August 23, 2022
15 Timeless Lessons On Investing And Building Wealth
At a glance
Welcome to the 300(!) new friends of the Mental Models, Concepts, and Frameworks newsletter who have joined us since last week!
This Week: 15 timeless lessons on investing and building wealth
“The most consistent way to get rich is to grow your income and invest in income-producing assets.
This doesn’t imply that you can ignore spending.
Everyone should do a periodic review of their spending to ensure it isn’t wasteful.
But there is no need to cut your lattes.”
“Those who benefit the most from using debt are those who can choose when to take it.
If you can use debt strategically to reduce risk or increase return, then you may be able to benefit from it.”
“The right time to buy a home is when you can meet the following conditions:
You plan on being in that location for at least ten years.
You have a stable personal and professional life.
You can afford it.”
“Save 25 times your expected spending by your first year of retirement.
When you’ve reached this total amount of savings, you can retire.
Another way to determine “When can you retire?” is to find the point when your monthly investment income exceeds your monthly expenses.”
The Financial Argument Against Stock Picking:
”Since most people can’t beat a broad index of companies, you shouldn’t bother trying.”
The Existential Argument Against Stock Picking:
”How do you know if you are good at picking individual stocks?”
It takes too long.
“Because most markets going up most of the time means that every day you end up waiting to invest usually means higher prices you will have to pay in the future.
So, instead of waiting for the best time to invest, you should just take the plunge and invest what you can now.”
“Investing sooner is the best strategy for U.S. stocks and also for nearly every other asset class out there.
The best market timing approach is to invest your money as soon as you can: this is backed by historical data across multiple asset classes and multiple time periods.”
“When deciding between investing all your money now or over time, it’s almost always better to invest now.
This is true across all asset classes, time periods, and nearly all valuation regimes.
Generally, the longer you wait to deploy your capital, the worse off you will be.”
On why you shouldn’t wait to buy the dip:
”While you wait for your beloved dip, you may find that it never comes.
As a result, you end up missing out on months (or more) of compound growth as the market keeps rising and leaves you behind.”
“Only three cases under which you should consider selling an investment:
To get out of a concentrated (or losing) position.
To meet your financial needs.
Selling can have tax consequences, which is something we should avoid as much as possible.”
“Since most markets go up most of the time, waiting to buy usually means losing out on upside.
But, when it comes to selling, since markets tend to go up over time, the optimal thing to do is to sell as late as possible.
In other words, buy quickly, but sell slowly.”
How to sell well?
”Find a selling methodology and stick to it.
Whether that means selling 10% chunks every month (or every quarter), selling half and letting the rest ride, or selling most of it right away, find something that allows you to sleep at night.”
“Whatever you decide to do, don’t sell all of it at once.
Because of the tax consequences and the possibility of regret if the price skyrockets.
It’s this regret minimization framework that you should employ when deciding on how much to sell.”
“Find where you are in your financial journey before deciding where to focus your time and energy.
If your expected savings are greater than your expected investment income, focus on savings; otherwise focus on investing.
If they are similar, focus on both.”
And lastly, always remember:
”No matter how successful you get with your money, there will always be someone with more.
If you win the financial game, make sure you don’t lose yourself in the process.”
These lessons come from one of the best personal finance books I’ve read in the last 5 years:
Just Keep Buying by @dollarsanddata.
If these quotes piqued your interest, I highly recommend getting a full copy of Nick’s book (not an affiliate link):
Just Keep Buying
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