When it comes to financial advice, many ‘experts’ will give you their two cents for a lot more.
I frequently speak to hard-working potential investors who know little about financial markets yet want to escape their reliance on costly financial advisors, conflicting advice and management fees.
I can tell you, from my own experience as a would-be investor, the quickest and surest way to reach your financial freedom is to do it yourself. Taking control of your finances and investing will pay dividends for many years to come and it can be cheaper and easier than you think.
Following the very simple, yet wise words of legendary investors such as Warren Buffett, Charlie Munger and Peter Lynch will help you on your way to becoming financially independent. Here are my top five quotes for individuals looking to secure their financial freedom today.
#1 “An investment in knowledge pays the best interest”. – Benjamin Franklin
As an individual, this is the most important advice you can take on-board when you begin buying and selling shares. Learning how to invest is more important to your success than anything else. Valuations, ratios, financial statements and even share prices are daunting to new investors – I know they were to me – but many free services exist which will educate you to understand seemingly complex finance jargon. The Motley Fool Australia offers a free 13-part guide titled, “How to invest.”
#2 “Rule No.1: Never Lose Money. Rule No.2: Never Forget Rule No.1”. – Warren Buffett
According to Investopedia, during the GFC of 2008, Warren Buffett’s wealth fell approximately $23 billion and his company, Berkshire Hathaway Inc (NYSE: BRK-A) (NYSE: BRK-B), also lost a chunk of its market value. Why didn’t he sell out of his shares when his worth dropped by $10 billion? The answer is simple, he would have lost money.
Buffett and his team conduct painstaking analysis of every single investment they make. That is why he has become one of the richest people on the planet and continues to grow his wealth. He trusts his judgement and invests on the presumption that the market could close-up shop for 10 years and he wouldn’t need to worry about his company or the money he invested. His long-term strategy has paid off time and again. According to data compiled by Forbes, his wealth has climbed by over 45% since 2009.
#3 “Know what you own and why you own it”. – Peter Lynch
Too many people invest in ideas, names and speculation. Lynch was a famed fund manager who had an impeccable track record of success. One of his simplest investment strategies was “invest in what you know”, which encourages investors to look at the companies whose services or products they use every day as a starting point for an investment case.
Of course there is more to a successful investment than merely buying companies whose services from which you derive the most satisfaction, because if it were that easy, MacDonald’s Corporation (NYSE: MCD) would be the biggest company in the world. Instead Lynch emphasises the fact that you should not only know the company but also why you own it.
#4 “Live within your income and save so that you can invest. Learn what you need to learn”. – Charlie Munger
What’s the point of working if you don’t have anything to show for it? When you get enough money to invest, make calculated decisions. Remember, patience doesn’t lose you money and you only deserve the best companies in your portfolio.
#5 “How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case”. – Robert G Allen
Stock markets involve risks. If you cannot accept the possibility that your portfolio may drop by 10% or 20% in one year, you’ve got to ask yourself if you are ready to invest. But know this, you are not going to become rich without taking a risk, otherwise everyone would be rich.
If you can follow these simple investment ideas, you may be ready to start on your way to financial freedom, but remember it’s a marathon, not a sprint. Try out what you’ve learnt by paper-trading (investing without real money), setting up watchlists or following some big name blue-chip companies like Commonwealth Bank of Australia (ASX: CBA), BHP Billiton Limited (ASX: BHP) and Telstra Corporation Ltd (ASX: TLS).
And remember to read…
Where to invest $1,000 right now
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.
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