Never Lose Money

Warren Buffett’s famous two rules are never lose money and his second rule is never forget rule number one! Buffett’s bet with the hedge fund investor from the previous blog shows us that fees eat profits. Hedge funds and mutual funds, can have heavy fees attached to them especially if the fund has a financial manager. You cannot control if a share goes up or down, but you can control the fees that you pay to buy and manage the investments. We should seek to minimize cost as much as possible, because rates are the only thing we can control.

In the previous blog on money buckets you should have four buckets of money; your 401k, Roth, brokerage, and checking. Start investing in low-cost index funds in buckets one, two and three to keep more of your hard-earned cash and avoid the fees. Popular index funds are VYM, VIG, VOO, FSTMX, SCHA. Get started collecting more wealth! Remember fees eat profits. Index Funds are a great way to diversify your portfolio and reduce cost! We cannot control the market but we can manage the fees.

Learn to manage emotions. You hear that market went down 10%, is it time to panic and sell like everyone else? If we want to think like the rich, this is the time to buy. Everything is on sale. I recommend you keep a portion of your money ready for these opportunities. Hardly anyone follows this advice. When the market falls everyone starts to panic and they end up selling low and buying high. Over a period of ten years, stocks will return 10%. Therefore, don’t get caught up in the hype let logic prevail.

A interesting study found women were more apt to stay in the market regardless of the ups and downs, and men were more likely to panic and sell. Numerous men seem to panic and sell low. When the sky was falling in 2009 everyone was selling, thinking it was going to go to zero. You can bet Buffett was buying.

In summary, think long term with the market. Remember, over a ten year period, historically expect a 10% return on investments. Leave the short term to the day traders, who get eaten by capital gains tax anyhow and focus on other things like hobbies. Distract yourself somehow. I once heard a story of an investor, when the market was correcting, he typed in the wrong password into his brokerage account on purpose and locked the account, so he would not be tempted to sell based on emotion. In other words, forget about it. With stocks your best friend is laziness. Be lazy and ride out the storm and buy when they fall.

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