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THREAD: How to invest.
I get hundreds of emails daily asking me how to invest XYZ amount of money to "maximize returns while minimizing risk".
I will try to provide a 5-step framework that should help most people evaluate their investment models/strategies.
I will try to provide a 5-step framework that should help most people evaluate their investment models/strategies.
Step 1: Balance risk and returns.
You can& #39;t "maximize returns while minimizing risk". Life doesn& #39;t work that way.
It& #39;s "high risk, high returns" - stock, seed stage inv, crypto, day trading etc
or
"Low risk, low returns" - bond, money market, CDs, treasury bills etc.
You can& #39;t "maximize returns while minimizing risk". Life doesn& #39;t work that way.
It& #39;s "high risk, high returns" - stock, seed stage inv, crypto, day trading etc
or
"Low risk, low returns" - bond, money market, CDs, treasury bills etc.
Step 2a. Diversify.
Luckily, you don& #39;t have to chose "high risk, high returns" or "low risk, low returns". Instead you can diversify your investment to incorporate elements of both strategies through an investment portfolio.
A portfolio balances your risk and rewards.
Luckily, you don& #39;t have to chose "high risk, high returns" or "low risk, low returns". Instead you can diversify your investment to incorporate elements of both strategies through an investment portfolio.
A portfolio balances your risk and rewards.
Step 2b. Diversify.
Don& #39;t ever put all your savings in any investment instrument. Diversification is the only way to play the investment game.
Don& #39;t ever buy a single stock; a mutual or index fund diversifies your risk.
Always diversify. Repeat after me...ALWAYS DIVERSIFY.
Don& #39;t ever put all your savings in any investment instrument. Diversification is the only way to play the investment game.
Don& #39;t ever buy a single stock; a mutual or index fund diversifies your risk.
Always diversify. Repeat after me...ALWAYS DIVERSIFY.
Step 3a: Create your portfolio.
Split your investment funds into 3 buckets:
1. Long-term aggressive bucket (LAB) - Money you won& #39;t need in 5 -10 years (retirement planning)
2. Medium term balanced bucket (MBB) - 1 - 5 years
3. Short-term liquidity bucket (SLB) - within a year
Split your investment funds into 3 buckets:
1. Long-term aggressive bucket (LAB) - Money you won& #39;t need in 5 -10 years (retirement planning)
2. Medium term balanced bucket (MBB) - 1 - 5 years
3. Short-term liquidity bucket (SLB) - within a year
Step 3b: Create your portfolio.
Assign instruments to the 3 buckets:
1. LAB - stock mutual funds, index funds, real estate, crypto-currencies.
2. MBB - treasury bills, money market mutual funds, bonds, CDs
3. SLB - fixed deposits
Assign instruments to the 3 buckets:
1. LAB - stock mutual funds, index funds, real estate, crypto-currencies.
2. MBB - treasury bills, money market mutual funds, bonds, CDs
3. SLB - fixed deposits
Step 3c: Create your portfolio
Assign percentages to each bucket. Older investors need to be more conservative than younger ones.
Eg
45yo
LAB - 40%
MBB - 40%
SLB - 15%
25yo
LAB - 65%
MBB - 25%
SLB - 15%
60yo
LAB - 20%
MBB - 50%
SLB - 30%
Take some time to understand this.
Assign percentages to each bucket. Older investors need to be more conservative than younger ones.
Eg
45yo
LAB - 40%
MBB - 40%
SLB - 15%
25yo
LAB - 65%
MBB - 25%
SLB - 15%
60yo
LAB - 20%
MBB - 50%
SLB - 30%
Take some time to understand this.
Step 3c: Create your portfolio.
My preferred (43 year old married guy with kids) portfolio is:
LAB - 25%
MBB - 60%
SLB - 15%
Yep. I am very financially conservative and I hate losing money.
My preferred (43 year old married guy with kids) portfolio is:
LAB - 25%
MBB - 60%
SLB - 15%
Yep. I am very financially conservative and I hate losing money.
Step 4: Stick to your principles.
When a sweet investment deal comes along:
1. Place it in one of the buckets.
2. Review your percentages.
3. Decide how much you can put into it without messing with your portfolio percentages.
Don& #39;t EVER put all your savings in any investment.
When a sweet investment deal comes along:
1. Place it in one of the buckets.
2. Review your percentages.
3. Decide how much you can put into it without messing with your portfolio percentages.
Don& #39;t EVER put all your savings in any investment.
Step 5: Start today.
If you have $500, create a portfolio and invest accordingly. Don& #39;t just keep your money in a savings account, always invest a portion of your savings.
You may need to google some of these concepts to fully get it. But don& #39;t allow that to stop you.
If you have $500, create a portfolio and invest accordingly. Don& #39;t just keep your money in a savings account, always invest a portion of your savings.
You may need to google some of these concepts to fully get it. But don& #39;t allow that to stop you.
I will try to answer some of your questions later today, and I hope to start an investment firm next year to help regular people access some of the higher value instruments.
Happy investing.
Happy investing.
Global caveat: This is just a teaching session. It is not investment advise. Please speak to a personal finance professional to help you make specific decisions about your investments.
Summary:
1. All investments have some degree of risk.
2. Diversify to balance risk and return.
3. Create a portfolio (multiple investments).
4. Stick to your principles.
5. Start now.
PS: Don& #39;t EVER invest more than 50% of your savings in a single instrument.
1. All investments have some degree of risk.
2. Diversify to balance risk and return.
3. Create a portfolio (multiple investments).
4. Stick to your principles.
5. Start now.
PS: Don& #39;t EVER invest more than 50% of your savings in a single instrument.
