Tuesday, April 25, 2017

Neighbour Joe - Books for new investor



Before starting this journey, I read a number of books and blogs that provided me with good insight on how to be financially free. I'd recommend checking out these materials if you are thinking about starting your own journey.
  1. Rich Dad Poor Dad This simply written book teaches readers to have money work for them. I am going to highlight a few key points that I have learned from the book. The author, Robert Kiyosaki, also has his own blog that further highlights some of his philosophy.
    1. When investing your money, your aim should be to increase your monthly income and not focus on capital growth. The idea is that if you keep investing to increase your monthly income, you'll eventually have enough monthly income from your investment to never have to work again. 
    2. The author categorizes people into four separate categories. The first are people that make money for others; these are your everyday workers and where a majority of people fall into. The next are people that make money for themselves; these are your self-employed individuals, doctors and lawyers. Then, there are the people who have others making money for them; these are people that run their own company. Finally, you have people who have their money work for them; these are your typical investors, owners or landlords. People in the last category don't have to spend any of their own time and still earn an income.
    3. Traditional education has produced a society of competent, intelligent workers but hardly any owners. Kids grow up learning that if they get a good education, they'll get a high paying job and once they get a high paying job, they'll live a good life. They end up chasing jobs with higher salaries by being better workers but continue to help others make money.
    4. If you want to be financially free, then you need to get out of the "rat race". The author uses the term "rat race" to highlight how a lot of people get trapped in a vicious cycle of working hard for a salary, realizing they need more money, working harder for a higher salary, spending more money because they earn more, and the cycle repeats itself. 
    5. The last point I learned are the definitions of assets and liabilities. The author gives a very simple definition. Assets are something that produces cash for you while liabilities are things that take cash from you. Therefore, if you have more assets than liabilities, then your money is working for you. It was the first time I was introduced to the idea that your house is not an asset because it does not produce cash for you, but instead it takes cash from you in the form of property taxes and up-keeps. Using this relatively simple concept, the author argues that a house is a liability and not an asset.
  2. Unshakable: Your Financial Freedom Playbook This book is written by a famous motivational speaker, Tony Robbins. It teaches people to stay calm and patient when dealing with your finances along with a few other useful tips.
    1. Tony tells people that the best strategy for investing your money is to invest in the long term. This is what people refer to as a buy and hold strategy. He argues that if you consistently invest into the stock market in the form of an index fund, regardless of how the market is actually doing, you'll end up with a decent return over the span of 20-30 years. So even if the market is performing poorly, you should keep investing because that's when prices are low. Then, when the market rebounds, you'll enjoy a significant gain.
    2. When investing into the market, you have to be prepared to ride out when the market is doing bad, hence the title "Unshakable." He states a lot of people lost money during the 2008 recession because they became fearful and sold all their investments when the price was at an all-time low. If they had stayed in the market and kept investing, they would have recovered by now and actually came out on top.  
    3. Asset allocation is important to protect your investments from market volatility. This is just another word for diversification. Tony emphasizes that by keeping your assets diversified, even when the market goes through its cycle, you'll still maintain a decent annual growth in your investment.
    4. The last big point that I learned from the book are the fees and hidden fees that are associated with a lot of financial products. People are often too lazy or too overwhelmed when managing their own investments. This leads them to hire fund managers to do it for them. However, most fund managers fail to outperform the market while charging a hefty percentage. Tony recommends that instead of putting your money into actively managed funds, you should look at passive index funds where the annual fee is much less with a proven better performance. 
  3. Predictably Irrational I read this book during my last year of university because it was recommended by my entrepreneurship professor who was a successful business owner. Unlike the previous two books, this book explores the irrational decisions we make in our everyday lives when it comes to spending. A good example is how consumers are hesitant to buy a $10 product because they know it is selling for $8 across town. However, when deciding rather or not to get a $1000 audio package on their $30,000 new car, they are far less hesitant to spend the $1000. This book helped me identify my own irrational habits and allowed me to approach these situations logically. I definitely recommend giving this book a read as it might help you cut back on some irrational spending. 
By constantly reading materials related to finance or wealth-building, I was able to learn the different perspectives and philosophies of other people. It helped me to greatly develop my own wealth-building philosophy and gave me the confidence to start my own journey. The book I'm currently reading is "The Millionaire Next Door."

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