free investing training bonus oz chen - 5 timeless principles

The 5 investing rules to succeed as a beginner investor

I almost couldn’t believe my eyes when my portfolio first crossed $100K at the age of 25. Yes, I had been diligently investing in my retirement accounts, but I didn’t know that it could grow that much.

Things feel slow at first. Then you automate your investments. Just a few years later, it’s suddenly way more money than you’d imagined.

Thousands of people experience this wealth-building phenomenon everyday. However, even more people don’t invest and leave their cash sitting, being eaten away by inflation. 

What I’m about to share with you is a tried-and-true method that built my portfolio into multiple six figures and earned me my financial freedom.

Here’s a preview of the 5 timeless investing rules I learned through a decade of investing.

5 Rules to Start Investing
Rule #1: Don’t buy individual stocks (buy the whole stock market)
Rule #2: Buy index funds, not actively managed funds. 
Rule #3: Shares over share price
Rule #4: Don’t time the market – do this instead
Rule #5: Stick to your guns

Want to download this as a guide plus get 3 bonus wealth hacks? Skip to the bonus section.

Note: none of this should be considered financial advice. Just for entertainment and informational purposes only.

Rule #1: Don’t buy individual stocks… Buy the whole stock market. 

Ever heard the phrase “Don’t put all your eggs in one basket?” 

If you buy an individual stock, then you are betting on the success of one company. There are over 4000+ publicly traded companies all with their own stocks. How do you know which ones to pick? 

Even worse – companies come and go. 

Yahoo! used to be a tech darling and was worth $125 billion in the year 2000. Today, you can’t buy Yahoo! stock—it got sold for $4.5 billion to Verizon. So if you bought Yahoo! shares at the peak, and sold it at the bottom…then you lost a lot of money.

I know because this is exactly what happened to my mom in the early 2000s. 

Buying just 1 or a small number of stocks means you’re not diversified. The risk is too concentrated and not spread out.

The solution is to buy a whole basket of stocks in what’s called a fund. By buying into a fund, you diversify across a basket of stocks. If one stock crashes or dies, other stocks in the fund balances it out. 

The easiest way to get diversification in one purchase is to buy an index fund. 

Next, I’ll teach you how to do this cheaply without paying high fees. 

Rule #2: Buy index funds, not actively managed funds

There are many types of funds. The 2 categories that concern you as an individual investor are passive vs actively managed funds. 

Most mutual funds are actively managed by a group of professionals. They hand-pick stocks to put into a fund. For this service, you’ll pay higher fees, which is called an “Expense ratio.” 

Contrast this to index funds. 

An index is just a list of companies, so it’s “passive” and doesn’t require people to actively manage it. Resulting in lower fees. 

The Standard & Poor’s (“S&P”) 500 index is a popular index tracking the 500 largest U.S. stocks. From its beginning in 1957 to 2001, the S&P 500 had an annualized average return of ~10%

Here’s the thing: nearly 90% of actively managed funds failed to beat “the market” (source). Meaning, they couldn’t beat the S&P index’s 10%. 

Not only that, but actively managed funds cost more than index funds. 

This means you can buy & hold an S&P 500 index fund, outperform most other investments, and do it cheaper than active funds. 

This is called index investing and it beats just about 90% of other investments out there.

Rule #3: Shares over share price

People get hung up on share prices: “Netflix stock is $200! Now it’s 100!” 

Rising prices suck attention. Let’s say a stock price rises 30%. The news makes a big deal out of this, and so investors want “in” on this stock before it goes up higher. So investors buy high. 

Later, some bad news comes out. You get nervous and sell the stock, which you didn’t *really* believe in that much after all. 

This is how you buy high and sell low – the opposite of what you want. 

Focus on accumulating a certain amount of SHARES in an asset that’ll grow, and ignore the noise of ever-fluctuating share prices. 

You don’t have to obsess over share price when you invest into the stock market via an index fund. 

If you know that long term the stock market goes up 10% every year, then your holdings should track the index and perform similarly. 

Then you can just focus on the game of acquiring more shares over time. 

Speaking of which, here’s a “hack” everyone should know…

Fractional shares

Let’s say Company ABC offers 1 share of their stock for $300 each. For some, buying one share at a time might feel like a lot of money. 

That stops a lot of people from even investing. Not many people know you can buy a fraction of a share. 

  • BEFORE: Wait to have enough for 1 share worth $300. 
  • NOW: Buy fractional shares: “I can buy $100 worth of a stock priced at $300, or 0.33 shares” 

This is easy to do in free investing apps like Robinhood or Public.

The psychological advantage of fractional shares is that they help you focus on accumulating shares, versus being hung up on share price. 

Now, let’s explore: when should you be buying stocks?

Rule #4: Don’t time the market, do this instead

Dollar cost averaging (“DCA”) is just a fancy word for repeating purchase. In this case, that purchase is an investment. 

DCA is an antidote to timing the market, which is waiting for a stock price to fall before buying.

Timing the market is not a good strategy because, well, most people can’t time the market. How do you know when something will go up or down, or what world news might affect share price? 

Be like Warren Buffett, who famously said: “Time in the market beats timing the market.”

People who attempt to time the market tend to keep too much money on the sidelines, waiting for the right opportunity. As they wait, their money is not working. Here I’ll share another quote from Warren Buffett’s right hand man, Charlie Munger: “The first rule of compounding is to never interrupt it unnecessarily.”

Don’t interrupt the magic effects of compounding by trying to time the market. The people who invest consistently build their wealth without the stress of following the markets. 

Here’s an example of DCA: you set a recurring buy of $100 worth of the S&P 500 Index every Monday. 

Whether you do $100 or it’s monthly instead (depends on your personal financial situation), the key is to make investing a truly “set it and forget it” activity. 

After you start index investing…is it really that easy? What should you do next?

Rule #5: Stick to your guns

Once you’ve started investing, don’t change your investments too much.

Your shares are like seedlings that take time to grow. 

Changing your mind and selling/buying investments reactively is like repotting a new plant over and over. Your money won’t get the opportunity to compound over time, and grow. 

“The first rule of compounding is to never interrupt it unnecessarily”
—Charlie Munger. 

This is another reason why index investing is behaviorally superior than picking single stocks. 

With any individual company, you need quite the conviction to put so much money into one company. Is the company going to do poorly this year? What if industry trends turn against this stock? 

With the S&P 500 index, the only conviction you need is the statistically performance that the U.S. stock market will return ~10% per year. 

_ _ _ _ _ 

Bonus wealth hacks

Rules #1-5 are the core behaviors that drive long-term investing success. Follow these and you will build wealth.

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