the simple path to wealth Flashcards
no bonds chapter included
what is the biggest obstacle to build wealth?
debt is the biggest obtscale, now days people normalized debt but basically if you have debt you cant save.
beside not being able to make wealth debt is bad for:
1-you are a slave to your employer, you must stick to job even if you hate it because you must make the debt.
2-you are constantly stressed, ashamed, worried, hopeless.
how to pay off debts?
you must lower your life style, no more wasting money activities, and discipline yourself.
scaling back life style and using money to pay off debt put the foundation for independence.
steps: 1-list all your debts in order of interests. 2-eliminate all uncessery spending (coffee,dinner,drinks) 3-pay the minimum of all debt then direct all your money to the one with the biggest interest.
explain the beware of good debt section?
1-business loans: businesses usually borrow money to maintain cashflow, its good but risky and needs extreme caution.
2-mortgages you need to beware of that, if you are going to do it then choose the smallest house that meet your needs, rather than the largest house you can finance.
3-students loans are all traps.
change your mindset to build wealth mindset, ex?
most people dont enter work with the mindset I want to be a millionaire, I want to retire fast, they start with the mindset ahh I just want money to play, compound money, small amount of money invested in stocks can worth a lot with time.
how to think about money?
most people dont build wealth because they live high consumption life, relative to their income, that what we see in athlete the most.
the formula is, spend less than you make, invest the extra and stay out of debt.
and always value opportunity cost never forget it.
what is the main investment the book talk about?
investing in index funds.
truths of stock market:
1-the market is the most effective wealth build tool.
2-the market always go up over time. why? 1-because its self-correcting the companies that perform bad get replaced by new that perform good, 2-owining stock is owning part of company that is trying hard to survive.
3-the marker is volatile: market crashes of 20% or more happens.
4-inevsting successfully include accepting risk and having the discipline to stay in downturns. spreading the risk by trying to invest in everything is mistake.
5-you cant time the market or defeat it.
the three main questions for investors are?
what investment stage you are in: income producing, post working or both.
what level of risk you can take?
whats your investment horizon? how many years? if you just started your life you are not like normal person who will retire.
by the way your investment stage has nothing to do with your age, and every investment carry risk.
what are the wealth building tools?
stocks, for the writer invest in funds with index.
bonds: invest in bonds fund.
cash: you need to have some cash.
why index funds are better than actively managed funds?
basically lower fees better results.
when you should rebalance your portfolio?
if you hold stocks and bonds, the best is to do it either ones a year or when the portfolio swings by 20%, it typically require selling shares and what have grown and investing more in slower growth.
factors to determine the risk:
your temperament: are you cautious by nature or are you comfortable taking risks?
your flexibility: are you okay with marker downturn?
how money you need to live on?
when you should not rebalance
only in the beginning and end of the year because in these times the market may be skewed by more people buying and selling.
does your portfolio improve if you rebalance it more often?
well, the researches said if you do it ones a year you will do a bit better than who never do it at all.
