Top tips for Investing in the stock market by Warren Buffett

Sharing the 5 top tips for investing in the stock market, presented by not anybody else, but the one and only – Mr. Warren Buffett himself.

1. I don't know when to buy stocks, but I know whether to buy stocks. Some people should not own stocks as they just get too upset with the price fluctuations. If you're going to do dumb things because your stock goes down, you shouldn't own the stock at all. I mean that if you buy your house at $20,000 and somebody comes along the house and says I'll pay you $50 – well, just don't sell it.

2. The best thing with stocks is to buy them consistently over time you want to spread the risk as far as the specific companies you're in by being versatile and you diversify over time by buying this company stock this month, that company stock next month. Year after year after.

3. If you save money you can buy bonds, you can buy a farm, you can buy an apartment house or buy a part of the American business. And if you buy a 10-year bond now you're paying over 40 times earnings for something which earnings can't grow, and you know if you compare that to buying equities good businesses. I don't think there's any comparison.

4. You are making a terrible mistake if you say out of a game. Probably you think, it is going to be very good over time because you think you can pick a better time to enter the stock exchange market. The later you start, the worse you will be: in terms of knowledge, experience, and money.

5. I know what markets are going to do over a long period of time. They're going to go up, but in terms of what's going to happen in a day or a week or a month or a year, even I've never felt that I knew it and I've never felt that was important. Keep in mind that in 10 or 20 or 30 years, I believe, stocks will be a lot higher than they are now.

10 Money questions to answer by age of 30

As usual, we continue our never-ending mission to provide you with the best money-related answers to the top money questions. Today we will cover the top 10 most important money questions you need to answer by 30.

1. What is your net worth?
It is surprising how many young people do not know, neither care about their financial worth. Although it might be true that your personality worth cannot be measured in money, you need to be aware at every moment what is your financial stats. In terms of money – net worth means the monetary sum of all your assets (real estate, car, furniture, cash, saving accounts, investments, stocks) minus all your liabilities (debt, financial obligation, mandatory spending).

Precise calculation of your net worth is not an easy task. You need to consider the current market value of your assets, not the price you bought them for, but the price you can sell for. Calculating and understanding your net worth provides you with complete insight on how you are doing, and helps you elaborate your future financial goals.

2. What is your credit score and why is it important?
(we already deeply answered the money question in What is a credit score? article)
Your credit score number is a three-digit indication to potential lenders of your ability to repay money you borrow. The FICO score is the most commonly used, ranging from 300 (worst) to 850 (best) and is calculated based on the following factors: payment history, length of credit history, credit utilization ratio, the mix of credit types in use and number of credit inquiries.

You should aim for an excellent FICO score It includes anything from 750 to 850. The next category down is between 700 and 749. It is still considered good, but it might not get you approved for the best deal the lender offers Anything below 700 – you should consider fixing and improving before even consider borrowing money. Otherwise, even if you qualify for a loan, you might not be getting the lowest possible interest rates on that loan. Mortgage lenders and credit card companies usually reserve their lowest rates and largest loans for people who have exhibited a quality track record when handling credit.

3. How much money do you have, saved in your emergency fund?
It is advisable to have enough money in your emergency fund to cover your living expenses for you and your family for about 6 months. It might sound a lot, but you will be grateful to have access to the money in bad or even worst-case scenarios – losing your job, coping with emergency repairs, or even medical conditions.

Your first goal should be saving 100USD, then eventually growing the saving to 500-1000USD, until you reach the sum of your 6-months expenses. For some people this could be as low as 1000USD, for others it could go up to 10000USD and above. The worst case that could happen to you is the need to declare bankruptcy (we will cover extensively the disadvantages of bankruptcy, and those are not trivial), due to some extreme event.

4. Where do you put an excessive amount of money; you will need in 1 to 10 years?
Plan carefully your financial future. If you are going to need the money in 1 or 2 years, consider buying a Certificate of deposit. They provide a better interest rate than saving accounts (also have some disadvantages). If your timeframe is longer, consider investing in stocks, shares, and bonds. Just be aware that, while the stock market has historically gone up over time, it can go up or down in the short run. Keep in mind that past performance doesn’t guarantee future returns. While stocks may provide higher growth opportunities than Certificates of deposit and Bonds, you want to allow enough time to ride out the downturns and may consider relocating funds into more conservative options to cope with shorter periods of time. Investing in a mix of stocks and bonds is advisable as it lowers your risk.

5. What dividends and interest money do you get?
Interest money is usually paid by the bank on your deposited money, while dividends are periodically paid by companies to you as a shareholder. Dividends are typically paid in cash or additional stock shares. If you are an investor, this is a good way to collect some income while still investing for higher returns. Always keep in mind that dividends might be subject to taxes.

6. How do you diversify your financial assets?
Diversification means spreading your investments across a variety of assets. Those include cash (in different currencies), real estate, stocks, bonds, certificates of deposits, and so on. You don’t want to be putting all your eggs (erg… we mean ‘money’ :)) in one basket. An example of a good stock market allocation would be to invest in companies in the US and abroad, small, medium, and large, well-established (usually considered safer), and rapidly growing businesses. Ideally, you are aiming for a well-diversified portfolio, including deposits, cash, real estate, other properties, to cover for market fluctuations – when some go down, others go up.

7. When are you going to be debt-free?
Calculating your numbers is only one part of the equation. You also need a solid repayment plan with a solid end date. Create your schedule and include a plan for repaying mortgages, student loans, and other loans. If you managed to secure the best term loans and the rates are very low - you might not need to bother paying your debt faster.

On the topic of the credit cards – be very careful with them. If you only pay the minimums, you’re wasting a lot of money on interest and losing a lot of money you should not. Always be careful with credit cards and always pre-calculate how your financial balance change if you are up to paying more and faster.

8. How much money can you comfortably spend on housing and mortgage?
As a general guideline, experts’ advice is to limit your housing expenses to a maximum of 30% of your income. Many lenders obey that number and don’t even consider approving mortgages unless your proposed home expense compared to income ratio is 30% or less.

It doesn’t matter if you rent, lease, or own the place. Always try to lower your housing costs as upkeep and repayments could become huge and threaten your financial stability.

9. What types of insurance do you have and need?
Again, the experts suggest considering life insurance, home insurance, and automobile insurance as the minimum – in order to avoid sinking down in cases of emergency.

If you own your home or car, often you’re required to have insurance, and the minimum mandatory requirements vary depending on your location and specific case. Renters insurance may seem optional, but sooner or later you will realize that it is essential to protect your personal belongings, not to mention some modern buildings require it. Life insurance is a great way to ensure your relatives will be covered in the worst-case scenario. Consider it – especially if you have kids dependent on you.

10. How much do you save for retirement?
There is no golden money advice, as everyone has different goals for retirement finance, but most of the experts suggest you save between 10 and 20 percent of your annual income. Again, it depends on your vision and goals. Some people prefer investing, instead of putting money into retirement plans. Nevertheless, retirement plans are a good option. If you can’t afford much try to just save something there and increase a little with time when possible.

How to save money

As we discussed in Money Master the Game: 7 Simple Steps to Financial Freedom review – the first step to financial freedom is to accumulate some wealth by saving money. According to different surveys though, the majority of the population has difficulties to save money regularly and efficiently. 30% of the US population admits they never had any savings, and only 5% save regularly.

Basically, there are two major forces when it comes to saving money – “develop saver’s mentality” and “get rid of spending opportunities” – or simply said: “focus on saving” and “avoid spending”. We will cover both of them. Surprisingly for most of you, the second one is easier to adopt so let’s start with it.


I. Avoid spending money tips and tricks

1. Get rid of your credit card. Yeah, you have read it right. Possessing a credit card is all about enabling your spending power. Spend anything, anywhere with the minimum hassle. It doesn’t sound right – especially if you would like to cut on wasting money.

2. Leave only the minimum amount you need for the month into your debit card. Nowadays debit cards could be used as efficiently as credit cards, as long as you have the credit in. So, the trick is to calculate your average monthly need to add 50-100 USD on top and immediately transfer everything else into your savings account. Let’s say you need about 800 USD on average for your basic needs, add another 100 for some emergencies and you end up with a monthly allowance of 900USD; All the rest is saved and not touched.

3. Using the strategy at point 2 usually creates an even better saving mentality. Out of fear that you might run out of funds, you would become extra careful about every dollar spent.

4. Remove your CC and DC credentials from any web sites and online wallets. This might sound inconvenient if you have some favorite stores, but that’s exactly the point. The easier it is to spend – the more you will do it based on emotional urges, instead of well-thought needs.

5. Create strict rules in your head. If you need to spend up to 10 USD; take at least 10 minutes to consider if you actually need the purchase. If the amount is 500 USD or more the rule should be – 20 days to consider and weigh all the pros and cons. If after 20 days, you still believe the benefits heavily prevail – go for it. In most cases after the hype about an item or service is gone – you will feel more likely you won’t benefit from owning it. It leads us to the next point…

6. Avoid owning where you could rent inexpensively instead. Many folks get into mortgages slavery or heavy debt owning stuff. The simple rule is – if you buy something expensive – it should be an investment. If it is not an investment – rent it, instead. An expensive home mortgage - you have to repay for the next 30-40 years, would cripple your ability to save and invest for the period while renting an averagely cheap room would let you have some additional funds to invest and operate with.

7. To elaborate more on point 6 – every “big purchase”, which is not an investment should be avoided. A good example is a new/luxury car – you acquired. Only after one year, its price is probably 30-50% down. Not to mention the hassle on maintenance, supporting it, selling it later, etc… Instead if you rent the car for one year you would probably pay about 5% of its price (top), and in most cases, you are covered in any negative scenario.

8. Get rid of everything, which requires expensive maintenance. It applies, especially to expensive hobbies. Yeah, I know it is cool to have a yacht or go for scuba diving regularly. Also, expensive motorcycles, bikes, etc… are on the target. But all of those will require a huge amount of spending to maintain, support and keep in good condition. It’s even worse if you just use them once a year but keep maintaining them (e.g. losing money) all the time.


II. Now let’s look at the best tips and tricks to develop saver’s mentality

1. Inspire yourself by a vision. Simply saving money for the sake of it, wouldn’t work. You need some inspiration and something to keep you doing it long-term. Start by visualizing your dream. It could be to buy your own house, or to own a portion of the best companies worldwide… or anything, as long as it is big, inspiring and challenging. It could even be something for the sake of improving the lives of all people - like “once I have 100 million dollars, I will invest in cure-for-cancer drugs and treatment”. Print your vision – as an image and “slogan”. Now, you know what your dream is all about. If your vision changes (shouldn’t happen too often) – change the visuals too.

2. Break-down your vision into SMART goals. Each goal should be achievable and be done in a timely manner. E.g. – this week I am going to work extra and earn 100 bucks more, or this week I will develop a new skill to be able to earn 100 bucks more per week with it.

3. Surround yourself with savers and get rid of money-wasters. You know the saying “Tell me who your friends are, and I will tell you who you are”. If your friends are just a bunch of squanderers it will be quite difficult for you to withstand the constant urges to go with the flow and waste money on all the activities, they persuade you. Instead, surround yourself with savers. Sounds boring? That’s not always the case – amazing activities require little to no money-wasting and you would be surprised to see what your new friends suggest doing.

4. Change your lifestyle and money-wasting habits. A great example is being a smoker. On average a smoker spends about 3000 – 5000 USD each year for the indulgence of the bad habit. Smoking is not only devastating to your health; it’s also devastating to your savings account too. Another example is going often to your favorite bar. If it is an expensive venue just change it or stop visiting it. The average amount spent on a night out is about 80 USD. If you only do it once a week – it is still more than 4000 USD each year.

5. Start reading and studying about money, finances, and investments. If money is not interesting to you – then it’s not a surprise you don’t have it. Educate yourself more and more, watch or read at least a couple of related articles, or videos each week. The time doing so is not wasted – it is an investment. The faster you learn – the faster you earn. The good news is most of the information is freely distributed over the net. If you need – go to a course or hire a financial coach and adviser. Again, this is not wasted but invested money.

6. Finally, start investing in different assets in order to master the game of money. Stocks, bonds, properties, funds, commodities, saving account. Diversify your investments, but first, make sure you understand what you are investing in and what your plan is if it goes wrong. Never borrow money if you do not have a reliable plan on how to reinvest and get a better rate on them, before returning.

And finally – make sure you enjoy life. Every day we are exposed to luxury habits and lifestyle by the media. That’s what they are paid to advertise and promote. Don’t go with the flow. There are plenty of “free” and still great activities, and lifestyle you could enjoy even more. How much does it cost to enjoy nature in a park or visit the local gym to have some training sessions with your kids, family or friends?