When/what is sufficient for me?
Recently I’ve been asked by a Friend on how much should he be investing if he has $20,000…..
My question back to him is this… What kind of life do you truly want to live in the next 20-30 years ?
The fundamental question that everybody tends to neglect or thinks that he/she has the answered to it.
In order to know how much stocks you should buy/invest, you need to have the answers to these 3 questions.
1) What are your current spending habits? – Both fixed and variable expenses (% of your salary)
For e.g : You currently take home $2k a month and spend $1k (50%) of it on phone bill, food, transportation, housing loan and groceries.
The value in understanding how your money is being spent will allowed you to find areas where you can cut them down.
For e.g : Knowing that you spend $200 (10%) on food, you can make a conscious effort to change a $5 per meal to a $4 -3.50 per meal.
2) What is the meaning behind investing?
The preconceived notion of investing has been about earning big money to have a super comfortable life in the future, but I believe there’s a deeper meaning to it.
For e.g : Through investing, you will tentatively allocate a % of your salary to invest or to even save for your “retirement/future” plans. This process itself forces you to not spend over a certain % yet forces you to live a certain lifestyle. To think deeper, the lifestyle that we “force” ourself to be living has a greater meaning as compared to our “lavish/ billionaire” lifestyle that we used to have (When we are not forcing/saving/investing). Hence, that is why we are still doing it or learning to create one.
3) What is diversification of asset?
As the word is, diversification, is to divide your money/assets evenly to reduce the risk of losing it all due to volatility and unforeseen circumstances. This is important as shared previous on when should we buy more shares, about how dangerous the gamber’s fallacy is.
FunFact: Do you know if you would to split half of ur money into stocks and the another half into bonds it is NOT A BALANCED PORTFOLIO? As stocks are riskier by nature, you are actually facing a ratio of 3:1 (Meaning 3 to stocks and 1 to bond) of your total invested capital.
Ideally what we should hope to seek a balance portfolio that will make us feel less stressed yet at the same time…. rewarding!