“Resist the human biased to act. Compound interest is the eighth wonder of the world and never interrupt it unnecessarily.”
It’s a wonderful feeling once you discover the value of financial freedom which is closely related to saving for the future and to the rationale for growing your money and accumulating wealth through long-term stock investing. Historically, stocks have shown the best return over the long term dating back almost a full century and becoming a long term investor is key to financial freedom.
From the Forbes Advisor chart, you can observe that stocks have averaged 9.59% annual returns since the 1929 Great Depression. That’s more than 40% more than bonds’ average annual returns, and over 10% higher than a balanced portfolio of both stocks and bonds. This demonstrates that remaining invested in stocks and not panicking during market dips is the best way to position yourself for long term growth.
Invest in your future
Whatever you financial plan to achieve financial freedom, it’s essential that you spend less than you earn, that you build an emergency fund, that you pay yourself first, and that you invest for the long term in order to benefit from the power of compounding.
The best way to learn investing is by doing it, explained Vitaliy Katsenelson, CFA. in a letter in which he shares investing advice to new investors. Take as much money as you are can afford to lose (because you may lose it), and invest it. Look at this sum of money as real-world tuition and leaning, and start investing one stock at a time. The most difficult part of investing is staying rational when you get blindsided by the volatility of the markets. Paper trading portfolios and practice investing won’t blindside you. Understanding your emotions that real losses and gains evoke in you and dealing with these emotions is incredibly valuable.
https://youtu.be/hAhju2ANgj
Invest, don’t gamble or speculate.
Do the research and analysis of a company with rigor and document your research. You’ll learn a lot from documenting and writing up your research. And, by documenting your research will keep you rational. And, don’t forget the wisdom of Charlie Munger that “All investments should begin by measuring risks”.
Avoid acting irrationally when investing
Investors are prone to two opposing but equally debilitating fears, says Katsenelson: the fear of missing out when times are good in the stock market, and the fear of loss when markets are volatile. These two fears have absolutely no relationship with rational investing decisions. As a result, the more you are dominated by these fears, the less rational you are.
Patience to wait for the right investment opportunity to deploy your money (your capital) and then focus on it with single minded dedication can lead to lasting success. Thus, patience and a single-minded focus are key to investing success and financial freedom
Finally, mindset is everything. Without the belief in yourself that financial freedom is achievable, then little else matters. Your past doesn’t define your future, but if you truly focus on and work towards what you deserve, you can change your future to what you like.
“Spend each day trying to get a little wiser than you were when you woke up…Slug it out one inch at a time, day by day. At the end of the day – if you live long enough – most people get what they deserve” Charlie Munger
References:
- https://www.betterinvesting.org/learn-about-investing/free-videos
- https://www.betterinvesting.org/learn-about-investing/investor-education/investing/letter-to-a-young-investor
- https://www.forbes.com/advisor/investing/stock-and-bond-returns/
- https://www.vrdnation.com/poor-charlies-almanack-by-charlie-munger
- https://fortuneclub.co/poor-charlies-almanack/