Just Keep Buying

1. Just Keep Buying: The Mantra for Building Wealth

Just. Keep. Buying.

Continuous investment is the key to long-term wealth creation. This simple yet powerful strategy involves regularly purchasing a diverse set of income-producing assets, regardless of market conditions. By consistently investing over time, you can take advantage of compound growth and mitigate the impact of market volatility.

Dollar-cost averaging is the formal term for this approach, which involves investing a fixed amount of money at regular intervals. This method helps to reduce the impact of market timing and emotional decision-making. By automating your investments, you can avoid the pitfalls of trying to predict market movements and instead focus on long-term growth.

Benefits of Just Keep Buying:

• Reduces the impact of market volatility
• Eliminates the need for market timing
• Harnesses the power of compound growth
• Builds wealth consistently over time

2. Focus on Saving When Poor, Investing When Rich

Saving is for the poor and investing is for the rich.

Prioritize based on wealth. When you're starting your financial journey with limited resources, focus on increasing your savings rate and building an emergency fund. As your wealth grows, shift your attention to optimizing your investment strategy.

The Save-Invest continuum helps determine where to focus your efforts. Calculate your expected savings for the next year and compare it to your expected investment growth. If your expected savings are higher, concentrate on saving and adding to your investments. If your expected investment growth is higher, focus on optimizing your investment strategy.

Save-Invest continuum calculation:

1. Determine expected savings for the next year
2. Calculate expected investment growth (current investments x expected return)
3. Compare the two figures
4. Focus on the higher number (saving or investing)

3. Save What You Can, Not What Others Tell You

The best savings advice is: save what you can.

Personalize your savings strategy. Generic savings advice, such as "save 20% of your income," often fails to account for individual circumstances and income fluctuations. Instead, focus on saving what you can based on your current financial situation.

Increase your income to boost your savings rate. Since income is the primary determinant of savings rate, focus on growing your earnings through various means:

Ways to increase income:

• Sell your time/expertise
• Develop and sell a marketable skill or service
• Teach others (online courses, tutoring)
• Create and sell products
• Climb the corporate ladder

Remember that your ability to save will change over time, so regularly reassess your savings strategy as your income and expenses evolve.

4. Spend Money Guilt-Free Using the 2x Rule

Anytime I want to splurge on something, I have to take the same amount of money and invest it as well.

Balance spending and investing with the 2x Rule. This simple guideline allows you to enjoy your money while ensuring you're also saving for the future. When you want to make a significant purchase, invest an equal amount in income-producing assets.

Focus on maximizing fulfillment rather than just happiness. Consider how your purchases contribute to your long-term satisfaction and personal growth. Use the following framework to guide your spending decisions:

Questions to ask before making a purchase:

• Will this contribute to my long-term fulfillment?
• Does it align with my values and goals?
• Is it worth the opportunity cost of not investing the money?

By following the 2x Rule and focusing on fulfillment, you can maintain a healthy balance between enjoying your money now and securing your financial future.

5. Invest in a Diverse Set of Income-Producing Assets

There is no one true path to wealth.

Diversification is crucial for long-term investment success. Instead of relying on a single asset class or investment strategy, spread your wealth across various income-producing assets. This approach helps to mitigate risk and increase the likelihood of achieving your financial goals.

Consider investing in a mix of the following asset classes:

Income-producing assets to consider:

• Stocks (individual stocks, index funds, ETFs)
• Bonds (government, corporate, municipal)
• Real estate (investment properties, REITs)
• Small businesses or franchises
• Farmland
• Royalties
• Your own products or services

Each asset class has its own risk-reward profile, so carefully evaluate your options based on your financial goals, risk tolerance, and investment timeline. Remember that diversification doesn't guarantee profits or protect against losses, but it can help reduce overall portfolio risk.

6. Don't Try to Time the Market or Pick Individual Stocks

Even God couldn't beat dollar-cost averaging.

Avoid market timing and individual stock picking, as these strategies typically underperform a simple buy-and-hold approach over the long term. Research has consistently shown that even professional money managers struggle to outperform broad market indices consistently.

Invest in index funds or low-cost ETFs that track broad market indices instead of trying to pick individual winners. This approach offers several advantages:

Benefits of index investing:

• Lower fees and expenses
• Broad diversification
• Reduced risk of underperformance
• Less time and effort required for research and monitoring

Remember that successful investing is more about time in the market than timing the market. By consistently investing in a diversified portfolio of low-cost index funds, you can capture the long-term growth of the overall market without the stress and uncertainty of trying to beat it.

7. Embrace Market Volatility as the Price of Admission

If you're not willing to react with equanimity to a market price decline of 50% two or three times a century, you're not fit to be a common shareholder and you deserve the mediocre result you're going to get.

Accept volatility as an inherent part of investing in stocks and other growth assets. Market fluctuations are normal and should be expected, even during periods of overall growth. Instead of fearing volatility, view it as the price you pay for potentially higher long-term returns.

Reframe market downturns as buying opportunities. When markets decline, you have the chance to purchase assets at a discount. Consider the following strategies during market volatility:

Strategies for handling market volatility:

• Maintain your regular investment schedule
• Increase your investments if you have additional cash available
• Rebalance your portfolio to maintain your target asset allocation
• Avoid making emotional decisions based on short-term market movements

By embracing volatility and maintaining a long-term perspective, you can potentially benefit from market fluctuations rather than being hindered by them.

8. Optimize Your Investment Strategy for Taxes

It's not about what you own, but where you own it.

Understand asset location to maximize after-tax returns. The way you distribute your assets across different account types can significantly impact your overall investment performance. Consider the tax implications of each asset class when deciding where to hold them.

General guidelines for asset location:

Taxable accounts (e.g., brokerage accounts):

• Low-growth, tax-efficient assets (e.g., municipal bonds)
• Index funds with low turnover

Tax-advantaged accounts (e.g., 401(k), IRA):

• High-growth assets with higher expected returns
• Assets that generate frequent taxable income (e.g., REITs, high-yield bonds)

Remember that tax laws can change, so regularly review your asset location strategy and consult with a tax professional to ensure you're optimizing your investments for your specific situation.

9. Rethink Conventional Wisdom on Retirement Accounts

Maxing out your 401(k) is far less beneficial than it initially seems.

Critically evaluate common retirement savings advice. While contributing to your 401(k) up to the employer match is generally a good idea, maxing out your contributions may not always be the best strategy for everyone.

Consider the following factors when deciding how much to contribute to your retirement accounts:

Factors to consider:

• Employer match (always contribute enough to get the full match)
• Investment options and fees in your 401(k) plan
• Your overall financial goals and timeline
• Need for liquidity and flexibility in your investments
• Current and expected future tax rates

For some individuals, it may be more beneficial to contribute only up to the employer match in a 401(k) and then invest additional savings in a taxable brokerage account. This approach can provide more flexibility and potentially lower fees, depending on your specific situation.

Last updated: August 27, 2024