Five Tips to Stay Cool in a Nervous Market

Five Tips to Stay Cool in a Nervous Market

To be a successful investor you have to avoid the natural human instinct to follow the herd.

When the stock market goes down, your natural tendency is going to be to want to sell, and when the stock market is going up, your natural tendency is going to be to want to buy.

In bubbles, you should be a seller, not a buyer. In busts, you should be a buyer.

You have to have the discipline to stomach the volatility of the stock market.

Here are five key ways to develop the strength to go against the herd. 

1. Be Financially Secure

First of all, you have to have some savings.

You’ve got to feel comfortable that you have enough money in the bank that you don’t need what you have invested for many years to come.

Some people think it’s a shame not to invest every penny that they have. In their world, cash not invested is a waste. 

If that’s your thinking, I suggest you think about it this way instead: your cash savings are buying you something very valuable and specific, and that’s peace of mind and the ability to stomach market volatility. You should have at least two types of savings:

A. An emergency account for a car repair or a new fridge. This should be at least $5,000 that are always available.

B. A security savings of either three months’ salary or six months’ expenses. This should also be ready in cash. Apart from giving you peace of mind on the stock market, it will also make it easier for you to take some bold career moves and set boundaries at work. 

2. Don’t Leverage  

Don’t invest with borrowed money.

Most people know not to take an expensive bank loan and invest the money or speculate with the money. 

But there is a different way of borrowing money that is not so obvious to the eye. Many platforms let you invest with leverage – almost without you noticing it: it’s called a margin account. You should avoid this. You should never invest more than you have. 

Investing with leverage has destroyed many good investors, even good value investors who were peers of Warren Buffett.

Call your brokerage platform to make sure that you’re only investing your own money if you’re not sure.

Some more complex financial products contain leverage, but if you are just selling and buying stocks, you’re safe. 

3. View Market Volatility as an Opportunity

Just because something goes down in value after you buy it, it doesn’t mean you’ve made an investing mistake.

Keep your focus on the long term prospect. 

The stock market moves up and down all the time.

In the short term it’s a voting machine, whereas in the long term it’s a weighing machine.

It’s affected by all kinds of events in the world, and few of these events have anything to do with the business of the company that you are invested in. This is just the nature of volatility. But don’t worry, if your company is sound and has some competitive advantages, the stock price will straighten itself out in the long run.

If it’s any consolation Warren Buffett has also invested in companies just to see the stock price drop further. One example is The Washington Post which he invested in during the 1970s. More than a year after he initially invested in the newspaper, the stock price was down 25 percent.

This investment later turned into a profitable one. Four decades later, Buffett exited the position (the original investment of $10 million) in a tax free swap worth more than $1 billion.

4. Research Your Companies

Don’t buy a stock because someone in a podcast predicted high returns and a glorious future for the company.

Research the companies you invest in. Analyse it the way you would, if you were buying the entire company.

  • Make sure it’s a business you understand.
  • Make sure they are profitable. 
  • Make sure you like the management.
  • Make sure that the company has some kind of competitive advantage.
  • Make sure the company doesn’t have too much debt. 

It’s a good idea to use some kind of checklist. You can borrow mine here.

5. Pay a Reasonable Price 

The price of the stock should be reasonable compared with the earnings of the company.

I usually say ‘buy it when it’s cheap’, but I fear that many people will think a stock is cheap if it has fallen from a recent high, and that isn’t necessarily the case.

You really have to look at the value in the company and compare the stock price to that.

Let’s go back to Washington Post for a moment.

Warren Buffett had calculated that it was priced at 25 percent of the intrinsic value before investing in it. That’s like buying one dollar for 25 cents.

That it fell to 20 cents on the dollar does not make the original investment bad. It means you might want to consider buying some more since it’s an even better investment now. 

What if they have no earnings? Don’t invest in it then.

Companies with no earnings or negative earnings are too risky to invest in.

How do you know if the price of the stock is reasonable? If you want to learn how Warren Buffett calculates the value of companies, you are welcome to download my free e-book here.

How To Make Your Child a Millionaire

How To Make Your Child a Millionaire

“I have some money that I would like to invest for my child. How should I invest it?”

This is one of the most popular questions I hear.

The good news is that I get it.

One of my biggest drivers for investing is making my children financially independent long before they are adults.

I want to help my boys create a future where they can do whatever they want in life without worrying about money.

My 8-year-old is passionate about dinosaurs, and the 5-year-old is obsessed with space.

I know… this can change a lot of times before they grow up. But should they wish to dig for bones or study the stars, I want to make sure they can follow those passions.

I also hope they’ll never have to worry about being able to afford retirement. I’m taking care of that for them.

Is it realistic?

Of course it is. But it depends a lot on how much money you invest for them and how good you are at getting a stable return year after year.

You can help them get a good start in life for a lot less money than it will cost them in the future.

I’ll give you some examples.

If you invest $10,000 and receive an average return of 15% a year, it could theoretically become $38 million by the time your child turns 60.

For small children, you have about 20 years before they need to spend money on education abroad or housing.

Theoretically, you can invest $100,000 and turn it into $1.6 million in twenty years, if you get an average return of 15%… and don’t have to pay taxes.

You probably have two objections to this.

First of all, you could argue that 15% is unrealistic, but nonetheless it’s the goal that I myself set for my kids’ investments.

Secondly, taxes are a fact of life, and when you calculate how much the money will turn into, you’ll get a different result if you factor in taxes.

But wait. You have to read on. There are solutions.

This is where you have to be smart about how you invest for your kids. You have to use the tax-efficient ways of investing that are available to you.

The point I’m trying to illustrate with the two examples is the magic of investing for children: there is plenty of time, and compounding can work wonders.

1. Use Tax Efficient Savings Accounts for Children

Almost all countries have some kind of vehicle that allows you to invest for your child without paying taxes on the returns.

In the UK, it’s called a Child Trust Fund or ISA for children.

In the US, you can create education savings accounts such as Coverdell ESAs or 529 plans.

I’m not going to go into too much detail about how much you can contribute or what the specific rules are because it varies from country to country and sometimes from state to state.

The point here is you have to find out how you can invest for your child tax-free, because there will be a way. Most countries have a version of a tax-free account for children.

Rules you should follow when setting it up

Start as early as possible so compounding has time to work.

Set the child trust funds to run as long as possible so compounding can work its wonders while you also avoid it getting paid out while they are teenagers.

2. Use Tax-Efficient Retirement Accounts

Don’t stop at saving for their education.

Set up a retirement account for your child as well (in the US you can set up a Roth IRA for you child and in the UK you can set up an ISA).

Why would you set up a retirement account for your child?

Why wouldn’t you? For very little money, you can secure their retirement because of the wonder of compounding.

Do it as early as possible so compounding can make even a little investment into a lot of money.

3. Invest For The Long Term

There is another way to make your children’s investment more tax-efficient, and that is by investing for the really long term.

Outside the tax-efficient accounts such as the US’s Roth IRAs and the UK’s ISA, you pay taxes on capital gains.

But you only pay taxes when you sell stocks.

So what about investing in companies that you feel sure will still be a good business in 20 or even 60 years?

There are two benefits to investing this way.

Firstly, you avoid paying taxes for all that time if you keep the stock and don’t sell it. Compounding, compounding, compounding.

Secondly, you avoid the worst kind of daredevilish mistakes that many people make.

People make investing mistakes when they think they have found something that will explode in value in the near future. It’s usually too good to be true.

You make better investing decisions when you think very long term.

Overall, there are two ways you can invest. You can pick stocks yourself, or you can invest in an exchange traded fund (ETF).

I am a big proponent of the investing style called value investing. This is a method where you select individual companies whose stock prices have fallen to a level where they are on sale. You can read a lot more about how to do it in my e-book here.

However, choosing individual companies requires some work. You should look at the numbers, go through a checklist, and calculate how much the company is really worth.

If you already know that this would be too much work for you, the passive investing style is your best bet.

Here are the most important investing principles to follow when investing in ETFs:

  • Choose an ETF that follows a stock index (like Dow Jones or S&P 500)
  • Choose an ETF that is cheap in annual costs (should be less than 0.20%)
  • You can look this up on sites like

Learn More About Investing

If you invest in ETFs, you can’t expect the rate of return to be higher than 8% on average a year.

This means that the $10,000 you invest in your child’s retirement account will become less than a million as opposed to 38 million.

If you want to make yourself and your children financially independent, there is no way around it: you must become a good stock picker.

You must learn to follow a checklist, ask some critical questions, and think long-term.

It’s money well spent to invest in courses or a coach who can help you become a better investor.

A good place to begin is with my e-book right here. Make sure you’re on the email list so you can be invited to the free webinar I will be hosting soon.

Seven Mindset Hacks Rich People Use

Seven Mindset Hacks Rich People Use

Becoming wealthy has a lot to do with your mindset.

The way you think about money really determines how much of it you make, keep and make productive.

If you see abundance, freedom and unlimited opportunities, you’ve set the path towards wealth.

But if you see scarcity, few choices and limited opportunities, you will be your own barrier. 

Here are seven specific mindset hacks you can use to think in a way that will help you attract wealth. 

1. Money is Something They Make

Rich people think beyond earning an hourly or monthly salary.

They think more like an entrepreneur, and they look at all the possibilities for making money.

Once they have made money, they make that money work hard for them, since they are very aware that money itself is a source of more money.

One of the most efficient ways to make money work hard for you is stock investing. If you want to learn how to invest in a way that gives a high return, you can read more about that here.

2. They Think Positively About Money 

First of all, they see an abundance of money. They are not ashamed of wanting plenty of it, because they see the source as infinite.

This is crucial. If you see a shortage of money, you will feel that you take something from someone else every time you get some more. People who believe in a shortage of money, tend to feel shame about wanting money. 

They also focus on all the good things they can do with the money they earn and they look forward to it as if it’s already done.

Finally, they think positively about rich people. They don’t feel envy if they see a nice car or a beautiful house. Instead of envy, they feel inspired. They think it’s something they deserve too and could decide to have in the future. 

3. They Set Very High Goals    

Wealth isn’t something that accidentally happens to you.

You only become rich if you decide to become rich. You have to set high expectations to get there. 

I once had a coach who talked about 10x’ing your goals. Whatever your financial goal was, you had to make it ten times bigger. Why? Because it would stress you a little, increase your brain waves and make you search for new opportunities.

What is your financial goal?

Wait a second. Did you just think of a monthly salary? Well, that is a mistake. People who become rich think of their net worth – they don’t really care about a salary.

Think of Warren Buffett. He earns $100,000 from his position at Berkshire Hathaway. That’s it. That is his income. Despite that modest annual income, he became the world’s richest man (until he began donating his money to charities).

He would never have gotten there by focusing on his income. He focused on building assets, true wealth. 

4. They Commit to Their Goals  

Successful people keep working at achieving their goals, and they keep trying even when it seems impossible.

They are truly committed to getting what they want and to do what it takes.

They have a very clear understanding that rejections and mistakes are not necessarily a bad thing. As Thomas Edison (the inventor of the light bulb) famously said: “I haven’t failed. I’ve just found 10,000 ways that don’t work.”

True commitment – really deciding to do whatever it takes – is the key to anything you want in life. Rich people understand that there will be challenges in any path you choose and that the important thing is how you handle adversity. Do you let it break you or do you consider it a lesson learned and move on?

5. They Are Good Receivers

Have you ever given a lovely gift and been disappointed with how it was received?

Have you seen someone react with embarrassment and heard them say: 

“Oh, you shouldn’t have. That’s too much.”

Next time you will probably give them something that’s smaller, less embarrassing.

Good receivers see the effort you made in picking the gift. They say something like “Thank you. That is a wonderful dress. You picked my favorite color. How did you know what?”

Next time you will do it again, because they truly appreciated it. 

It’s the same with attracting wealth. You have to feel that you really deserve it and when money shows up, you have to be grateful for it.

Rich people feel they deserve wealth, and they are not ashamed of asking for it. 

6. They Block Out Fear

At the latest annual meeting in Berkshire Hathaway, Warren Buffett said something that astonished me. 

“Fear is like the virus. It strikes some people with far greater velocity than others. Fear is something I never felt financially and Charlie neither.”

That is pretty astonishing. He juggles enormous amounts of money, and he has been through some trying times such as the scandal at investing bank Salomon Brothers that he had to step in to save. 

I think Warren Buffett is a mortal like the rest of us, but I believe he has taught himself to block out fear.

How do you do that?

The more knowledge I have about an investment, the less I worry about the mood swings of the stock market.

In stock investing, having some kind of checklist to take you through the investment decision is key to blocking out fear. You can use my checklist here.

I also find that having cash savings helps me stay cool in both investing and running a business. 

7. They Constantly Learn and Grow

The most expensive words in the English language are: “Yes, I already know that.”

It will keep you from learning and growing. Successful people are aware that there’s a lot they don’t know, and they are humble and constantly try to learn and grow.

Most people have two objections to taking courses: Lack of time and lack of money. Benjamin Franklin once said: “If you think education is expensive, try ignorance.”

If you have any questions or comments, feel free to ask them in my free Facebook group Managing Money Freedom, here

If you want to learn more about investing, you are welcome to download my free e-book here


How to Avoid the Top Seven Beginner Investing Mistakes

How to Avoid the Top Seven Beginner Investing Mistakes

 A lot of new investors are entering the stock market these days.

They are pushed by negative interest rates and lured by the success others have had in a very long bull market. 

But with market volatility running high, these are uncertain times to be a newbie in the market. Trying to invest without knowledge or experience and without a strategy is no better than trying to become rich by gambling in a casino. You need a plan, and you need to avoid the most common pitfalls.

So what are the most typical mistakes that you should avoid? I will tell you right here. 

1. Not Getting Started

This is the first mistake and one of the most common.

People get stuck in analysis paralysis.

They save money, open a trading account, watch YouTube videos, and join investing groups on Facebook.

They do everything – but they don’t invest.

This kind of beginner often has quite a lot of money saved up.

Why don’t they begin?

Ironically, the more money you have the harder pulling the trigger can be. 

This investor doesn’t feel safe. He or she is afraid of making mistakes. They are very good at saving because they fear mistakes in real life too.

What this investor needs is a guide to lean on.

2. Not Having an Emergency Fund

Then there is a completely different kind of newbie who is more risk tolerant and invests every single penny from the beginning. They forget to keep some money for rainy days and catastrophes.

Why is that a problem?

Life is full of unexpected twists and turns.

You could get fired; you could get sick; someone in your family might need you; or your car could break down.

They say that misfortunes never come alone. 

So of course you would lose your job in the middle of stock market crash, forcing you to sell stocks at a loss.  

How big should your emergency fund be? Around three months’ expenses is good.

3. Not Investing Enough

The power of compound interest is magic. But it’s only a little magic if you invest a little money. In order to become financially free, you have to invest more than a little.

Many articles have been written about how far you can go if you stop drinking latte and invest the money instead.

But really, using your latte budget is not nearly enough.

How much is enough? Well, you can easily calculate that with a spreadsheet and a simple formula, and I could do that for you during a strategy call. It’s very nice to know your numbers and know what you need to do to get there.

But until you have your goal set and your monthly target, I would say invest as much as you can. The more you invest now, the sooner you will get there.

4. Not Thinking About Tax benefits

Most people simply don’t give taxes much thought. But you should.

Taxes are going to be your largest single expense. They are worth thinking about and optimizing.

In every country there are accounts that allow you to invest with tax benefits. These are typically retirement accounts like Roth IRA in the states (investment made with taxed money, but payment is tax free) or 401K which are typically matched by your employer.

Some countries also have a system for investing your normal savings with lower or no taxes. In the UK this would be an ISA account. You don’t have to pay taxes on the dividends and returns as long as you stick to the limit of how much you can place in your ISA that year (in 2020 it is 20k).

The rules will be different from country to country, so you will have to figure out which tax efficient accounts are available where you live.

My general advice is to use them.

5. Not Figuring Out If It Is Cheap or Expensive

There are two main types of beginner investors.

There are those who buy shares based on how they have performed in the past. Before investing in a fund, they will look at how much revenue it has made annually the last five years, and they will buy the one with the largest increase. In a way that makes sense, but really it doesn’t – they risk buying at the peak. 

This type of investor has more or less the same system for individual stocks. If it has gone up, it must be good and must continue to go up.

The problem with this kind of thinking is that you cannot extrapolate the past into the future, and they often buy stocks that are very expensive. They also risk buying at the peak and losing a lot of money when the market falls. 

Then you have the other kind of newbie who get the idea that you should buy low and sell high, so they go for what has dipped recently.

But the problem with that is that they still don’t look at the value of the company. Just because something has fallen in value, it doesn’t mean that it’s cheap.

You really have to look under the hood to see what’s there.

If you want to learn how to calculate the value of a company you can learn to do that in my free e-book here.

6. They Lack a Strategy

Some buy stocks and shares the way they shop in a flea market. They randomly notice something and buy it right away.

The problem with shares is that they are so easy to buy. You just open your laptop and push a button. or you can even use your phone.  

The beginner investor might have heard about a company in a podcast. They might have read some strangers eulogy of it in a Facebook group. Or maybe they copy their neighbor’s portfolio. Oh, yes. People do that.

You have to have a strategy, and I will recommend two you can chose between here.

  • If you know that you are not going to research individual companies, I suggest you stick to index investing with ETF’s (Exchange Traded Funds). You should do that through the method called Dollar Cost Averaging where you invest the exact same amount into the same fund every month.
  • If you would prefer to know exactly what your money is doing, would like a greater return – and also know that you  would enjoy researching the companies, I suggest you learn about value investing. This is where you buy stocks in companies when they are on sale in the stock market and sell them again when they are overpriced (or keep them in your portfolio). You can learn about this method in my free e-book.

7. They Seek no Guidance or Education

No one drives a car in traffic without taking lessons and getting a driver’s licens. No one climbs the Himalayas for the first time without preparing and bringing a guide.

Yet, many people believe that they can climb the stock market and read the traffic signs all on their own. The quickest and easiest way to make a good return from investing is to learn from others who have had success doing it.      

Do you want to learn how to evaluate and calculate the value of a company? I teach you how to do that in my e-book Free Yourself. You can download it here.