Investing doesn’t require you to be a genius, just good enough. Once you’ve got the basics down, you’re on your way to financial freedom. Plus, you’ll stop making mistakes that wipe out your progress. The beauty of investing is that it doesn’t care about your background or education. As long as you have internet and a little bit of money, you can start.
I’ve been investing since 1996, and I’ve made my fair share of mistakes. I’ve lost money in financial crises and made bad bets on stocks and properties. But despite all this, I managed to accumulate a million dollars by the time I was 30. Now, at 45, my investments provide enough income to support a family in expensive San Francisco.
So, how do you become a good-enough investor?
First, know why you’re investing. Are you saving for retirement, your kids’ education, a new car, a trip, or to pay off your house? Bad investors don’t have clear goals and end up losing discipline, turning investing into gambling. Once you know your goals, you can plan how to achieve them.
Second, understand your risk tolerance. This usually takes experiencing at least two bear markets. You’ll likely feel worse than you thought about losing money, but each time you’ll adjust your investments to better match your risk tolerance.
Third, invest enough to feel some pain if things go wrong. This will make you do your due diligence. The more you believe in your investment, the more you’ll invest, and the more research you’ll do to protect it.
Fourth, know the baseline returns and valuations. For example, the historical annual return of the S&P 500 is about 10%. Good investors know it’s impossible to consistently outperform this, so they invest most of their assets in low-cost index funds.
Fifth, don’t attribute your results to wrong reasoning. Conduct a post-mortem analysis of your investment thesis once the results are in.
Sixth, invite dissension. Ask others with differing points of view for feedback. This will help you avoid groupthink and blind spots.
Seventh, be the person in the arena. Don’t be afraid to make mistakes and learn from them.
Eighth, know when to take profits. If you never take profits, there’s no point in investing.
Ninth, never stop studying the markets. Treat investing like a second job or a side hustle. The larger your investment portfolio, the more you should pay attention.
Tenth, pay attention to bond yields. As Treasury bond yields go up, investors can earn more risk-free money. So, calibrate your stock exposure based on bond yields.
Remember, you don’t have to be a great investor to get ahead. Being good enough is good enough!
