Recessions and expansions are normal phases of a business cycle in modern free-market economies. A recession occurs when the economy stops growing – instead, it contracts. This happens from time to time – the economy grows in fits and starts. The normal state of an economy is … [Read more...] about Real investors don’t fear a recession
Investing Mindset
How I approach investing
Nobody’s good at predicting recessions
Various organizations and economists in the USA try their hand in predicting when the next recession might occur – none of them have been very successful. The National Bureau of Economic Research (NBER) is the de facto authority that marks the beginning and the end of each … [Read more...] about Nobody’s good at predicting recessions
It’s not healthy to check stock prices every day
If you check your stock portfolio every minute the market is open, you are setting yourself up for failure. Even every day is not good for your portfolio’s health. Perhaps every week is too frequent. Two reasons why this is so: Every-day price changes are random and carry no … [Read more...] about It’s not healthy to check stock prices every day
Most investors underperform the stock market
The bad news is that we, the individual investors, collectively don’t do so well when investing in stocks. The good news is that most of this underperformance is due to our own behavior and therefore can be fixed. Let’s first look at the evidence of our underperformance over … [Read more...] about Most investors underperform the stock market
Beware, the markets go down often!
Because we are long-term investors, we will frequently face market downturns. To better prepare ourselves for these unpleasant but inevitable declines, it is good to study the history of the stock market declines. Looking at the US stock market, on average this is what we … [Read more...] about Beware, the markets go down often!
Investing in installments
One recurring theme in a young earner’s life is that you never have enough money to buy something outright! But what you do have is future cash flow – many years of earnings ahead. You take out loans against the future earnings to buy a car or a house that you otherwise could not … [Read more...] about Investing in installments
Seeking instant wealth? Don’t!
Why so many people seek to double or triple their money in no time? First, it’s the thrill of doing it. And perhaps bragging about it to friends and family. Another reason could be that people don’t really understand the power of compounding. As we explored in an earlier post, … [Read more...] about Seeking instant wealth? Don’t!
Don’t be dismissive of low returns
When we invest, we dream of making it big and making it quick. We all have read overnight millionaire stories in the media. Doubling our money every year or even every two years is our ultimate goal. Getting a return of 10-20% each year sounds very pedestrian and unsatisfactory. … [Read more...] about Don’t be dismissive of low returns
Reinvesting is key
The magic of compounding only bears fruit if you reinvest all the earnings back into it. Let your money run as long as you can. If you take it out too soon – either to spend it or move it to cash – you won’t get the full benefit of compounding. This is best seen by an example … [Read more...] about Reinvesting is key
How does money compound over time?
Compounding is very powerful phenomenon if done over a long period of time. But it is also widely misunderstood. Compounding in our money savings context is simply how we allow any interim returns on our money be reinvested with the original principal. Consider a bank that … [Read more...] about How does money compound over time?