What are the 'seven simple principles' for beginners to start investing wisely, such as 'the sooner you start, the better' and 'should be automated'?

Many people would say, 'I'm interested in investing to make more money without working, but I'm scared because I don't know what it is, so I can't afford it.' The 'simple' investment that remains unchanged in the rapidly changing financial markets, such as the economic crisis caused by the pandemic of the new corona virus and the

turmoil that individual investors colluded online and caused the stock price of the video game sales chain GameStop to skyrocket. The Seven Principles are explained by Laura Adams, a financial writer with a Master of Business Administration (MBA) from the University of Florida.

7 Strategies to Make Smart Investments at Any Age | Money Girl

◆ 1: Think of savings and investment separately
It's easy to think that 'savings' and 'investment' are similar, but the two are not the same. Both are done to prepare for the future, but savings are basically to prepare for unemployment, sudden spending, and to fund the purchase of new cars and homes. In the case of bank deposits, which are often used for saving money, the risk of losing money is almost zero, but the interest rate is also almost zero. In other words, it is not suitable for investment.

Investing, on the other hand, means putting money at some risk in exchange for the potential for long-term wealth growth. Regarding the balance between savings and money to be allocated to investment, Adams said, 'If you don't have a lot of money that you can use at any time in case of an emergency, it is not recommended to start investing. Money that can be used immediately for sudden expenses. It's a good idea to have at least 3-6 months of monthly living expenses. If you can afford it, you may want to invest according to the principles described below. '

◆ 2: Invest with long-term goals
Putting money at risk means that the amount can be reduced, so you can lose money in a short period of time, such as days, months, or years. However, in the long run, assets will eventually grow, so investment should be at least three to five years ahead, such as 'funds to enroll children in college' and 'funds to live after retirement.' It is suitable for those who want to build assets with an eye on the future of.

There are various types of investment such as stocks, bonds, and real estate, and there are various types of stocks alone depending on the size of the company and the type of industry. According to Adams, the average yield of stock investment with diversified investment destinations, that is, the general investment method of buying various types of stocks little by little, is 10%. Even if you get a yield of only 7%, if you can invest 400 dollars (about 50,000 yen) every month for 40 years, you will get more than 1 million dollars (about 125 million yen) when you retire. It will be the calculation obtained.

Therefore, Mr. Adams said, 'As for retirement funds, 10 to 15% of total income is a guideline for the lower limit of investment amount. However, this is money that is added to the above-mentioned savings, so if there is no emergency money That is the priority. '

◆ 3: Start now
'When to start investing' is an important point because investment has a

compound interest effect , that is, the profit obtained from the investment is further profited and the asset amount increases exponentially.

Adams tried simulating the wealth of two investors with the same investment amount and yield, but with different timings to start investing. The conditions and results are as follows.
Investor A Investor B
Investment start 35 years old 25 years old
end 65 years old 65 years old
Investment amount $ 200 / month $ 200 / month
Average rate of return (annual rate) 8% 8%
Final asset amount About $ 300,000 About $ 700,000

The two investors had the same monthly reserves and similar investment performance, but they started investing only 10 years apart, more than doubling the amount of money they could spend after retirement.

Regarding this, Adams said, 'Unfortunately, many people think,'If you can make a lot of money someday, invest in it', but if you wait until then, valuable time will be wasted. It's never too early to start investing. Even if you can only invest a small amount, it's better to start now than to wait. '

◆ 4: Utilize a profitable system
In most cases, the profits you make from your investment will be taxed. In other words, the profit from investment will decrease by that amount, but there is also a mechanism to exempt taxes to support asset formation. According to Mr. Adams, there are simple welfare pension funds (SEP IRA) that self-employed people can use to fund pensions by investment, and

401k for workers.

In Japan as well, there is a 'small investment tax exemption system ( NISA )' that does not require tax if it is within the amount (tax exempt investment limit) determined every year as a similar system, and the total amount of contributions that individuals accumulate and manage their assets every month. There is an 'Individual Defined Contribution Pension ( iDeCo )' that is deducted from income and is given preferential treatment such as income tax. For details, please refer to the special website of each system.

iDeCo Official Website | iDeCo (Ideco / Individual Defined Contribution Pension) [Official]

NISA Special Website: Financial Services Agency

◆ 5: Do not invest all funds in one stock
According to Adams, even stock trading professionals cannot reliably predict whether the stock price of a particular stock will rise or fall, so it is risky to invest heavily in one stock. For example, in the case of GameStop mentioned above, the stock price was expected to fall due to the slump in business from time to time, so institutional investors short -sold the stock of GameStop (a trading method that makes a profit when the stock price goes down), but most expectations On the other hand, the soaring price caused a big loss.

From this, Adams said, 'In short, betting everything on one company's stock is too risky for the average investor, as any stock can fluctuate in minute increments. The best strategy to get a return is to own a diversified fund. A diversified stock fund is made up of hundreds and thousands of stocks, so you can diversify your risk. ' I advised.

There are various types of diversified funds, but for example, a comprehensive index fund that makes diversified investments in the stocks that make up the

Standard & Poor's 500 Index (S & P 500) , which is a representative stock index in the United States, is applicable. That. It is also recommended to invest in non-equity funds to further diversify risk.

According to Adams, '100-your age' is one guideline for the percentage of stocks in your investment portfolio . When applied to this investment method, for example, in the case of a 40-year-old person, 60% of the money to be invested will be held as stocks, and the rest will be held as bond funds, real estate, cash, etc.

◆ 6: Keep fees as low as possible
Some funds include investment trusts that are managed by professional investors, but many of these are charged with fees and other expenses while they are held. In other words, the yield will drop as much as it costs. For example, in the case of 'operating 100,000 dollars (about 12.5 million yen) for 30 years', the yield including cost drops from 7% to 6%, and the final amount is 200,000 dollars (about 25 million yen). It will make a difference.

Therefore, even if it seems that there is only a slight difference, a fund with a commission of 1% is more advantageous than a fund with a commission of 2%. For example, in the case of diversified funds that invest in stocks, the above-mentioned index funds and exchange- traded funds (ETFs) often have low fees.

◆ 7: Use automatic reserve
“To be successful as an investor, you need to invest continuously over a long period of time, which is best done with automation,” Adams said. Specifically, by using a bank service that automatically transfers a fixed amount from the payee's bank account or savings account to the investment account every month, invest in it without being swayed by economic trends or stock price increases / decreases. It is recommended to go.

Finally, Adams said, 'It's been a few years since I started investing, and when you had reliable savings and assets to fulfill your dreams and lifestyle, you were very much in control of your future. You will be satisfied. '

in Note, Posted by log1l_ks