Perspective

1. Stocks will likely continue to fall for the next 1 month, 3 months, 6 months or 12 months

2. Stocks will likely hit all time highs again in the next 1 year, 3 years, 5 years or 10 years.

3. If you’re a long term investor and don’t need to touch your cash for the next 10+ years then how low the stock market goes and how long it will take before stocks find a bottom doesn’t matter.

4. Stocks will likely continue to trade at a discount relative to all time highs for the next 1-2 years. There is no need to stress if you can’t deploy a massive amount of capital into the market at the current levels. Don’t worry about buying the bottom or catching a falling knife, just continue to invest regularly and dollar cost average.

How to build wealth through investing in the stock market

It’s not about what price you bought VTI/VTSAX or other similar low cost index fund at. Its about how many shares you have.

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Reasonable Investment Plan

I just heard another sad story about someone who lost a lot of their nest egg during the Great Recession and can’t retire until they are 70 years old. This individual is now 60 and trying to figure out how to slow down and still maintain a sufficient salary to meet their goals. This situation likely occurred from either panicking in the middle of a market crash and cashing out or investing in risky assets. Stories like these still strike fear into the hearts of many americans as the doom and gloom mantra dominates the mainstream media headlines in this record setting bull market.

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Six Figures of Finance

We have six figure mortgages, car loans, student loans and sometimes credit card debt.

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Broad Outlook Asset Allocation

I believe our dollars should be broken down into three main categories. Present money, future money and retirement money. These categories should be contributed to after the elimination of debt, with the exception of mortgage debt.

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The Market Cycle

 

I recently read Robert Kiyosaki’s, the author of Rich Dad, Poor Dad, recent article about the seven stages of a financial bubble which was first mentioned in Nobel Laureate Hyman Minsky’s 1982 book titled Can It Happen Again. The seven stages of a financial bubble as Robert Kiyosaki stated in his post are

  1. A financial shock Wave
  2. Acceleration
  3. Euphoria
  4. Financial Distress
  5. The Market Reverses, and the Boom Turns into a Bust.
  6. The Panic Begins.
  7. The White Knight Rides in occasionally.

Stage 1, the financial shock wave occurs when a financial disturbance causes a crisis. Examples include a war, substantial interest rate changes or new technology.

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Preservation Of Capital

Preservation of capital is one of the most important rules of investing. Just like the physician’s oath is to do no harm,  preservation of capital is the investors oath. Abstaining from negative returns and avoiding loosing it all on bad investments is the golden rule. This is probably the top reason why so many individuals fear getting into the market and end up sitting on the sidelines. I’m sure we have all heard the horror stories of people losing their shirts in realestate investing and the like.Continue reading “Preservation Of Capital”

How Many Stocks Should You Own?

I recently read a blog post on investment basecamp blog that addressed the question of how many stocks should an individual investor own. We all know and have heard diversification is the best method to minimize risk in the stock market. Some say diversify across all asset classes including commodities and currencies. According to the basecamp article the academics say that 90% of maximum diversity is obtained by owning a portfolio of 12- 18 stocks. Benjamin Graham recommend 5-25 stocks with each company being large, prominent and conservatively financed. John Keynes recommends 3-5 stocks that you know well and in the management of which you thoroughly believe. Warren Buffett says 5 to 10 stocks if you are able to understand business economics and able to find sensibly-priced companies that possess important long-term competitive advantages. If not Buffett is actually a big fan of indexing and Seth Klarman recommends 10 to 20 stocks that you know very well.
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Where To Put Your Emergency Fund

Having a 3-6 month Emergency fund is one of the best financial moves to makes. Some people even have a 1-2 year Emergency fund which I think is overkill, but to each his own and everyone has their own reasonings and unique circumstances. 

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When Not To Max Out Your 401K

I recently read a post on the small investor’s site about why you should not max out your 401K. The article stated that if you make under 100K you should not max out your 401K because you will not have enough money to fund a decent emergency fund, contribute to an HSA and fund a 529 college savings plan for your children. Continue reading “When Not To Max Out Your 401K”