Congratulations! If you’ve made it this far, you can now call yourself an investor and you’re well on your way to building some serious wealth for the future.
So what now? I hate to be the bearer of bad news, but unfortunately, good investing, is usually boring.
“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas. ”– Paul Samuelson
If you want to ensure that you’re going to end up with a big pot, you need to stay consistent. That usually means investing regularly, not trying to time the market, being diverse and generally not having any fun with the stock market.
There’s a reason people go to a casino and there’s a reason the house always wins. People see the potential of a big pay day and think “if I can just catch a break here, I’ll be rich!”. If it was that easy guys, everyone would be doing it. How come you never see any day traders in the forbes rich list? Exactly.
The only people you see hitting the big time, didn’t actually hit the big time. They walked to the big time. It took them longer, but they did it without breaking a sweat. That’s the side benefit of being consistent, it means you don’t need to stress over buying St the lowest price or wondering whether to sell if markets explode, you will be safe in the knowledge that your strategy is driven by data. Nice.
“It is remarkable how much long term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”Charlie Munger
So just invest every month in the same assets and that’s it?
Of course not! Through your investing life, there will be opportunities. Once you know what to look for, you’ll realise that opportunities come along all of the time. Here are some great places to go next:
Although this investing method can be uneventful, one thing you should be doing periodically is to rebalance.
Rebalancing is the act of altering your portfolios allocation back in line with your criteria.
As an example: Let’s say at the beginning of the year you had 6 ETFs, each representing 15% of your portfolio for a total of 90%, with the remaining 10% in single stocks.
Over the year, hopefully they will have all made money but undoubtedly some will have made more than others. Some of your ETFs might represent much more than 15% of your portfolio, whereas some might be substantially less. Maybe you caught some real good picks and stocks now represent 20% of your portfolio. If your criteria is still the same, you’ll want to sort your portfolio allocation so that it gets back to the allocation you chose at the start of the year.
In a normal rebalancing scenario like this, we would look to top up the stocks that haven’t performed as well (providing they’re still a sound investment) so that they now represent the correct percentage in the portfolio. We tend not to sell the over performing stocks wherever possible and would rather just gradually add more into the underperforming ones.
Rebalancing can also be a good time to add some new stocks if you need or your criteria has changed. Think that hydrogen fuel companies are going to be winner this year? Maybe add some of these companies to your portfolio in favour of some industries you think won’t perform well.
While rebalancing yearly is common. We prefer to rebalance every 6 months. Especially with the market being as volatile as it has been recently, it makes sense to ensure that your portfolio is doing what you need it to do.
Think about researching and investing in other asset classes
Having a diverse portfolio of stocks and shares is one thing, but for a truly bullet proof portfolio, you’ll want to look at other classes of investment as well.
Perhaps you’d like to invest in a rental property at some point? Looking at precious metals like gold and silver could be worth a look. What about dipping you toe into the Crypto currency world? There’s many asset classes out there and anyone of them could be the one for you. Do some further reading and learn by doing.
Learn about picking stocks
Even though were big fans of having a stable base of market tracking ETFs in our portfolios, we sill invest in single companies that we think are worth it. These range from large cap companies paying a solid dividend to smaller companies that we think have potential for growth.
Not sure what companies are worth it? Why not head on over to our cheapskate portfolio section to take a look at what stocks we’ve invested in and why we invested.
Build a war chest
“Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold”– Warren Buffet
As with the recent Covid pandemic, there will be opportunities that come along in our lifetimes where there will. Be bargains aplenty. The Covid pandemic a d the subsequent world wide lockdown sent world stock markets into collapse. Even stocks like amazon briefly experienced a pretty big dip (right around March 20th).
These dark clouds as Buffet puts it, rain gold but don’t come along very often. The majority of big companies are going to recover, so it’s time to put the bucket out, and the bigger the bucket the better! The difficulty here is, most people don’t have a big sum of cash to capitalise on golden opportunities like this.
In steps the war chest. The war chest is basically a pile of cash that you’ve saved that you can use to quickly and effectively cash in on great opportunities like this. They don’t come around often (I know I know, we said timing the market doesn’t work, but unprecedented events like this are worth a look) so having it there for these opportunities is a great move. We tend to keep 9 months worth of expenses ready for emergencies, but are happy to manage with three, so if an opportunity comes along, 6 months worth of expenses is on hand ready to invest.
Don’t stop learning
“An investment in knowledge pays the best interest”– Benjamin Franklin
You’ve already made a fabulous choice to visit cheapskate investing which is a great resource for all things investing! Make sure you keep your finger on the pulse and keep educating yourself on personal finance, there is always more to learn. You can only control the things you know about, so be sure to continue to keep up to date with your investments and current affairs.
Why not take a look at our investing, budgeting, earning and portfolio sections for some other great articles!
Thanks for reading! next up in our investing for beginners series we talk about making that first investment and specific stocks and shares!
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