Investing is not just important, but essential
You’ll discover why investing is not just important, but essential. You’ll learn where to invest, how to navigate the ups and downs of the stock market. And what to do during a market crash. And that’s just the beginning. Our hope is that by the end of this article you’ll feel inspired to take the first step or the next step toward becoming a confident investor. Because when done right, investing isn’t just a strategy, it’s a lifelong habit that can lead to extraordinary results.
So, what does just keep buying really mean? It’s a philosophy, a simple yet powerful idea of consistently investing in a diversified portfolio, no matter what’s happening in the market, whether. Prices are high or low, whether it’s a booming bull market or a crashing bear market, the key is to keep buying, just like paying your rent or grocery bills, investing should become a regular part of your routine. This approach doesn’t require perfect timing or insider knowledge. All it needs is discipline and commitment.
And in today’s world, it’s easier than ever. Thanks to modern platforms, investors have access to free trading, low cost index funds and diversified opportunities. You can now own a piece of some of the world’s top companies with just a few clicks, so don’t let fear or confusion stop you, as you’ll discover in this article, the process of investing is much simpler than you think and far more rewarding than you can imagine. Let’s begin this journey of financial growth and long term wealth.
Why should you invest?
Why should you invest? Do you know what will happen if you read one book every week? Let me share some. There are three powerful reasons why you should start investing to save for your future, to protect your money from inflation and to convert your human capital into financial capital. Let’s begin with the first reason.
Saving for your future
Saving for your future. There will come a day when you may
no longer be able to work, or perhaps you simply won’t want to. But if you
start investing today, you’ll create. A reliable source of income for yourself,
even in old age. That means financial independence long after your active
working years are behind you. It might be hard to imagine yourself in 60,70 or
80 years old. Right now, you feel strong, capable and full of energy, and it’s
natural to think that it will always be this way. But research shows something
interesting. Visualizing your future self can be a powerful motivator for long
term financial planning In one experiment, participants were shown digitally
aged photos of themselves, an image of what they might look like decades later.
Surprisingly, those who saw these future images ended up investing 2% more in
their retirement accounts compared to those who didn’t. Just seeing. A
realistic version of their older cells made them more serious about preparing
for the future.
Another study asked participants why they save money. The results revealed that people who mention retirement or emergencies as their reason were more likely to save regularly than those who were saving for short term goals like buying a house or going on vacation. So, if you’re saving or investing for your old age that isn’t selfish, it’s smart. You’re simply securing your future so you won’t have to depend on anyone later.
Inflation is like an invisible tax
Now let’s talk about the second reason inflation. Inflation
is like an invisible tax that quietly eats away at your purchasing power year
after year, whether it’s groceries, education, transportation or property
maintenance, prices continue to rise over time, even if your salary stays the
same in the short term, inflation might not seem like a big deal, but over the
years, its impact can be enormous. For example, if the annual inflation rate is
2% your money will lose half its purchasing power in 35 years. If inflation is
5% that same loss happens in just 14 years, the higher the inflation, the
faster your money loses value. So how do you fight back the answer? Lies in
investing by purchasing assets that grow in value over time. You can beat
inflation and preserve your wealth.
Let’s consider an example. If you had invested just $1 in
long term US Treasury bonds back in 1926 that money would have grown to $200 by
the end of 2020. But if you had invested the same $1 in a diversified basket of
US stocks, it would have grown to over $10,000 during the same. That’s the
power of long-term investing.
Now imagine you’re retired. You’re no longer earning a pay check, but the cost of basic necessities keeps rising. If you’ve been investing all along, you’ll still have a stable, passive source of income to support your lifestyle.
Turning your human capital into financial capital
Finally, let’s explore the 3rd reason to invest
turning your human capital into financial capital. Human capital refers to the
value of your time. Knowledge and skills. While you can improve your knowledge
and develop your skills over time, there’s one thing you can’t increase your time
as you age, your energy and capacity to work naturally decline. You won’t be
able to do everything you can do today. Let’s say you weren’t $50,000 a year
for the next forty years, and you consistently save 15% of that income while
earning an average return of 6% annually. Over time, not only will you
accumulate enough money to meet your needs, but the magic of compound interest
will allow your wealth to grow even faster. Even after you retire, your
investments will continue to generate income for you.
If you start investing today, you’ll be able to enjoy peaceful retirement tomorrow. You won’t have to worry about paying medical bills, securing your children’s future or covering day to day expenses even as you relax and enjoy life with your loved ones. Your money will still be working for you, growing in the background and giving you the freedom you deserve. So, concept is noun and giving you the freedom you deserve. What should you invest in now that we’ve covered why you should invest? The next big question is, where should you invest? You’ve probably come across countless investment gurus on YouTube or read books that claim to show you the one perfect path to wealth. But here’s the truth.
Where should you invest?
There is no single universal route to becoming rich. There
are many different ways to build wealth. What works for someone else might not
be the best fit for you That’s why it’s important to study different approaches
and to understand what suits your personal situation. Ultimately, your goal
should be to build a diversified portfolio of income producing assets.
Keep investing consistently across a mix of assets over the
long term. So, what types of investments should you consider? Let’s explore
some major asset classes that can help you build wealth We’ll look at the
benefits and risks of each along with how to invest in them. But before making
any decision, be sure to understand each asset thoroughly. Let’s begin with
stocks, also known as equities.
When you buy stocks, you’re buying ownership in a company.
Stocks are one of the most reliable long-term tools for building wealth. A
group of researchers study the stock market in terms of 16 countries from 1900
to 2006. Despite major global events like two world wars and the Great
Depression, every single one of these countries delivered positive long-term
returns.
For instance, Sweden averaged an 8% annual return. The US
came in at 6.8% and even the lowest Belgium had a 2.7% return. Another
advantage of stocks is that they required no maintenance. Once you buy them,
you don’t have to manage them yourself, yet they can continue generating
returns for you. However, stocks do come with a downside volatility
historically. Stock prices have dropped by 50% roughly twice every 100 years by
30% every four years and by 10% almost every other year.
These fluctuations can be emotionally challenging, especially for new investors. Is to focus on the long-term history shows that overtime stock prices recover and grow even after major crisis time in the states is your best friend.
So how can you buy stocks?
So how can you buy stocks? You can check with your bank or
open an account with a reputable online stockbroker. You can purchase
individual stocks or you can invest through exchange traded funds. ETF’s or
index funds, We recommends index funds because they allow you to invest in a
broad range of companies easily and affordably.
For example, investing in an S and P 500 index fund gives you exposure to the top five 100 companies in the United States. A total world index fund, on the other hand, lets you explore high performing stocks from around the globe as a shareholder, you can earn dividends your share of a company’s profits alongside capital gains next.
Buying Bonds
Let’s talk about Bond’s buying, a bond essentially means
you’re lending money to a government or corporation for a fixed. In return,
they pay your interest known as a coupon until the maturity date when your
principal is returned. The yield from a bond is calculated by dividing the annual
coupon payment by the bonds purchase price.
For example, if you buy a bond $1000 and receive $100
annually, the EU. Is 10%. When most books talk about bonds, they usually refer
to US Treasury bonds. But there are many other types, municipal bonds, loans to
local governments, corporate bonds, clones to companies and foreign government
bonds, non-US bonds often offer higher interest rates, but they’re also
riskier. Why? Because unlike the US government, which can print money to pay
its debts other governments or corporations can default on payments during
tough times.
Since bond returns are usually lower than stock returns,
they serve as a diversifying asset. They help balance risk that while they may
offer modest returns, bonds are relatively safe and aren’t as affected by
market swings as stocks.
Another reason to include bonds in your portfolio is their
consistency, even when riskier assets are down, bonds tend to provide stable
returns. You can also use them as a source of liquidity.
For instance, if the stock market crashes and you lose your
job, having bonds allows you to sell them for cash without a major loss. Buddy
bowl your money is in risky assets you can face serious trouble. We saw this
during the COVID 19 pandemic. Imagine three different portfolios, 1 with only S
and P 500 stocks, another. With 80% stocks and 20% bonds and a third with 60%
stocks and 40% bonds. When markets hit rock bottom in March 2020 the All stock
portfolio suffered the most.
The 60,40 mix, however, held up better due to its bond allocation. In short, even with their lower returns, bonds can act as a safety net during crises. You can buy individual bonds directly but the author suggests investing in bond ETFS or index funds for ease and diversification. You can explore these options through your bank or a trusted online brokerage.
Investing in property
Now let’s move on to real estate investing in property can
be a powerful wealth building move. You can rent it out, allowing tenants to
help pay off the mortgage while you benefit from the long-term property
appreciation. If you take a loan to buy property that’s called leverage, for
example, with $100,000 you can buy a $500,000 property by borrowing the
remaining $400,000. If the property’s value rises to $600,000 you can sell it,
repay your loan and still walk away with a $200,000 profit, doubling your original
investment. But leverage can work both ways. If the property value drops to
$400,000 and you sell it, you lose your initial $100,000 investment.
Fortunately, such large crashes are rare. And over time,
real estate generally appreciates. That’s why many investors use leverage to
their advantage. Now let’s talk about the downsides as a landlord, you’ll need
to manage tenants, maintain the property and possibly list it on platforms like
Airbnb, while real estate can deliver higher returns than stocks or bonds. It
also demands more effort. It’s not a diversified asset you’re taking. On
concentrated risk. If your property faces issues or a crisis like the COVID 19
pandemic hits, you could suffer significant losses. Still, if you’re looking
for more control and tangible ownership, real estate real estate might be the
right path for you. Just make sure to research thoroughly, consult experts and
prepare for the technical and legal complexities involved.
Real estate investment trusts (REITS)
Lastly, let’s explore REITS real estate investment trusts. REITS
It allow you to invest in real estate without managing properties yourself.
These are companies that own and operate income generating real estate as an
investor. You earn dividends from their profits by law, REITS are required to
pay out 90% of their income as dividends. They’re different types of REI T’s
residential reids own apartments, single-family homes, student housing and more
commercial. REITS focus on office buildings, retail spaces and warehouses. Your
REITS can be publicly traded, private or non-traded public. Private REITS are
offered only to accredited investors. Those with a net worth of over $1
million. Public non-treated REITS are not listed on stock exchanges, but may be
available through crowdfunding platforms. Publicly traded REITS are available
to everyone and can be bought like stocks instead of buying individual area.
The author recommends investing in REITS index funds, which offer broader
diversification.
REITS often perform well at good times and can even
outperform stocks. However, during market crashes, they can fall just as hard.
That’s why they’re considered more of a risky asset than a true diversification
tool. Let’s now compare these income reducing assets. Stocks offer 8% to 10%
average annual compounded returns. Bonds typically offered 4% to 4% real estate
can return 12% to 15%. REITS generally return 10% to 12%. Other investment
opportunities include business.
Franchises or angel investing, which can provide 20% to 25% annual returns, along with high growth potential farmland offers 7% to 9%. It works well as a hedge against inflation. Royalties offer relatively steady returns between 5% to 20%. However, crypto currencies gold and artwork don’t provide reliable income and are highly speculative they may or may not be suitable depending on your risk tolerance.
Why you shouldn’t buy individual stocks
Why you shouldn’t buy individual stocks. There are two strong reasons why you should avoid investing in individual stocks. First is financial and the other is existential.
Financial argument.
Let’s start with the financial argument. Even the world’s
best professional investors with full time analysts and advanced research tools
consistently struggle to outperform index funds like the S and P 500. So, if
they can’t beat the market, what are the chances that you and individual
investors will research shows that nearly 75% of actively managed funds fail to
outperform their benchmark over a five year.
These funds are backed by highly trained teams, yet they
still underperform if the professionals can’t consistently pick winning stocks,
it’s unlikely that casual investors can do better. Further studies reveal that
only a tiny percentage of individual stocks perform well in the long run. One
research paper titled do stocks outperform Treasury bills found that between
1926 and 2016 just the top 4% of US stocks were responsible for all the markets
outperformance compared to Treasury bills. That means 96% of stocks either
underperformed or failed to deliver any meaningful return.
So ask yourself this, what are the odds that you'll pick a
stock from the winning 4% rather than the underperforming 96%? To make matters
more sobering, consider this. If you look at the Dow Jones industrial average
for March 1920 none of the twenty companies that made up the index back then
are part of it today. Even the biggest, most successful companies don’t stay on
top forever picking. The right stock is far more difficult than it seems,
beating the market is a rare achievement even for the most skilled investors.
The odds are stacked against you and the risks of losing money are high. This is why owning a low cost index fund or ETF is generally a smarter choice. Not only does it reduce your stress, but it also lowers the chances of significant financial loss. Index funds spread your risk across hundreds of companies offering more stability and consistent returns over time.
Existential argument
Now let’s move on to the existential argument This point
questions your confidence and skill as an investor. How do you really know
whether you’re good at thinking individual stocks will 1 good trade over a day
a week or year prove that you’re a skilled investor? Probably not. In fact, it
could take years to know whether your decision was based on the skill or just
pure luck. And even then, you’ll have to wait and compare your results with an
index like the S and P 500 to see if you truly did better.
And here’s another challenge. What if your outperformance
isn’t due to your analysis at all, but rather due to factors beyond your
control? Suppose a stock you picked rises dramatically, not because you saw
something others didn’t, but simply because it got popular on social media.
Would that still be considered a skill? Let’s assume you’re a professional
investor managing a mutual fund, according to studies, even professionals tend
to underperform their benchmark over a three year. And when that happens, they’re
left wondering. Was it just a rough patch, or have they lost their hedge for
good? That’s the existential dilemma. It’s mentally exhausting and emotionally
draining, analysing individual stocks, monitoring the market and constantly
evaluating your returns can quickly become a stressful, full-time job. Worse, a
single drop in a stock price can wipe out a large portion of your investment in
just hours.
Now, of course, we need stock makers, analysts and active
investors do provide value helps. Set prices and keep markets efficient. But
for most everyday investors, there’s a better way by investing an index funds
at E. T. F. You can avoid unnecessary stress and reduce the risk of losing your
hard earned money. You don’t have to guess which stock will win. You simply
keep buying a piece of the entire market. It’s not just a safer strategy, it’s
a smarter one. It’s a smarter one.
How soon should you let’s brighten the mood a bit with some
good news. Did you know that the stock market rises more often than it
involves? In fact, throughout the 20th century, Dow Jones Industrial
average and group of just 66 points to over 11,497. And this growth didn’t
happen in peaceful times. It happened while the world went through two major
wars, Great Depression, more than a dozen recessions Oil crises of flu epidemic
and even the resignation of a sitting U. S. President. And this pattern isn’t
limited to the US market alone. As we saw earlier, global equity markets have
also shown long term positive trends over the decades, despite facing numerous
challenges.
So if. The odds are in your favor, why wait every day you
delay investing is a missed opportunity for your money to grow. The sooner you
begin, the more time you give your investment compound and multiply. So don’t
wait for the perfect moment. Just get started Now imagine you suddenly come
into possession of one $1,000,000 and your goal is to grow it steadily over the
next 100 years. You have two options. You can either invest the entire $1
million today or invest just 1% of it. That’s $10,000 each year for the next
100 years. Which strategy sounds better from a long term growth perspective,
the better choice would be to invest the entire million. Dollars up front. Why?
Because the earlier you invest, the more time your money has to grow. If you
spread it out over a century, yes, stock prices may rise, but the remaining
cash sitting idle will slowly lose value due to inflation Of course, putting
all your money into the stock market at once may sound risky, but you can
reduce that risk by building a diversified portfolio, perhaps 60% in stocks and
40% in bonds this way.
You still give your money the power to grow while protecting
yourself from major losses. In fact, a 60,40 portfolio can outperform a
strategy where you invest $10,000 in stocks every year, even though. That
approach is 100% invested in equities. That’s the power of time and smart asset
allocation May. Be you don’t have $1 million lying around and that’s OK. What
matters is this.
The stock market generally goes up over time. So, the best time to invest isn’t someday it’s now by investing early you not only give your money more time to grow you also shield it from the slow poison of inflation and most importantly you take meaningful steps toward building a secure and comfortable retirement. So don’t wait for the stars to align. Just keep buying start today.
Why you shouldn’t fear volatility
Why you shouldn’t fear volatility. Here’s another piece of investing advice that may surprise you. The biggest risk is not taking any risk at all. If you’re afraid of stock prices falling and avoid investing because of that fear, you’ll miss out on one of the greatest opportunities to improve your money. To succeed as a long-term investor, you must learn to accept volatility, market unpredictability and the. Inevitable dips along the way.
Let’s consider a thought experiment. Imagine there’s a
magical genie who appears at the end of each year and tells you how much the US
stock market might drop at its worst point during the next year. Now this genie
can’t tell you which individual stocks to pick or how the market will perform
overall, but they can tell you the maximum entry year drawdown, meaning the
largest drop from the market’s high to its low in a given year. Here’s the
question. At what point would you decide to exit stocks and move into bonds?
What if the Genie tells you the market could drop 40% next year? Would you stay
the best? What about a 20% drop? What’s your personal limit before you answer?
Here’s some context that might help from 1950 to 2020. The average maximum
entry year drawdown for the S and P 500 was around 13.7%. The worst single year
drop happened in November. 2008 with the index fell by nearly 48%.
Now let’s explore a few possible scenarios. Scenario one. Suppose you’re a very conservative investor. You tell the Genie you won’t invest in stocks during any year when the market is expected to drop by 5% or more. The strategy is known as avoid the drawdown in this case. You have your money entirely into bonds during those volatile years. But if you had followed this strategy from 1950 to 2020 you’d have ended up with 90% less wealth compared to someone who simply followed a buy and hold approach.
Staying invested in stocks throughout regardless of
market swings
Staying invested in stocks throughout regardless of market
swings. Why? Because markets experience 5% drops almost every year. In fact,
there were only seven years in that entire year. Span when the drawdown was
less than 5% So by avoiding risk, you would have also avoided most of the stock
market’s growth scenario too. Now let’s say you only skip years when the market
is expected to drop by more than 40%. In this case, he would have only exited
the market in 2008. And yes, this strategy might slightly outperform by and
hold, but the difference would be minimal. So we see two extremes avoiding all
volatility results in massive. Underperformance while trying to dodge only
extreme crashes barely offers an edge. This leads to a more balanced strategy.
Avoid investing in stocks only in years when the expected
drawdown is greater than 15%. In this scenario, you chip to bonds during highly
volatile years and investing stocks during the rest. This method offers a good
balance between minimizing risk and maximum wealth. Under this strategy, you’d
be out of the stock market about one 3rd of the time only during
years with high volatility. But if you tighten your tolerance to 20% or 30%
drawdowns, you’ll end up staying in the market during its worst periods and
lose money instead of gaining. Now here’s the catch.
There is no genie. There’s no way to predict future
drawdowns with certainty. You can’t know in advance whether the market will
drop 5%. 15% or 40%. And because predicting future volatility is impossible,
there’s only one solution. Diversify your portfolio by investing across a
variety of asset classes, stocks, bonds, real estate and more.
You reduce your exposure to the unpredictable nature of the
market. Diversification won’t eliminate volatility, but it can help you manage
it and stay invested with confidence and most importantly, except that
volatility is part of the game. If you can’t stay calm when the market drops by
50% which historically happens about once every century, then perhaps investing
isn’t for you. But if you can stay the course, that’s how you win the long game
in the World of investing there is expensive and patience is powerful.
So I’ve got a question for you. What do you think is more
important knowing how to speak with a lot of preparation a how to buy during a
crisis The COVID 19 pandemic shook the entire world and the financial markets
were no exception. On March the 23rd 2020 the S and P 500 index had
fallen by 33% from its recent high. If you were an investor during that time,
what would you have done? Would you have panicked and sold your stocks or would
you have held your ground staying calm in the face of lockdowns? Business
closures and overwhelming uncertainty?
A famous quote from Baron Rothschild, an 18th century banker, gives us something to think about. He once said the best time to invest is when there’s blood in the streets. Rothschild grew his wealth during the chaos of the Battle of Waterloo when most investors were fleeing his philosophy still holds true today. When prices are low and fear is high, that’s when opportunity is greatest. If you buy with the market crashes your investments can grow dramatically as the market recovers.
Historical Example
So, let’s take a historical example. Suppose you had
invested $100 every month in the U. S. Stock market from September 1929 to
November 1936 a period that covers the infamous 1929 crash and the subsequent
recovery data shows that each $100 you invested would have grown by November 1936
but the most powerful gains would have come from the money invested during the
lowest point of the crash in the summer of 1932 those $100 investments alone
would have grown to $440 by late 1936 1936 that’s more than 4 times the
original value and this kind of explosive growth during a recovery isn’t
unusual.
In fact, most market crashes can lead to 50% to one. 100%
gains in the recovery that follows. Why does this happen? It’s a simple but
powerful mathematical truth recovering a loss requires a much bigger percentage
gain for example. To recover from a 10% loss you need an 11.1% gain a 20% loss
requires a 25% gain a 50% loss you need a 100% gain to break even if you were
to plot this relationship on a graph it would show an exponential curve
illustrating how deep losses require even steeper gains to recover.
Take March 23rd 2020 again the S and P 500 was
down 33% according to the math it needed a 50% gain to return to its previous
high and it did. Exactly that in just six months investors who had the courage
to buy during that crash saw their money grow by 50% in half year still in more
proof let’s look at data from every time the market dropped by 30% or more
between 1920 and 2020 if you had invested during those drawdown months your
chances of earning less than 5% annually were under 10% more than half the time
you would have earned over 10% annualized returns. Now here’s the kicker if the
market had dropped by 50% and you invested at that point your odds of earning
over 25% annualized returns were greater than 50% in other words there’s no
need to fear market crashes. They often offer the best opportunities to invest
and grow your wealth historically markets tend to recover completely within a
few years or at most a decade still skeptical.
A study of 39 countries from 1814 to 2019 found that the probability of inflation overpowering long term stock market returns was just 12%. That means there’s only one in eight chance that inflation investment returns over 30 years now here’s one last perspective you might think what if I invested the absolute worst time take the Japanese stock market for example if you had invested a lump sum at its peak in December 1989 you might still be underwater decades later but what if instead you had invested just $1 a day from 1980 to 2020 even with the crashes and lost decades you would earned a small positive return.
The power of consistency
This is the power of consistency this is the power of just
keep buying so ask yourself would you sit on the sidelines paralyzed by fear
every time there’s a crash or if you take action investing while others
hesitate and position yourself for massive gains because the truth is those who
invest during their crisis don’t just survive, they build real wealthy wealth
eventually stock prices will climb. 25% 50% maybe even 100%. The only question
is will you still be waiting or will you already be on your way to becoming
rich? Hello highly effective people think and grow in Icky guy rich dad and
poor dad pour of cabbage compound effect secret way to becoming today. When
should you sell this book encourages you to just keep buying to invest
regularly and consistently but eventually there will come a time when you’ll
need to sell and that’s one of the hardest decisions in investing. Why? Because
your emotions will try to convince you to hold on a little longer hoping for
even more returns or they’ll urge you to sell immediately to avoid potential
losses to avoid falling into that emotional trap.
You need to be clear about one thing. Never sell impulsively
instead. Sell for specific reasons either to rebalance your portfolio, exit a
concentrated position or fulfil a financial need. Outside of these three
reasons avoid selling just a dodge taxes or chase market timing before we break
down these situations, let’s remember this sell at the right time not in haste
as we’ve discussed earlier, the market tends to rise more often than it falls
even if you decide to sell years from now, chances are that your investments
will have grown For example, 60% of US stocks and 40% in US bonds.
If you have $1000 that means $600 in stocks and $400 in bonds. But over time, your higher return assets, like stocks, will begin to dominate your portfolio. If you never rebalance your asset mix can drift far from your original plan. For instance, if you had invested $1000 in 1930 and didn’t touch it for 30 years, by 1960 your portfolio would have shifted from 60,40 to somewhere between 75% and 95% stocks. On the other hand, if you had rebalanced annually, your allocation would still remain close to 60% stocks and 40% bonds. That’s because stocks outperform bonds over time and rebalancing allows you to gradually lock in those games. By shifting some profits into safer assets.
Rebalancing
Yes, the never rebalanced strategy may outperform slightly
due to higher stock exposure, but smart investors rebalance to control risk.
The goal of rebalancing isn’t to maximize returns. It’s to protect against
unwanted volatility without it. Your portfolio could morph into something far
riskier than you originally planned. Annual rebalancing is often the most
practical approach you have. To only have to do it once a year, which means
less monitoring and more Peace of Mind trying to rebalance every time your
stock allocation hits 70% or drops to 50% can be stressful and inefficient.
You can also rebalance during tax season selling off gains
and managing capital gains taxes all at once. This approach saves time and
effort, but frequent rebalancing can lead to higher taxes and may actually
reduce your wealth overtime. There’s another way to rebalance without selling.
The author recommends this approach instead of selling your winners simply by
more of the lagging asset. For example, if your portfolio drifts to 70% stocks
and 30% bonds, you can fix the imbalance not by selling stocks, but by buying
more bonds until your allocation returns to 60,40. This way you avoid capital
gains taxes and continue investing regularly, especially useful during market
downturns when buying more can yield better results.
However, this strategy works best for investors still. In
the accumulation phase. If your portfolio is already grown significantly
continuing to buy more might not be feasible. In such cases, selling to
rebalance may be necessary, but try to minimize how often you sell to avoid
unnecessary tax costs. Let’s move on to the second reason to sell exiting a
concentrated musician. This means having a large portion of your wealth tied up
in a single asset or stock For example, if you work at a company that offers equity
compensation over time, you might find that a significant part of your net
worth is linked to that one stock that’s not necessarily a bad thing until it
is as your position grows, it’s wise to start selling small portions to reduce
your risk.
How much you sell and when your goals, let’s say you have a
mortgage and the majority of your wealth is in company stock you could sell the
portion to pay off the mortgage. Yes, that stock might grow faster than your
home’s value, but that growth is just a possibility. Your mortgage, however, is
a guaranteed obligation. You could sell 10% each month or offload 50% at once
and hold the rest. That’s up to you, but one rule stands don’t sell it all at
once. Large sales can lead to hefty tax consequences, and you might regret it
if the stock price rises later That said, remember this individual stocks often
underperform indexes like the S and P 500 overtime. So ask yourself, what level
of risk are you comfortable with and based on that, plan your selling strategy
Finally, let’s discuss the third reason to sell, to enjoy
your life, whether it’s funding a comfortable retirement and taking a summer
vacation, paying for your children’s education. We’re covering your family’s
health care using your money is not a bad thing. The author highlights a
concept called diminishing marginal utility. This means that the more you have
something, the less valuable each additional unit becomes.
For example, increasing your wealth from $0 to $1 million
brings much more happiness than increasing it of $1 million to $2 million. Once
your family’s needs are taken care of, additional luxury doesn’t add much more.
But giving your loved one’s meaningful experiences, that’s prices. So yes,
selling isn’t a failure. It’s a part of the game. The real purpose of investing
isn’t just to grow your net worth. It’s. to create the life, you always dreamed
of living. In the week, verified being in statement and wow. But this must be
an experience trader.
In fact, I will tell you this guy didn’t have any prior
experience just 30 days before I have helped him to learn all of this using a
conclusion. Let’s quickly revisit what we’ve learned from this powerful
journey. Just keep buying
you explore different types of assets, stocks, bonds, real estate and REIS each asset class comes with its own benefits risks That’s why it’s essential to build a diversified portfolio, 1 that not only wrote your wealth, but also helps you manage risk effectively.
you discovered why you shouldn’t buy individual stocks. Picking winners is incredibly difficult, even for professional investors. Instead of chasing performance, invest in low cost index funds or ETFS and let the market work in your favourite
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