Showing posts with label young investor. Show all posts
Showing posts with label young investor. Show all posts

Saturday 16 May 2020

Warren Buffett offers his 2 best pieces of advice for aspiring young investors












The best advice Warren Buffett can offer to young people who want to invest is to learn accounting. 

Furthermore, he warns investors against obsessing over stock price charts and urges them to focus on buying good businesses instead.




1.  Learn Accounting - the Language of Business

"You've got to understand accounting. You've got to. That's got to be like a language to you," Buffett told Yahoo Finance's Andy Serwer in an interview on March 10.
The 89-year-old billionaire CEO of Berkshire Hathaway (BRK-ABRK-B), whose childhood consisted of running a paper route and selling packs of gum and Coca-Cola door-to-door among other entrepreneurial pursuits only to buy his first stock at age 11, taught himself the fundamentals of accounting.
"You have to know what you're reading,” he added regarding accounting. “Some people have more aptitude for that than others, but that's one thing I learned by myself. Now, I took courses afterwards, for example. But I learned it myself, and largely. So, you have to do that."



2.  Buying Good Businesses

According to Buffett, investors should also have an "attitude that you're buying part of a business, and not that you're buying something that wiggles around on a chart, or that has resistance zones, or 200-day moving averages, or that you buy puts or calls on, or anything like that."
Buffett is referring to technical analysis, or the study of how a stock’s price moves over various periods of time.
"You're buying part of a business,” he added. “If you buy intelligently into a business, you're going to make money.

And then you have to buy something that, in my view, which you'd do if you're buying a business, that you're not going to get a quote on for five years, that they're going to close the stock exchange tomorrow for five years, and that you'll be happy owning it as a business."




Example: Coca-Cola
For example, he pointed to Coca-Cola, a company that he's held stock in for more than three decades while remaining a faithful consumer of its products.
"If you owned Coca-Cola, it didn't make any difference in 1920 when it went public. The important thing was what it was doing with customers,” he said. “You probably would have been better off if there wasn't any market in it for 30 or 40 years, because then you wouldn't have gotten tempted to sell it. And you just watch the business, and you'd watch it grow, and you'd feel happy."
In Berkshire Hathaway's 1988 annual letter, Buffett said he expected to hold Coca-Cola "for a long time." True to his investment philosophy, he also described the investment as owning a portion of an "outstanding" business with "outstanding" management.



Favourite Holding Period is Forever
"[Our] favorite holding period is forever," he wrote in the 1988 letter. "We are just the opposite of those who hurry to sell and book profits when companies perform well but who tenaciously hang on to businesses that disappoint. Peter Lynch aptly likens such behavior to cutting the flowers and watering the weeds."
He emphasized to Yahoo Finance that "the proper attitude toward investing is much more important than any technical skills."

Julia La Roche
Correspondent
April 28, 2020


View photos









Source: Yahoo Finance/David Foster

Wednesday 4 March 2020

What is the Ideal Long Term Investment Strategy for a 21 year old?


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[–]molten_dragon 1 point  
What are you investing for? Retirement or something else?
[–]leapgoose[S] 2 points  
I want to build a retirement fund early on to reap as much compound interest as possible. But, I would also like the option to withdraw from this account 20 years down the line if need be for a down payment on a mortgage for my family or if I want to invest in a real estate property. I also plan to create some medium / short range savings accounts as well.
[–]EvertonFury19 1 point  
  1. Yes, smart to invest in index funds. Up to you what funds those are but you're better off for long-term investments in passive index funds.
  2. Yes, set up Roth IRA and put as much as you can and/or a traditional IRA
  3. Dividend Appreciation ETF is a way to diversify but for a 20-30+ year window, you can go for more aggressive ETFs.
[–]leapgoose[S] 1 point  
Can you recommend some more aggressive ETFs to look into please? and maybe any quick tips you have on analyzing different ETFs? Thanks!!
[–]EvertonFury19 1 point  
Take a look at the rest of Vanguard's ETF. You might want one of the ETFs that tracks the S&P 500 (VTI is much broader but compare VTI to S&P500 performance)
Of course there's no guarantee that any will do better so go with the ETFs that you feel most comfortable and knowledgeable.
[–]leapgoose[S] 1 point  
I see that there is a marginal difference in performance over the last 10 years and a marginal difference in fees -- correct me if I am wrong. I went with VTI for more exposure.
[–]EvertonFury19 1 point  
don't worry about the fees, vanguard is as close to zero as you're going to get compared to most ETFs.
VTI will give you more exposure in the US stock market but everyone compares to the S&P 500 and if you had picked VTI over S&P 500 exclusively would have missed on better returns over the past few years.
[–]penguinise [score hidden]  
My question for you guys is, would it just be smarted to invest $5,000 into VTI and VIG each instead of also having some focused individual stock picking?
It would be smartest to just put all $10,000 into VTI since it is by far the most broadly diversified among those options.
If you desperately need to scratch a stock-picking itch, $4,000 into single names in your position is probably the best time to do it, but what you'll learn sooner or later is that it's quite risky and more importantly in the long run you're not going to beat VTI.
Furthermore, should I setup my Roth IRA (since I haven't yet) first and then include these investments within my Roth IRA? Or should I just put them in any ordinary taxable investment account?
You should contribute the maximum each year to your Roth IRA before doing any taxable-account investing. Worst comes to worst you can always withdraw your original contributions from the Roth IRA without penalty - this is a really bad thing to do, but still much better than never contributing in the first place. Putting money in a Roth IRA is roughly equivalent to a ~17% one-time boost at your age from the taxes you will never pay on the growth.




What To Avoid Investing In When You’re 20-40

If you are investing, or have invested while you were in your twenties or even earlier, that is an excellent first step. However, if you have invested in the wrong things, you have missed out on excellent opportunities for your money to grow. In this post I will explain what to avoid investing in when you are just starting out your adult life.


My Investment

Regretfully, I am giving you this information from personal experience, not from “book-smarts.” In other words, I made this investment mistake and I am telling you this so you don’t have to make the same mistake. I invested money into these types of investments over ten years ago. I had purchased thousands of dollars of these investments. Eventually, I had cashed in many of them but have kept $200 to try to accrue higher interest.

Altogether the investments have accrued around $80 over more than 10 years. This may sound like a decent investment. Keep in mind that I have brought up that a 7% interest rate would double your investments over ten years. I commonly use this number because the lifetime return of investment of the S&P 500 is just less than 10%, and the inflation rate is just less than 3%. With only about 40% return over 10 years, that would mean I have an interest rate of around than 2.6%. Keep in mind, with an inflation rate of less than 3% my investment was not beating inflation. It was not even breaking even. This investment was a set of series I US savings bond.


Savings Bonds Are Overrated

Savings bonds are a form of investment where the government issues these bonds for a set amount that investors loan to them. The savings bonds can receive interest for up to 30 years, but can be redeemed before maturation. They usually make great gifts and savings, but not great investments.

Many people see savings bonds as safe investments. They are, but they are what you should avoid investing in when you are young. They have too small of a return to invest in the long term, although you can cash out your savings bonds before 30 years, the interest they accrue is too small to make up for the lack of risk.


Where Bonds Are Acceptable

Just because individual savings bonds do not make very good investments does not mean they cannot find a place in finance. Savings bonds still make great gifts, especially to young children. Children could see the value of saving and investing from these alone. Savings bonds are safe and have some return so a child would be excited to see money grow, and would want to learn how to make it grow more. Sure, the investment may not beat inflation, but what ten year old knows or cares about inflation? They will just see it as money growing. Furthermore, bond funds are useful in balanced funds to control risk, and to diversify investments. More importantly, bonds should be utilized when you are close to retirement.


Where To Invest Instead

If you are in your 20s – 40s, you should at least be considering investing in funds that are mostly invested in equities (at least 60% equities). You should avoid investing in bonds too much. Your portfolio will lean more towards growth so your money can work harder for you than the other way around. Your investments may be more prone to losses. However, unless you are planning on retiring early, you could expect your portfolio to recover within 10 years and grow further.

If you need money saved within the short term, it may be better to save your money. Savings are almost completely liquid and at least your money will be collecting a little interest instead of dust. Furthermore, there are high interest savings accounts with comparable interest to savings bonds.


Final Thoughts

Investing in bonds may not be the best financial strategy when you are young. But they make better investments than most things. Most people could spend their money as it comes or “invest” in black jack. However, if you want to forge your wealth, you need to give your wealth a little more heat. Investing in equities, real estate, or other high return of investment assets will do more for you in the long run than bonds. Besides, if you are just starting to invest in your 20s – 40s, you will be surprised at how quickly you will have to change gears to preserve your wealth.


BYPAPA FOXTROT


Author:Papa Foxtrot
Most of my life I was careful with money and learned where I should invest it. I was very lucky to have parents who taught me financial literacy when I was young. Unfortunately, I am very lucky because many people lack the financial literacy I know. The purpose of Forge Your Wealth is to teach people who are just starting out in life how to obtain their wealth or anyone who just realized they may need to learn more to handle their finances. I currently have a PhD in biochemistry, just started a job in industry (will not disclose where exactly for personal and professional reasons) and am currently married to the love of my life. I am one of the lucky few people in America who graduated with no student debts, my wife was not. Over the series of a little over 3 years we paid for our wedding with no debt and paid off her federal student loans.
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