By Lucas Counts
Investing is one path to wealth. For many people, it’s the easiest path — you can invest your money, and let the markets (and time) do the heavy lifting for you. Of course, there are no guarantees that you’ll come out ahead, but the odds are on your side.
But investing can be intimidating. There’s a lot to know, a lot to learn, and a lot to understand. Even seasoned investors may feel like they’re flying by the seat of their pants some days. And though the markets are constantly going up, down, and sideways, there are some simple, basic rules that you can apply to make your investing journey a bit smoother.
One way to frame your mindset around investing? Begin with the “Do-Re-Mi” philosophy.
Do-Re-Mi investing: Starting with “Do”
Doe. A deer. A female deer.
Well, not in this instance.
“Do” stands for do. As in “do follow the golden rule!” This means spending less than what you earn and living below your means!
If someone makes $250,000 per year and spends it all, how much do they have left? Zero. I routinely see people make the misconception that wealth begins with a salary, but this is not true. It all comes down to the choices we make with what we have. Focus on what you keep! This is where the money is made. If you have nothing left over, you can never start investing.
Doing things to earn a return entails taking on risks. Keep this in mind! If you have the opportunity to make x%, you also have the ability to lose x%. That relationship between risk and reward is linear. Usually, if one goes up, the other goes up, and vice versa.
Can we try and mitigate that risk? For sure! We can reduce risk by diversifying our assets so that not all of our resources are in one investment. However, it is important to note that when we reduce risk, we generally reduce some of our returns as well.
Mi: my emotions. This is big! If you saw a stock jump 5%, wouldn’t you want to buy it? If a stock goes down 5%, do you want to run from it?
Ben Graham, the man who taught Warren Buffett how to invest, once said, “The investor’s chief problem and even his worst enemy is likely to be himself.” Emotions are a weakness to the investor and weaken your future. Too many people buy high and sell low. This is a losing formula. Rather, we should buy low and sell high. How do we do this? We have to have a plan to take our emotions out of the game and play from a solely data-driven position. This isn’t easy, but it is essential to success.
So remember, spend less than you make so that you can invest, keep in mind that return has risk, and don’t allow your emotions to own your investments. If you do these things and invest with a plan, then money will be your employee — working for you and towards your goals!
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