Badass vs Dumbass
Master your Financial Kung Fu to be one and not the other.
Go to Sifu’s Notebook for 13 Investing Rules for Massive Wealth
Primer: Who are Sifu & Ronin
Episode 6: Richie Ronin
Sifu: Ronin, you excited? We‘re going Next Level today, and dive head-first into investing – the right way. The way that gets you to Richie Rich status before you know it. You are going to need knowledge, discipline and patience.
Ronin: Giddy-up cowboy! I am def stoked. Sounds intimidating though! You going to break all this biz down for me, bossman? It’s going to be complicated as Calculus, isn’t it? Maybe I’m not ready for this.
Sifu: No way, #1. Relax. I’m not asking you to architect a high-velocity trading program for Wall Street. Now, that would be more intense than university math! If you follow along, step-by-step, you’ll figure it out. No worries.
Ronin: Ok, ok. I take your word for it – you’re The Boss. I’m in!
1.Start ASAP
Sifu: Excellent. Let’s start with the first rule: start immediately, if not sooner, like yesterday.
Ronin: Our time machine is still in the shop, Marty McFly. How about next year or maybe when I hit 30 or 35? That’ll give me time to save up, so I have a decent wad of cash to invest. What’s the rush anyways, Sifu. Don’t we need that patience you referred to, and maybe take our time?
Sifu: Only if you want to stay a broke ass bitch forever, #1. That patience will come in very handy, but not now. Right now, the urgency is there to just start, way before you’re 30. Know this: the sooner you begin investing, the more time your money has to grow. Remember, that is the bottom line. If you don’t plant your money seeds now, how do you expect to reap the rewards from your future big-ass forest of money trees?
Ronin: Speak of the devil; I’m learning about planting seeds in my garden right now. Cousin Cletus gave me a baggie of his infamous wacky tobaccy seeds. Got my watering jug ready to rock them to life!
Sifu: Thought you were done with prison, Ganja-breath?
Ronin: No, no, no! No going there – no way. Didn’t you hear, it’s totally legit to plant a few at home these days. The world is your oyster, my man.
Sifu: Is this Cletus’ side hustle now? It never ceases to amaze me how many different entrepreneurial ventures he’s tried. Some worked out pretty well, so maybe that explains why he is rich AF. You can definitely learn from him, BUT with eyes wide open.
Ronin: Def paying attention to Cuz, but will remember to use that discernment you’re teaching me about. I only like iron bars at the gym, not in the Big House.
Sifu: Good. Please stay on the right side of the law. The judge don’t play. Ask me how I know.
Ronin: What? You on the wrong side of justice – no way! You gonna spill beans?? I heard the rumors – you took out some really rough gangster thugs back in the day, messed them up. That was for real?
Sifu: Í am old AF, #1. It’s hard to live life without seeing a lot. We’ll save that for another day, Little Killa. We have bigger fish to fry today. And, remember not to bring any of those foul ganja odors into my house, hear me, Stank Man?
Ronin: Ai-ya! Yeah yeah – totally. Sifu only puts the best fuel into his body including pure clean air. I learned that lesson when you reacted to my dollar store cologne the other day – my bad, bossman!
Sifu: Ok, ok. Back to business. Investing is 100% required. Totally non-negotiable, #1. You can’t get rich just by saving your money. Unless your annual salary is like a million dollars. So what’s that – around $39k every 2 weeks? You rockin’ bigass paychecks like that, Ronin?
Ronin: I wish, big man! Not even close. But I do plan to keep my nose to the grindstone and work up the corporate ladder. Hopefully one day!
Sifu: Oh boy, again with the hope. I got no problem with your ambitions, but in the meanwhile, we have to work with what we have, don’t we, son?
Ronin: Cool, cool. So, I think I get why I need to start now. This is about leveraging compound interest, right? You showed me that chart once. In that example, if someone invests $200 a month starting at age 25 with a 7% return, they would accumulate about $500,000 by age 65. Delay it until 35, and they would only have about $240,000 by 65. So in that example, delaying the start for 10 years would cost the investor $260k – that’s some serious cheddar, Money Man.
The most powerful force in the universe is compound interest.
Albert Einstein
Sifu: A+, #1. Thank you for recalling that chart – it’s a classic, isn’t it. Leveraging compound interest transforms normal savers into awesome investors. You want to be normal or awesome, son?
Ronin: Hahaha, again with those rhetorical questions, Sifu! AWESOME today and everyday … obviously! But I still don’t have a ton of cash today? That’s why I asked about starting when my savings account had way more dineros in it.
Sifu: True, true. It certainly helps if you started with a significant amount of cash upfront, but this is NOT a necessity. Even in the example you just gave, the investor is only putting $200 a month from his income into his investment. Is that doable for you? I bet you can even do better than that.
Ronin: Yeah yeah, for sure! All set – we’re doing this. I’ll aim for at least the $200 per month, and can always increase it, yes?
Sifu: Oh yes. Absolutely YES. That’s the spirit, #1.
Ronin: Cool, cool. What’s next, boss?
2. Set Specific Goals
Sifu: Alright, next is setting clear goals. What are your objectives for all this money you’re going to have in the future? Are you trying to fund an amazing vacation every year, early retirement, buying a home, etc.?
Ronin: Oh yes boss! When I have more FU Money than Gordon Gecko, the plan is All Of The Above and don’t forget about my automatic Swiss watch collection and that beachfront party pad in Thailand.
Sifu: Nice goals, Geico! Nothing wrong with dreaming big. If you can envision it, you’re on your way to transforming those dreams into tangible goals. Now, know that you have some lofty goals, so you gotta save even more than that starter $200 per month, right? And, you have to put the funds into riskier investments; those that have the potential to grow faster than safer ones. Good thing you’re young, #1! This strategy works best when you have time on your side, as you do now. Investing now into asset classes like stocks and real estate would probably align better to hitting your goals. No risk, no reward, right? As long as you can sleep at night with your choices, it’s all good.
In investing, what is comfortable is rarely profitable.
Robert Arnott
Ronin: Can do, boss. Done and DONE!
3. Educate Yourself
Sifu: Very good, Ronin. Now, let’s talk about education.
Ronin: Can’t I just binge-watch CNBC? I love my 65” 4k TV, so I could do that.
Sifu: Wow BoobTubeMan, I’m sure you could. That would be a start. But I’m talking about deeper learning, like reading a selection of good financial books you can easily find at your library. As a bonus – it’s free. Paid for with our tax dollars. Hahaha. Learning the fundamentals is crucial. Armed with this knowledge, your decisions will be made with confidence. Very important, #1.
An investment in knowledge pays the best interest.
Benjamin Franklin
Ronin: Heard. I can do that, Sifu. No problemo. Sweet young librarians don’t hurt the eyes either 😉
4. Diversify
Sifu: You kill me, Lady Killa. Now, let’s get into the power of diversification. Don’t put all your investments in one asset class. For example, spread your investments across stocks, bonds, real estate, and so on. This is an excellent way to manage overall risk.
Ronin: A-ha! So don’t put all my money in that one hot tech stock that’s all over TikTok. This diversification technique sounds opposite to gambling! Not as much fun, but I can see it’s way safer. Those all or nothing bets only work in Hollywood blockbusters, eh Sifu?
Sifu: Indeed, Raymond Babbitt. That reckless, on-the-edge business only works in Casino Royale. In real life, it’s more likely you end up broke as a joke.
Ronin: I ain’t no Joker! Def not doing that then. What’s next, 007?
5. Invest Consistently
Sifu: Ronin, next you must invest regularly, like clockwork. Just as you practice Kung Fu regularly, invest a portion of your income consistently. This practice helps you benefit from dollar-cost averaging, smoothing out market bumps. No matter how the market swings, just keep investing.
Money makes money. And the money that money makes, makes more money.
Benjamin Franklin
Ronin: Hmmm, if I do it regularly, it won’t even be a chore after a while. Just another habit, right bossman?
Sifu: Yessir, a better habit than going to the Bank of Gramma and Grandpa for another handout.
Ronin: Ooh, low blow. Only happened twice, Captain.
Sifu: Sure, Ronin. Now let’s discuss “risk tolerance”.
Ronin: Is that similar to the risk that I won’t tolerate the dude in his old Duster pulling in front of me in the fast lane and then slamming on his brakes for no reason? Cuz, I lose my shit over rubbish like that. Road rage is just around the corner for me, man.
Sifu: Ha! Always feeling the need for speed, eh Maverick. Before I forget, make sure I enroll you in anger management class. I’d hate to see you behind bars again!
Ronin: C’mon man – you on me again about that? You know damned well that was a case of mistaken identity. How’s it possible that some random guy robs the liquor store, just happens to be my doppelganger?
Sifu: Sure it wasn’t you, Ronin. It just happened to be at the liquor store around the corner from here, and on a Friday night when you and your crew usually hang out and drink ‘til one of you passes out. Didn’t you say your paycheck was delayed that week too?
Ronin: I dunno – sometimes, the stars align for some FUBAR shit, cuz. I promise you, it wasn’t me. Told you I’m way too pretty for the Big House. That’s why I never break the law. Hee-hee.
6. Know Your Risk Tolerance
Sifu: Ok fine – I believe you – this time. Risk tolerance as it applies to personal finance is about how much risk you can handle with your investment choices, without stress.
Ronin: Like, if I can’t handle seeing my investments drop off a cliff, maybe I should go for something less volatile than my kitten on catnip. That said, I can handle pretty wild rides, so maybe something with medium level risk would work for me.
7. Do Not Try to Timing the Market
Sifu: Very good, Ronin. Next is: “Do NOT try to time the market.” Trying to correctly predict whether the market will go up or down regularly is just about impossible, for ANY investor. A fool’s errand. Even professionals can’t do it.
Trying to time the market is a fool’s game. The key to investing is to stay in the market, not to try and outsmart it.
Warren Buffet
Ronin: So not going to play Swami and throw my magic black ball to guide my market moves – gotcha!
8. Minimize Costs
Sifu: Brilliant. Now let’s talk about minimizing costs. High fees can deflate your returns, and kill your performance. Like trying to drive on the highway with flat tires – ain’t gonna hit top speed, right Mad Max? Managed funds often make less than the averages, and after you pay their rip-off fees, you get absolutely nowhere fast.
Ronin: That’s bananas, boss! Don’t those managed funds get paid for “beating” the market averages?
Sifu: Yeah sure, they try … really hard! Hahahaha. There are practically zero funds that are able to beat the market over a long period of time. Sure, they might have a good year, here and there, but over time, no way Jose. Waste of time and money in the long-term. Opt for low-cost investments like index funds or ETFs. Vanguard Total Stock Market Index Fund would be a good example.
Ronin: Excellent information, Sifu. I am staying away from those funds like I stayed away from people coughing during Covid! Done and dusted!
9. Reinvest Dividends
Sifu: Good plan, #1. Now, let’s talk about reinvesting dividends. Instead of pocketing the cash from those dividends, reinvest those funds by buying more shares. This serves to compound your returns over time. Nice?
Ronin: Very nice. Get busy child! What’s next?
10. Stay Informed
Sifu: Stay informed. Keep up with market trends and news, but don’t let them dictate your strategy. Stick to your long-term plan.
Ronin: Fuhgeddaboutdit! Nothing derails The Plan. I will try my best to not lose my cool, when things go bat-shit-crazy.
Sifu: And the market does crazy quite often. And just for fun – when you least expect it. Prepare yourself, knowing this is just part of the cycle and you’ll be gold, #1.
Ronin: Oh I know gold, boss! I have a poster of that gold Rolex I’m aiming for, plastered on my bedroom ceiling.
11. Use Tax-Advantaged Accounts
Sifa: Ah … whatever floats your boat, Poster Child. Let’s discuss using tax-advantaged accounts. Leverage accounts like IRAs and 401(k)s for their tax benefits. Contributions may reduce your taxable income or grow your investments tax-free.
Ronin: So by using those accounts, I get to keep more of my money? Oh baby – gotta love this one! Mo money, mo problems – but I’ll take it and not gonna worry ‘bout them problems. Hahaha.
12. Review and Rebalance
Sifu: You got it, Biggie. Next is: “Review and Rebalance”. This means you periodically assess your portfolio to ensure it aligns with your goals. Simply rebalance your investments to maintain your desired asset allocation.
Ronin: Got it, boss. Adjust my portfolio as needed. I’m going put that task into my scheduler – DONE! Genius, am I right?
Sifu: More like idiot savant, but yeah, that’s impressive! Nice to see you on top of things so quickly.
Ronin: Strike while the iron is hot, cuz the cold iron doesn’t get the job done, am I right, Master?
13. Be Patient
Sifu: Ah, yes indeed, Iron Man. 100%. Last is “Be Patient”. Investing is like a marathon. Avoid reacting rashly to daily market fluctuations. Patience, like discipline in Kung Fu, is key to long-term success.
The stock market is a device for transferring money from the impatient to the patient.
Warren Buffet
Ronin: Oh, no worries there, boss. I have plenty of patience, practiced every morning when I’m waiting in a huge lineup at Starbucks to get my Ultimate Venti White Chocolate Mocha.
Sifu: Say what!?
Ronin: Oh yeah, don’t forget to add espresso shots and tangerine syrup. Yeah Mon, good to go!
Sifu: What kind of numskull morning routine is that?
Ronin: Hahahaha, gotcha bro! Just playin’. Looked like you were about to blow a gasket! Don’t worry, I make my own fancy coffee drinks at home now, with that crazy espresso machine you hooked me up with. I’m my own barista, dude! Drinks are seriously as good as outside for like pennies on the dollar. WIN-WIN!
Sifu: Phew! You are my star pupil, #1. I’ll have gold sticker for you tomorrow.
Ronin: Yee-Haw, MF! Game on!!
Sifu’s Notebook
13 Investing Rules to get You Rich AF
1.Start ASAP: The earlier you start investing, the more time your money has to grow.
Starting early lets you harness the power of compound interest, where your returns generate even more returns over time. Even modest, consistent investments can grow substantially when given enough time to work.
Example: Imagine starting to invest $200 a month at age 25. With an average annual return of 7%, by the time you reach 65, you could accumulate around $500,000. However, if you delay and start at age 35, that same $200 monthly investment would grow to only about $240,000 by age 65, despite contributing the same amount each month.
2. Set Specific Goals: Clearly outline your financial objectives to shape your investment approach.
Understanding your investment purpose—be it retirement, purchasing a home, or funding education—guides you in selecting the appropriate investment options. Well-defined goals help maintain your motivation and ensure you stay on track with your long-term plan.
Example If your goal is to buy a home in 5 years, you could steer towards more conservative investments like bonds and high-yield savings accounts. For retirement 25 years away, a more aggressive portfolio with a higher stock allocation may be more suitable.
3. Educate Yourself: Learn the fundaments of investing, including different asset classes and risk management strategies.
Most people know nothing to very little about personal finance after graduating school. Not learning from parents, teachers or friends cannot be an excuse. Start doing it yourself. Grasping essential concepts like stocks, bonds, mutual funds, and diversification helps you make informed investment choices. Education diminishes the fear of the unknown and gives you the confidence to take charge of your financial future.
Example: Take courses, read books such as “The Intelligent Investor” by Benjamin Graham. You can also follow expert financial blogs, forums, and news sites. Understanding terms like “diversification,” “asset allocation,” and “compound interest” will help you make smart financial decisions.
4. Diversify: Allocate your investments across different asset classes to reduce risk.
Diversification means not putting all eggs in one basket. By investing in a mix of (optimally, non-correlating) assets, you can protect yourself against significant losses if one investment performs poorly. Your overall portfolio will end up being more sustainable.
Example: Instead of putting all your money into high-flying AI chip stocks, diversify by investing in a mix of stocks, bonds, real estate, and commodities. This way, if one sector turns down, your overall portfolio won’t likely suffer.
5. Invest Consistently: Make it a habit to regularly invest a portion of your income, no matter the market’s ups and downs.
By regularly investing, you can benefit from strategies like dollar-cost averaging, which helps you navigate market fluctuations. This approach allows you to buy more shares when prices are low and fewer when they’re high, smoothing out volatility over time.
6. Know Your Risk Tolerance: Understand how much risk you can take without panicking.
Your risk tolerance depends on your financial situation, goals, and personality. Understanding it helps you choose investments that won’t cause undue stress or lead to rash decisions. What works for one investor may not for another, so you must know yourself.
Example: If you lose sleep over market drop, you probably have a low risk tolerance and should opt for a more conservative portfolio. On the other hand, if you’re good with short-term losses for larger long-term gains, your risk tolerance might be higher.
7. Do Not Try to Timing the Market: Prioritize long-term growth over quick wins.
Predicting market ups and downs is notoriously tough and usually does not work. Historical data suggests that a steady, long-term approach with regular investments and patience through ups and downs often leads to better returns than trying to time the market.
8. Minimize Costs: Reduce fees and expenses to maximize your returns.
Over time, high fees can eat a large chunk of your investment gains. Go for low-cost investment options like index funds or ETFs to keep more of your money invested and growing.
Example: Instead of choosing actively managed funds with high fees, go for ETFs or low-cost index fund. For instance, the Vanguard Total Stock Market Index Fund has a low expense ratio of 0.04%, compared to the average mutual fund’s 1%.
9. Reinvest Dividends: Reinvesting dividends can significantly enhance your returns over time.
By reinvesting dividends, you buy more shares, which can, in turn, generate more dividends. This compounding effect accelerates the growth of your investment.
10. Stay Informed: Keep up with market trends and economic news, but don’t let it drive your strategy.
Books and even information you’ll find online eventually gets outdated. You need stay on top of it with the most current information possible to make the best decisions today. Staying informed helps you understand the bigger economic picture and make educated decisions. However, avoid making rash changes based on short-term news.
Example: Follow financial news from reputable sources like Bloomberg, CNBC, or The Wall Street Journal. Also read from current expert online financial sites. Stick to your long-term plan.
11. Use Tax-Advantaged Accounts: Leverage accounts like IRAs and 401(k)s to benefit from tax advantages.
· Traditional IRA: Contributions may be tax-deductible, and the investments grow tax-deferred, meaning you don’t pay taxes on earnings until you withdraw the funds in retirement.
· Roth IRA: Contributions are made with after-tax dollars, but your investments grow tax-free. Withdrawals in retirement are also tax-free, which can be beneficial if you expect to be in a higher tax bracket later.
· 401(k): Usually provided by employers, contributions are made pre-tax, reducing your taxable income for the year. Some employers also offer matching contributions, which is essentially free money added to your savings. The investments grow tax-deferred until withdrawal.
*** Canadians: Use RRSP, TFSA, RESP, RDSP, FHSA ***
12. Review and Rebalance: Periodically, assess your portfolio and make changes to keep it aligned with your financial goals.
Over time, your asset allocation can drift due to market conditions. Rebalancing ensures your portfolio remains aligned with your risk level and investment strategy.
Example: If your target asset allocation is 50% stocks and 50% bonds, but after a year of strong stock market performance, your portfolio is now 70% stocks and 30% bonds, rebalance by selling some stocks and buying more bonds to return to your original 50/50 split.
13. Be Patient: Investing is a long-term endeavor. You should resist the urge to over-react due to short-term market shifts.
Market fluctuations are normal, and reacting impulsively to these can hurt your long-term gains. Patience and discipline are essential to successful investing.
Example: During the 2008 financial crisis, many investors panicked and sold their stocks at a loss. Those who remained invested witnessed their portfolios recover and grow by huge margins in the subsequent years. Patience and a long-term perspective are key to successful investing.
