Skip to main content

Why Invest, How to Invest, What to Invest in

Why Should You Invest?

Because it'll help you pursue your dreams and free you from financial worries.

How Can you Invest?

You need to save 25% of your income each month. Make a minimal budget and automate the transfer of 25% of your after-tax income to a separate savings account. Thus 25% of your income gets converted into 100% of your savings each month.

First pay off your debts aggressively. Pause your lifestyle improvements at this stage.
Then you should invest in a diversified portfolio. Diversified but not spread too thin.

What Should you Invest in?

(a) Direct 70% of the savings to a bluechip mutual fund or an index fund. Keep doing this for 25 years. Use a systematic investment plan if available. You want to make this process automated so that you are not tempted to reduce your savings when the market undergoes a prolonged drawdown.
(b) Deposit 25% of savings into a safe investment (for example, treasury bonds or fixed bank deposits).
(c) Use the rest (5%) to buy gold or gold ETFs.

You should pause (b) and (c) till you save up for an emergency fund and an opportunity fund. You can invest in real estate if you are a high net worth and can withstand the associated illiquidity.

That's it! Stick to these strategies for 25–35 years and let compound interest do its thing.

“The first rule of compounding: Never interrupt it unnecessarily.”

— Charlie Munger


Labels:

Comments

Post a Comment

Popular posts from this blog

Quotes from "The Social Leap"

These are the lines from William von Hippel in his book “The Social Leap” that I found to be incisive and insightful. “The ability to kill at a distance is the single most important invention in the history of warfare, because weaker individuals can attack stronger individuals from a position of superior numbers and relative safety.” “As if division of labor were not enough, Homo erectus then sealed the deal with the single most important innovation in human history: the control of fire.” “Long before the invention of writing (which is only about five thousand years old), human culture had become cumulative by virtue of our oral storytelling traditions .” “When we weigh up the costs and benefits, we see that farming afforded our ancestors some assurances against starvation, but at the cost of various new illnesses, reduced stature and longevity, excruciating halitosis, and often a far longer working day. The end result was that early farmers worked harder to achieve a worse life than ...
Post a Comment
Read more

The Upside of Disaster

In the previous post , I talked about the tactics rational optimists use to deal with uncertainty: explore and exploit. There are situations where an utter disaster and the resulting uncertainty can change the history for the better. An amazing example is the story of human evolution from chimp-like apes. Here's a brief review of the story told by William von Hippel in “ The Social Leap .” These apes lived in the rainforests of eastern Africa, around 6 million years ago. They ruled the canopy. But then disaster struck. Eastern Africa was tearing away from the rest of the continent, due to plate tectonics. The climate changed. The rainforests disappeared. These apes had to adjust to living in the savannah, at the mercy of great predators. Humans reacted to this disaster by innovating and inventing. Human distinctions — from bipedalism, persistence hunting, to the use of language and tools and our social structure — ultimately are the results of that disaster. They learned to be grea...
Post a Comment
Read more

Gore-Tex and Serendipity

 In the NYT, I read the obituary of Robert Gore , the inventor of Gore-Tex. Gore-Tex is a porous material made of teflon (made of carbon and fluorine atoms; it repels water very easily). If you have used a hiking equipment, from tents to shoes to jackets, chances are that you've used Gore-Tex. He discovered the material by happenstance: "Mr. Gore sought to make more efficient use of the material by stretching it, not unlike Silly Putty. But each time he heated and stretched a rod of PTFE in his lab, it broke in two. “Everything I seemed to do worked worse than what we were already doing,” he told the Science History Institute in a short film. “So I decided to give one of these rods a huge stretch, fast — a jerk. I gave it a huge jerk and it stretched 1,000 percent. I was stunned.”" It's a story that appeals to the chemist in me. It takes a tinkerer to test unlikely scenarios — it's not easy to acknowledge the limit of one's knowledge. For a chemical engineer, ...
Post a Comment
Read more