but here are some lessons I would tell myself if I could go back:
1 – Save Emergency fund – $1000-2000 OR if you can save for next 6 months <in case of Job loss or life incidences>. …. but #2 first!
2 – Pay down highest interest Credit/Loan first. Looks a no-brainer and yet people fall in for paying the interests. Pay down credit card fully each month – even better if you don’t use the credit card!
3 – A penny saved is 1.5 pennies earned – look for discounts. Example, you saved $1000 on a buying a car, saving this money is equivalent to getting a raise of $1500 in your paycheck – because of taxes !
4 – Start investing as early in life as you can.
5 – Earning profits is slow and losing money is fast – look for minimizing losses. Warren Buffett said – Get Rich Slow! Example – to make $500 out of $100, you need 400% profit; however when losing – $500 to $100 is only 80% loss.
6 – Invest in Roth IRA, if you qualify and maximize it. If you don’t, invest in IRA and transfer money to Roth account. No tax in Roth earnings although money you put in is after tax while in IRA the money is not taxed while earnings when you take out are taxed.
7 – Diversify – Invest in Mutual Funds, ETFs, S&P 500, Multiple Sectors, Bonds, Gold, International Funds, International Bonds.
8 – Create monthly budget – If you are single, great! If not, do it with your partner every month. Stick to it and know where your money is going.
9 – Detach emotions with money – No need to celebrate the profits or mourn the losses. Just keep learning – repeat what has worked, stay away where your hands have burned!
10 – Think longer term – Keep a significant chunk of your investments towards retirement, while keep a play-money to invest in the growing market. Generally – Investments pay higher when untouched for long term (3-5 years or more!) Day trading is stressful, do it only as a professional else work-life balance will be jeopardize.
11 – Limit to 3-4 gurus – There are tonnes of advisors and news flashes from all around. Find 3-4 investors who have proven themselves for last 5-8 years and stick to them. Although, this doesn’t mean they will be profitable in future too, but the likelihood is higher and it is less stressful to invest! I had followed ChickenGenius (Youtube), ARK Invest, Chris Perruna (Twitter – cperruna), and Ben (bahamaben9).
12 – Dollar Cost Average – Pour slow, take out slow – For longer term, Invest every month/week and when you need money take small amount you need every month/week. This way you dollar-average out growing or falling market.
13 – Dont invest in more than 10 companies at a time for swing trades.
14 – Set Stop losses, but if you trust a company, then dont set’em! When the rate of a stock falls, Stop losses are triggered and the selling increases and rates go down further, then buyers take over. Be cautious with your Stop losses.
15 – Multiple streams of income – Even if it is 5% of your main income, try to generate a parallel stream of income (and it could come from Swing trading).
16 – Best college? – I did the perfect analysis on where to go for Masters and nothing could have gone wrong! Well, my decision went south! Your aptitude will take you to places. Your curiosity and problem solving will work harder for you then your degree. People from average colleges have impressed me while the professionals from E&Y, Microsoft, Harvard, etc. were biggest STUPIDs I have met !! College does matter but only for the kick-start. From the same schools, with same education (sometimes off the siblings – Mukesh and Anil Ambani for example) – kings and pawns are made!
17 – Fraud is common/normal in the Corporate World. Don’t go by ratings and reviews, ask difficult questions, test assumptions, and only when you are fully satisfied – follow a firm/Executive!
18 – Read, Read, Read – Read at least 3 books on the topics you want to know more. Make reading a routine.
19 – Options Trading is a No, No for newbies!
20 – Buy the hype, sell the news!