Financial planning is no child’s play

Financial planning is no child’s play

“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” — Robert G. Allen

There are different classes of assets to invest in but we discussed here only the equity.

EQUITY

I’m going to focus on equity and how investing in equity makes you wealthy over time by keeping in mind the following principles:-

1. Patience: – Start with patience, passive income requires a lot of patience to make wealth for you as the time passes the compounding works.

Quotes

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”— Paul Samuelson

2.  Emotional biases: – Many investors have been losing money in stock markets due to their inability to control emotions, particularly fear and greed. Avoid emotional connection to your investments although we need to avoid emotional connection to every possession in our life those who are attached emotionally to their investments are loss aversions persons and sit on their losses and sold their winners sooner or averaging down their losers (aka sunk cost fallacy).

Quotes

“The investor’s chief problem – and even his worst enemy – is likely to be himself.” -Benjamin Graham

3. Financial planning is worthless we must focus on personal goals: – When we live in the future, we’re lost in fantasy or fear. When we live in the past, we’re lost in regret or nostalgia. Financial planning based on fantasy, fear, regret, and nostalgia is likely to lead to more of the same. We must focus on our personal goals (By goals, I mean stuff that matters to you. Things like putting your kids through college, starting a business, taking a year off, retiring at sixty, spending more time at home with your kids, buying a sweet car, or helping your elderly parents) and stop worrying about what our neighbors doing.

4. Don’t try to time the market: – Do SIP’s (Systematic investment plans) on regular intervals instead of time the markets. In fact, nobody has ever done this successfully and consistently over multiple business or stock market cycles. Catching the tops and bottoms is a myth. A Systematic investment will be able to make a significant difference to even the smallest amount of investing.

Quotes

• “Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.” — Peter Lynch
• “A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices.” — Warren Buffet.

5. Invest in business you understand: – Only invest in the business you understand (i.e. circle of competence) and if have no time to study the businesses go for the equity mutual funds check their expense ratios, entry-exit load, etc.

Quotes

“Know what you own, and know why you own it.”— Peter Lynch

6. Diversification: – We must diversify our assets in different asset classes in such a way that we got maximum diversification for our investment.

Quotes

• “Never test the depth of river with both feet.” — Warren Buffet
• “Do not put all your eggs in one basket.” — Warren Buffet

7.Invest before spending:- Don’t invest what is left after spending make an habit of investing before spending so that the benefit of compounding can be enjoyed over a longer period.

Quotes

• “It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.”— Robert Kiyosaki
• “Financial peace isn’t the acquisition of stuff. It’s learning to live on less than you make, so you can give money back and have money to invest. You can’t win until you do this.”— Dave Ramsey
• “Returns matter a lot. It’s our capital.”— Abigail Johnson